Hamann v Taleb

Supreme Court of NSW|2021-11-25|Before: Lindsay J

Solicitors: Plaintiffs: Ziman & Ziman Solicitors Defendants: Self Represented File Number(s): 2021/00175667

INTRODUCTION

The plaintiffs, as purchasers of real estate, sue the defendants, their vendors, for an award of damages (so called "equitable damages") under section 68(b) of the Supreme Court Act 1970 NSW for a loss incurred by them consequent upon the defendants' delay in attending to completion of the parties' contract.
Completion occurred only after the plaintiffs obtained an order from the Court, in these proceedings, that the contract be specifically performed. That order enlivened the Court's jurisdiction to award damages under SCA section 68(b): McKenna v Ritchey [1950] VLR 360; Cowan v Cavanagh [1978] VR 665 at 667; Neylon v Dickens [1987] 1 NZLR 402.
The plaintiffs' loss took the form of a liability to pay an increased rate of interest on funds borrowed for the purpose of purchasing the property.
The plaintiffs entered the contract with a loan approval from their bank which included a fixed rate of interest for the first four years of a 30 year term. As a result of delay in completion of the contract, the bank withdrew its approval and substituted a fresh approval which provided for an increased rate of interest during the first four years of the loan.
The plaintiffs did not, before entry into the contract, inform the defendants of the fact that they intended to borrow funds in order to purchase the property or the proposed terms upon which funds were to be borrowed. There is no evidence that the defendants knew, or ought to have known, that the plaintiffs' funding arrangements were susceptible to change within the foreseeable future. The defendants could not have known, unless informed by the plaintiffs, that the particular terms of the plaintiffs' loan approval enabled the plaintiffs' bank, within a material timeframe, to withdraw its loan approval and to substitute another approval at an increased rate of interest.

THE FACTUAL MATRIX

By a contract dated 9 January 2021 the plaintiffs agreed to buy and the defendants agreed to sell a residential property at Bexley.
The plaintiffs contracted to buy the property with a subjective intention to live there, using it as a family home, indefinitely. There is no evidence that that intention was communicated to the defendants before the parties' contract was made.
The contract required the parties to complete the transaction by 8 March 2021, failing which it provided for the service of a 14 day notice to complete for the purpose of making timely essence of the contract.
Although the plaintiffs were ready, willing and able to complete the contract on 8 March 2021, the defendants were not. They were waiting upon a tax clearance in order to avoid having to make provision for the payment of taxation from the sale proceeds. If they were required to make such provision, they would have insufficient funds to discharge a mortgage registered on their title to the property. The contract completion date passed without completion.
On 23 March 2021, the solicitor then acting for the plaintiffs served on the defendants a notice to complete appointing 6 April 2021 as the time for completion of the contract. Service of a notice to complete is not a pre-requisite for an application for specific performance. For a party anxious to secure performance of a contract, not intending to rescind it, the service of a notice to complete can be counter productive, as illustrated by Dainford v Yulora Pty Ltd [1984] 1 NSWLR 546 at 550. In the present proceedings, the only consequence of the plaintiffs' service of a notice to complete was to allow the defendants further time to complete before being confronted with a summons for specific performance including, as events transpired, a claim for damages.
Although the plaintiffs were ready, willing and able to complete on 6 April 2021, the defendants were not. The date passed without completion.
The plaintiffs retained a new solicitor.
On 9 April 2021 he informed the solicitor then acting for the defendants, via a telephone call and email, that the plaintiffs' lender, a bank, required settlement of the contract to occur on or before 19 April 2021, after which the plaintiffs' then current loan approval would be withdrawn.
The object of the bank was not to deny loan funds to the plaintiffs, but to enable it to increase the rate of interest the bank proposed to charge. The bank had agreed to charge interest at the fixed rate of 1.99% per annum for the first four years of the loan term. In the event, when the loan was finally drawn down, upon completion of the contract on 21 July 2021, the interest rate was raised to 2.24% per annum.
On 12 April 2021 the parties' respective solicitors had a telephone discussion in which the solicitor for the defendants asked whether the plaintiffs were prepared to pay an increased price for the property in order to cover an anticipated tax liability of the defendants.
On the same day the solicitor for the plaintiffs sent an email to the solicitor for the defendants seeking information about the defendants' financial circumstances. That email received no reply.
On 19 April 2021 the solicitor for the plaintiffs wrote a letter to his counterpart (copied to each of the defendants) in which, having advised that the plaintiffs were "not willing to meet any additional expenses", he wrote the following: "… It is clear that your clients [the defendants] are unable or unwilling to complete this transaction and that they have thereby repudiated the Contract exchanged on 9 January 2021. A Notice to Complete was served by [the plaintiffs' first solicitor] on 23 March 2021 and time was made an essential element of the Contract. The Notice to Complete was not complied with. Please note that the repudiation of the Contract by your clients is not accepted and the Contract is affirmed (and requires completion and settlement) but your clients are being held liable for all and any damages that may be sustained by [the plaintiffs]. In particular the interest rate being charged by the [the plaintiffs' Bank] is increasing as from today. The difference between the rate originally agreed to by [the plaintiffs] and the increased rate will be for your clients' account in due course. … We put you on notice that if your clients do not attend to whatever is outstanding and if the matter does not settle within the next 30 days (which we consider to be a more than reasonable timeframe) we shall recommend to [the plaintiffs] that they take such steps in the protection of their interests as may be appropriate which will obviously include a claim for payment of their damages. …"
On 19 May 2021 the solicitor for the defendants wrote to the solicitor for the plaintiffs advising that one of the defendants was "still awaiting receipt of [a] Foreign Resident Gain Withholding Clearance Certificate" from the Australian Tax Office, with whom he had lodged a complaint about its delay. He also recorded that his "client" [sic] was "eager for this matter to settle without further delay".
On 31 May 2021 the plaintiffs lodged a caveat against the title to the property and, through correspondence between solicitors, pressed the defendants to confirm that the contract could be completed on 7 June 2021.
The contract was not completed on 7 June 2021 or at any time before the plaintiffs' commencement of these proceedings.
On 9 June 2021 the solicitors for the plaintiffs wrote to the solicitors for the defendants indicating, inter alia, that if the contract was not completed within the following seven days the plaintiffs would commence court proceedings.
On 18 June 2021 the plaintiffs attended upon a duty judge and filed their summons commencing these proceedings, with leave to serve short notice of the summons on the defendants.
After further appearances before the Court, and unsuccessful attempts to arrange for the contract to be completed, on 15 July 2021 a duty judge, with the consent of the parties, made a declaration that the contract ought to be specifically performed, ordered that it be specifically performed, gave detailed directions for the process to be followed in completion of the contract and awarded the plaintiffs costs in the sum of $12,000.
The Court's directions provided a scheme for the application of the money payable by the plaintiffs on completion, culminating with a direction that (after the payment of specified debts) "the balance of the purchase price" be paid into court until further order. The orders reserved for "further case management … [the] remaining relief sought in the summons, including the plaintiffs' claims for damages, interest and costs" and "[the] determination of any competing claims upon the funds in court …"
The contract was completed on 21 July 2021.
On 23 July 2021 the sum of $70,865.01 was paid into Court as mandated by the parties' consent orders.
It is from that fund (with any accrued interest) that the plaintiffs seek to enforce their claims for damages, interest and costs.
The defendants have elected not to appear on the hearing of those claims.

The Plaintiffs' Loss Not Recoverable as Common Law Damages

Upon their failure to complete the contract on or before the contract completion date, the defendants were in breach of their obligation to perform the contract. At common law, they had an exposure to liability for damages to the plaintiffs: Raineri v Miles [1981] AC 1050; Louinder v Leis (1982) 149 CLR 509 at 513 and 526.
As a general rule, an award of damages for breach of contract is designed to place an innocent party in the same situation, so far as money can do, as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365; Wenham v Ella (1972) 127 CLR 454 at 471.
That general rule is qualified by a limitation on the innocent party's entitlement to recover damages - that the loss in respect of which the claim for damages is made is not too remote.
Classically, the test of remoteness on a claim for damages in contract is governed by the following observations in Hadley v Baxendale (1854) 9 Exch 341 at 354; 156 ER 145 at 151 (with emphasis added), conventionally spoken of in terms of two limbs: "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such breach of contract itself, 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 of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract."
In Wenham v Ella (1972) 127 CLR 455 at 471, Gibbs J approved the following exposition of "the rule in Hadley v Baxendale" by Lord Reid in C. Czarnikow Ltd v Koufos [1969] 1 AC 350 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."
In my opinion, upon an application of common law rules the loss for which the plaintiffs seek an award of damages is too remote to ground a cause of action for damages in contract.
It does not fall within the first limb of Hadley v Baxendale because it does not naturally arise from the defendants' breach. In the ordinary course, a vendor of land has no legal interest in how a purchaser funds a purchase, whether by way of internal or external sources. In the negotiation and performance of a standard contract for the sale of land (such as the present contract) the essence of the transaction is an exchange of an agreed purchase price for title to the land, after investigation of the vendor's title. Whether (and, if so, upon what terms) a purchaser borrows to fund the purchase is of no particular concern to the vendor and none of the vendor's business. There is no continuing relationship beyond completion of the contract. If either party would have it otherwise, that fact must, at least, be brought to the attention of the other party before their contract is made.
The plaintiffs' loss does not come within the second limb of Hadley v Baxendale because, before entry into the contract, the plaintiffs did not make known to the defendants (if they themselves knew) that their loan approval was liable to be withdrawn, and replaced by a less favourable one, in the event of delay beyond a specified point.

The Nature and Scope of SCA section 68(b): The Availability of "Equitable Damages"

These findings focus attention on the nature of an award of damages under the Supreme Court Act 1970 NSW, section 68.
Can the plaintiffs, under section 68, recover damages for a loss too remote to warrant an award of damages at common law?
For the reasons which follow, I answer that question in the affirmative.
An award of equitable damages against a vendor of land for delay in breach of contract (in addition to an order for specific performance) is an orthodox illustration of Lord Cairns' Act in operation, as confirmed by Fry On Specific Performance, paragraph [1307], citing Jones v Gardener [1902] 1 Ch 191 which, in turn, cited Jaques v Millar (1877) 6 Ch D153, a common point of reference.
Damages cannot be awarded under the legislation for "mere delay" (that is, without proof of damage). Daniell's Chancery Practice (5th edition, 1871), Volume 1, at page 947, expressed this point in the following terms (omitting a footnote): "Unless special damage can be shown to have been caused by the delay, the Court will not, in addition to decreeing the specific performance of a contract, award damages on account of its non--performance."
What was here meant by "special damage" appears in the authority cited in support of the text: Chinnock v Marchioness of Ely (1864) 2 H & M 220; 71 ER 447 (reversed on a finding of "no contract" at (1865) 4 DE G J & B 638; 46 ER 1066), where Rolt QC, Cairns QC and Fry failed to persuade Vice Chancellor Sir William Page Wood to award damages under what was then called Sir Hugh Cairns' Act.
Having decreed that a contract be specifically performed, the Vice Chancellor said (with emphasis added): "On the question of damages, I will mention the case again. I do not know that I can give any damages for the mere delay [in performance of a contract], in the absence of any proof of special injury to the plaintiff from the non-performance of the contract."
Having stood over for judgment "the point reserved upon the question of damages", the Vice Chancellor said (with emphasis added): "With reference to this point, I have caused enquiries to be made as to whether any case could be found in which damages were awarded for the non-performance of a contract where no special injury was shown to have been caused by the breach, but no case has been found to that effect. In the present case, although there are in the bill allegations of damage sustained by the plaintiff, it has not been proved that he has sustained any special injury either from loss of value in the property, or on the ground of engagements on his part entered into by him on the faith of the contract. I therefore think the case is not one in which I should exercise the power given by the Act (21 & 22 Vict. c. 27). The decree must be for specific performance, but without damages."
Of significance to the present proceedings is the Vice Chancellor's acceptance that damages could be awarded under the legislation by reference to "engagements entered into … on the faith of the contract". The loan funds used by the plaintiffs to purchase the property the subject of these proceedings were borrowed on terms set after the date of the contract but in reliance upon its currency.
"Equitable damages" in respect of a contract for the sale of land which has gone off are assessed on a different basis from damages at common law: Mills v Ruthol Pty Ltd (2004) 61 NSWLR 1 at [67].
According to their nature, common law damages are recoverable as of right in defined circumstances and assessed according to established rules. According to their nature, equitable damages are within the discretion of the Court upon proof of an equity for relief by way of specific performance (or an injunction): G Jones and W Goodhart, Specific Performance (Butterworths, London, 1986), page 225.
On the facts of a particular case, an award of equitable damages may be made upon an exercise of discretion notwithstanding that: 1. the general rule is sometimes said to be that, if a defendant has committed a common law breach of contract, damages awarded under section 68(b) should generally be the same as they would be at common law: ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512 at 516G-517B; Rosser v Maritime Services Board of NSW (No 2) (1996) 14 BCL 375 at 380; Jones and Goodhart, Specific Performance, page 222; and 2. on a claim for equitable damages for a delay, it is sometimes said that the Court should have regard to damages which may be reasonably said to have naturally arisen from the delay, or what may be reasonably supposed to have been in the contemplation of the parties as likely to arise from the partial breach of the contract: Jaques v Millar (1877) 6 Ch 153 at 159-160; Griffin v Mercantile Bank (1890) 11 NSWR (Eq) 231 at 248, 253, 258 and 261.
An award of damages under section 68(b) is a statutory remedy not governed by common law rules but available if a plaintiff makes out an equity for relief by way of specific performance: Madden v Kevereski [1983] 1 NSWLR 305 at 306G-307D.
The pithy terms in which powers to award damages have been conferred by SCA section 68 invites elaboration in particular cases. Nevertheless, as Helsham CJ in Eq obliquely stated in Madden v Kevereski at [1983] 1 NSWLR 307E by reference to a case note published in (1983) 57 ALJ at 1-2, the Court should be slow "to discern unexpressed restrictions on the scope of the broad powers conferred by [Lord Cairns' Act]". In short, the text of SCA section 68 should be read with a minimum of judicial gloss. The same point was made by Dr I.C.F. Spry in Equitable Remedies (Law Book Co, Australia, 9th ed, 2014), pages 658-659.
Section 68 is the current form of legislative provision that re-enacts in NSW what was originally enacted in England as section 2 of the Chancery Amendment Act 1858 (Eng), 21 & 22 Vict c 27, known colloquially as Lord Cairns' Act after Sir Hugh Cairns QC, later Lord Cairns: P.M. McDermott, Equitable Damages (Butterworths, Australia, 1994), Chapter 2.
The NSW antecedents of section 68 are section 32 of the Equity Act 1880 NSW and section 9 of the Equity Act 1901 NSW.
It is generally accepted that differences in the form of the legislation are inconsequential. A claim for damages under section 68 is commonly referred to as a claim for damages under Lord Cairns' Act.
The legislation was first enacted (in both England and NSW) at a time when rules of common law and principles of equity were separately administered in the court system. In historical terms, it can be viewed as a step taken towards the adoption of a Judicature Act system of court administration in which the common law and equity jurisdictions are administered within the one court and can be exercised by a single judge of that court in the one set of proceedings. An inability, or perhaps more accurately a disinclination, of equity judges to award the common law remedy of damages was addressed by conferral upon equity judges of a statutory jurisdiction to award "damages" in addition to, or in substitution for, an injunction or an order for specific performance.
A unique character of the legislation is that it survived the introduction of a Judicature Act system of court administration, both in England (upon commencement of the Judicature Acts of 1873 and 1875) and in NSW (upon the commencement of the Supreme Court Act 1970 NSW in 1972). Although all judges in a Judicature Act system of court administration are empowered in the one case to exercise common law and equitable jurisdiction, the statutory power to award damages in aid of an equity for relief by way of specific performance remains a distinct head of jurisdiction.
In Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 677 the High Court of Australia observed that the power of a court in a Judicature Act system of court administration "to award common law damages in a case in which equitable relief is sought in respect of a legal right diminishes the importance which section 68 would otherwise have, though in some cases it may still be necessary to distinguish between the two sources of power". This is such a case.
Echoing Lord Cairns in Ferguson v Wilson (1866) LR 2 Ch 77 at 91-92, the High Court (in Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 676) observed that the main object of Lord Cairns' Act was to enable the Court of Chancery to do "complete justice" between parties by awarding damages in those cases in which it had formerly refused equitable relief in respect of a legal right and left the plaintiff to sue for damages at common law. An incidental object of the Act was to enable the Court to award damages in lieu of an injunction or specific performance, even in the case of a purely equitable claim.
In Madden v Kevereski [1983] 1 NSWLR 305 at 307C-D, Helsham CJ in Eq recorded the view that "[the] damages which the Court may award under section 68 are sui generis; the power to award them is a power to enable the court to do complete justice so far as equity considers it ought to be done, by supplementing with money the equitable remedy, or attempting with money to substitute a remedy".
In Equitable Damages (1994) at 119-120, McDermott wrote the following (with emphasis added and footnotes omitted) "If a court decides to award equitable damages it is not necessary for it to have regard to common law considerations such as foreseeability and remoteness. These considerations do not limit a court of equity, particularly not where a court considers that a plaintiff should receive full compensation for the loss sustained. They are not relevant where an award of compensation is made to restore a loss caused by breach of an equitable obligation [noting, inter alia, Re Dawson [1966] 2 NSWR 211]. They are also not always relevant to a statutory remedy of damages. In Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) 16 FLR 410; 75 ALR 271 Gummow J observed that common law analogies of causation, remoteness, and measure of damage will not necessarily provide sufficient guidance in assessing damages under section 82 of the Australian Trade Practices Act, particularly as that 'statute evinces an intention to supplement the common law or, further, to travel into new fields'. Similarly, as Lord Cairns' Act enables damages to be awarded in situations where no common law remedy exists, an assessment of equitable damages cannot be constrained by common law concepts. A more appropriate analogy for the assessment of equitable damages is the method of assessing equitable compensation. The courts of common law and equity have traditionally applied different principles when assessing damages and equitable compensation. In United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 816 McLelland J remarked: 'The principles of assessment of equitable compensation do not necessarily coincide with those applicable to common law damages'. In assessing equitable compensation a court of equity recognises the need for restitution for any loss suffered. A court will assess equitable compensation at a date that will maximise the compensation that an innocent beneficiary will be awarded. Any assessment made will have regard to the date when recoupment of the loss is to be effected."
SCA section 68 does not specify a date at which damages should be assessed. They are to be assessed so as to do that which is just as between the parties in the particular circumstances of each case, so far as the Court's special remedies and money can effect this: Madden v Kevereski [1983] 1 NSWLR 305 at 307D-E. This permits an award of damages that includes compensation for acts both before and after the commencement of proceedings: Rosser v Maritime Services Board of NSW (No 2) (1996) 14 BCL 375 at 382.

Application

The defendants' delay in completion of the contract continued after the contractual date for completion (at which time they breached their obligation to complete), and after an express warning given to them by the plaintiffs that if they did not complete the contract on or before 19 April 2021 the plaintiffs would suffer a loss for which they would seek to hold the defendants liable.
The nature of the plaintiffs' loss was such as to diminish their equity in the property under purchase to the extent that their indebtedness to their bank (secured over the property) was greater than it would otherwise have been.
If complete justice is to be done between the parties, an award of equitable damages in favour of the plaintiffs is required to restore the plaintiffs to the position which they would have been in had the defendants completed the contract in a timely manner or, at least, before the plaintiffs suffered their loss.
Although I accept the plaintiffs' expert evidence as mathematically correct, quantification of their damages as $17,944.71 requires adjustments to allow for three factors not otherwise taken into account. First, some allowance needs to be made in favour of the defendants for the time value of money; an award of damages to the plaintiffs "now" needs to recognise that their loss is spread out over time. Secondly, another allowance needs to be made in favour of the defendants for the possibility that, despite the plaintiffs' present intention to live in their new home (and to maintain their present mortgage arrangements) "forever", their loss may be unexpectedly diminished by a sale of the property, with an attendant discharge of their mortgage, a refinancing transaction or some other such event. Thirdly, an allowance needs to be made in favour of the plaintiffs for an award of pre-judgment interest (under section 100 of the Civil Procedure Act 2005 NSW) for the time between completion of the contract and publication of the Court's judgment, when they were kept out of money.
Taking these factors into account, upon an exercise of judgement without pretence of mathematical precision, I determine that, in order to do complete justice between the parties, the plaintiffs should be awarded damages assessed at $15,000.

proposed orders

In the absence of any objection on the part of the defendants, I propose in due course to order that the sum of $15,000 be paid to the plaintiffs, out of the funds in court, in satisfaction of their claim for damages.
Prima facie, the plaintiffs are entitled to an order that the defendants pay their costs of proceedings on the plaintiffs' damages claim on the ordinary basis, but perhaps subject to a limitation as to amount so as to do justice between the parties. I say this because, during the course of argument, the plaintiffs' counsel foreshadowed a claim for costs in excess of the amount of the damages claim. Section 60 of the Civil Procedure Act 2005 NSW directs the Court to have regard to the proportionality of the parties' costs to the importance and complexity of the subject matter in dispute.
In the interests of a final determination of all questions in dispute, I invite the plaintiffs to make an application to the Court, with no more formality than the nature of the application may require, under section 98 of the Civil Procedure Act 2005 NSW for a lump sum costs order. As I presently anticipate events, orders will be made for the plaintiffs to recover a reasonable sum for their costs, in addition to their damages award, out of the funds in Court, leaving a balance to be paid out to the defendants.
I will make no orders dispositive of the proceedings until, as I presently intend, the question of costs is satisfactorily addressed and the funds in court can be fully distributed.
With a view to that happening, the proceedings will be listed before me, in the near future, at a time to be appointed by my chambers on notice to the parties.

Amendments 15 December 2021 - Amendment at [59] 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: 15 December 2021

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Cases Cited (7)

Cited By (1)