The decision in Anthoness , although delivered three months earlier, was not mentioned by Owen J.
33 In Badham v Williams (1968) NZLR 728, an appeal from the Magistrates' Court, as the result of the appellant's negligence a power main was damaged and the power supply to a detached flat on the respondent's land was destroyed. The only practical course for the respondent to adopt was to employ an electrician to restore the supply. Had it been possible to reinstate the power main as it stood before the accident the cost would have been about £20. In fact, however, the arrangements of the Auckland Electric Power Board made this impossible. The respondent was obliged to have a different type of installation at a cost of slightly over £136. At 729 Richmond J said:
"The present case is one in which, in my opinion, the cost of replacement provides a prima facie measure of the diminution in value. There was no evidence which established otherwise. …. It is unnecessary for me to deal with the questions which may arise in some other case in which the evidence shows either that replacement or repair was unreasonable or that it brought about an increase in the value of the property. My present view, however, is that no allowance should be made in favour of a defendant for betterment in a case where the plaintiff has had no reasonable choice except to replace or repair in order to obtain restitutio in integrum as regards the use and enjoyment of his property. This appears to accord with the decision in the Gazelle."
34 In the case of a chattel, such as a car, destroyed or damaged by the defendant's fault, but of which the plaintiff has had the benefit of some use, a choice of the type referred to in Badham v Williams is more likely to be available than in the case of a building so destroyed or damaged. In Harbutt's the defendant, while installing equipment under contract in an old mill which the plaintiff used as its factory, destroyed the building by its negligence. The plaintiff was not permitted to rebuild the old mill which was five storeys high. It had to put up a new factory two storeys high though with no more accommodation. The question as posed by Lord Denning MR at 467 was whether the plaintiff was entitled to the actual cost of replacement or was limited to the difference in value of the old mill before and after the fire. At 468 his Lordship said:
"The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case."
35 At 472-3 Widgery LJ said:
"The distinction between those cases in which the measure of damage is the cost of repair of the damaged article, and those in which it is the diminution in value of the article, is not clearly defined. In my opinion each case depends on its own facts, it being remembered, first, that the purpose of the award of damages is to restore the plaintiff to his position before the loss occurred, and secondly, that the plaintiff must act reasonably to mitigate his loss. If the article damaged is a motor car of popular make, the plaintiff cannot charge the defendant with the cost of repair when it is cheaper to buy a similar car on the market. On the other hand, if no substitute for the damaged article is available and no reasonable alternative can be provided, the plaintiff should be entitled to the cost of repair. It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force. The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. Nor do I accept that the plaintiffs must give credit under the heading of 'betterment' for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them."
36 At 475-6 Cross LJ said:
"….but in my judgment the value of the building and of the plant and machinery before the fire throws no light on the true measure of damage in a case like this where it was obviously right for the plaintiffs to rebuild and re-equip their factory and start business again as soon as possible. Further, I do not think that the defendants are entitled to claim any deduction from the actual cost of rebuilding and re-equipping simply on the ground that the plaintiffs have got new for old. It is not in practice possible to rebuild and re-equip a factory with old and worn materials and plant corresponding to what was there before, and such benefit as the plaintiffs may get by having a new building and new plant in place of an old building and old plant is something in respect of which the defendants are not, as I see it, entitled to any allowance. I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines."
37 The approach is no different whether the destruction of or damage to property results from breach of contract or negligence. In Harbutt's the plaintiff sued for both breach of contract and negligence.
38 In Hoad the plaintiffs' tractor and mower used in their business as dairy farmers were destroyed by fire as a result of the defendants' admitted negligence. The plaintiffs' business required them to replace the tractor and mower urgently to avoid crop losses. They were not able to obtain a suitable comparable second-hand tractor or mower. Accordingly, they purchased a new tractor and a new mower to mitigate their loss. The question was whether the fact that the plaintiffs, by the purchase of new equipment to replace old, had become better off after the fire should be taken into account in measuring their damage. The majority, Moffitt P and Hutley JA, thought that it should. Hutley JA at 97 was persuaded that Harbutt's could not stand with the judgment of the House of Lords in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673.
39 Samuels JA dissenting held that the duty to mitigate and the need for a replacement taken together made it reasonable for the plaintiffs to purchase new equipment and that in these circumstances they were entitled to recover as damages the whole of the cost of that equipment without any deduction based upon the advantage which they had obtained by acquiring new equipment for old. Part of the factual circumstances of Hoad's case was that the plaintiffs had proposed to give up the lease of the property on 30 June 1976, which was approximately eighteen months after the fire. The trial took place in March 1976. The trial Judge said:
"His replacing of the equipment, however, I think leaves him better off than before his loss. He intends to sell this equipment with the farm at the end of this financial year so that in July he will be left with the price of equipment which is substantially more valuable than that which he lost, and will have lost no profits."
40 At 94 Moffitt P said:
"As has been repeatedly said, the assessment of damage is a question of fact in each case. The assessment in the Wayne Tank case depends, in my view, upon the particular facts of that case. To replace the destroyed building, capital had to be laid out to erect a like building in the only way it could be, namely with new materials. The plaintiffs were not in the business of buying and selling factories. They needed the replacement factory for indefinite use. There was no question of it being sold. Prior to its destruction there was no contemplation of reconstructing it in the foreseeable future. The facts in the present case are quite different. Farm equipment depreciates rapidly, and it is either written off or is replaced at short intervals. Planned replacement at short intervals was in fact the business practice of the plaintiffs. If this practice would have continued, then the consequence of the fire was merely to accelerate the inevitable capital expense of acquiring a new tractor and mower."
41 A little later in his judgment the President said:
"If the wide general proposition contended for by the respondents be correct, then, where the result of a wrong is that substantial expenditure has to be incurred when in any event it would have to be incurred, but a very little later, then the award of damage would be the total expenditure, although in truth it bears no relation to a true loss."
42 In the present case there was no suggestion that at or about the time the pavement failed substantial expenditure would have been incurred in replacing the pavement in any event.
43 The President thought his decision was consistent with the decision of the House of Lords in British Westinghouse. In that case a contractor supplied a railway company with turbines deficient in power and not in accordance with the contract. The railway company, whilst reserving its right to sue for damages for breach of contract, used the turbines for a time but ultimately replaced them with other turbines of a different make and design. An arbitrator stated a special case for the opinion of the court as to whether, in the circumstances, the cost of the substituted turbines was recoverable by the railway company from the contractor as part of the damages. The arbitrator found that the purchase of the new machines by the railway company was a reasonable and prudent course and mitigated or prevented the loss or damage which would have been recoverable from the contractor if the railway company had continued to use the contractor's defective machines in the future. He also found that the purchase of the machines was to the pecuniary advantage of the railway company and that the superiority of the new machines in efficiency and economy over those supplied by the contractor was so great that, even if the contractor had delivered to the railway company machines in all respects complying with the conditions of the contract, it would yet have been to the pecuniary advantage of the railway company at its own cost to have replaced the machines supplied to it by the new machines as soon as the latter could be obtained.
44 In a speech with which the other members of the House of Lords agreed, Viscount Haldane LC said at 689:
"Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James LJ in Dunkirk Colliery Co v Lever [1878] 9 ChD 20 at 25, 'the person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.'
As James LJ indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act."
45 His Lordship distinguished the "res inter alios acta" cases where what was relied on as mitigation did not arise out of the transactions the subject matter of the contract. Where delay in the discharge of a ship of the plaintiffs led to a loss of the passengers the plaintiffs had contracted to carry, the damages were not reduced because the same persons took passage in another vessel belonging to the plaintiffs; Jebsen v East and West India Dock Co (1875) LR 10 CP 300. The measure of damages for breach of a covenant by a lessee to deliver up the demised premises in repair was not affected by the fact that the lessee had granted a lease to another lessee to commence from the expiration of the term of the first lease and the new lessee had made no claim to be reimbursed the cost incurred in repair after the expiration of the first lease; Joyner v Weeks [1891] 2 QB 31. At 691 Viscount Haldane said:
"I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach. Apart from the breach of contract, the lapse of time had rendered the appellants' machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up-to-date machines."
46 The House of Lords concluded that the arbitrator in assessing damages should take into account that the purchase of the new machines was to the pecuniary advantage of the railway company and that their superiority in efficiency and economy over those supplied by the contractor was so great, that even if the contractor had delivered to the railway company machines in all respects complying with the conditions of the contract, it would yet have been to the pecuniary advantage of the railway company at their own cost to have replaced the machines by the new machines so soon as the latter were to be obtained. Clearly enough the House of Lords decision is distinguishable from the present in the sense that there were factors to be taken into account in assessing damages of a kind absent from those found in this case.
47 Bearing in mind that an assessment of damages is a finding of fact, in the sense that it is the function of a jury properly instructed, I do not agree with the proposition advanced by Hutley JA in the passage I have referred to that the decision of the Court of Appeal in Harbutt's cannot stand with the judgment of the House of Lords in British Westinghouse. The facts were different. The factory owner had no choice but to build the replacement factory which it did. On the other hand the railway company chose, albeit for good commercial reasons, not merely to replace the turbines but to purchase a superior version. In Hoad Samuels JA in his dissenting judgment carefully reviewed the authorities and said at 103:
"It follows that no deduction can be made by dint of any doctrine of betterment. It might be different if the new tractor had been of greater capacity than the old, or of superior performance; cf British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd. But there was no such evidence. The new tractor was no more than a replacement for the old, and as nearly equivalent as the circumstances in which the plaintiffs were placed would permit."
48 His Honour went on carefully to examine the facts in British Westinghouse at 104 and following and said at 107:
"Several observations may be made about this decision. First, since it concerned the assessment of damages for breach of contract and not for a tort, the essence of the respondent's claim was for the loss of its bargain. In such a case, as Viscount Haldane pointed out, the respondent was entitled to recover the economic value of the bargain, that is, to be placed in as good a situation as if the contract had been performed. Secondly, the respondent's bargain was to have machines of a certain standard of efficiency and economy according to the stipulation in the contract. Thirdly, the respondent was entitled to recover the extra expense incurred in running the appellant's machines up to the time they were replaced by the Parsons machines. Fourthly, they did not replace them with comparable machines, but with more efficient and economical machines, and thus obtained for themselves a better bargain than that which the appellant had promised to provide; and fifthly, they did so at a time when the appellant's machines had become obsolete and due for replacement in any event.
It seems to me that when the matter is analysed in this way, it becomes reasonably plain that the respondent could not have been entitled to an award of damages which would have given it a greater advantage than that which it would have enjoyed had the appellant's bargain been faithfully carried out. The basis of the decision can be readily understood; but the principle for which the case stands is of comparatively narrow application. This may be seen from the later cases in which that principle has been invoked. It is not a means of applying some doctrine of betterment, merely because a plaintiff gets new for old, and I can find no case in which it was employed for that purpose. I would suggest that the reason why the British Westinghouse case was apparently not cited in Harbutt's case was because it was irrelevant to the circumstances of that case, as it is, I think, to the situation of the present plaintiffs. The critical fact in the British Westinghouse case was that the respondent had acquired improved machines of greater efficiency and economy, and had made profits from their use which it could not have achieved by using the old machines. Nothing of that kind occurred in Harbutt's case, where the new mill was of no greater capacity than the old; nor in the present case, there being no evidence that the new tractor was any more efficient than the old, and no evidence that it increased the plaintiffs' profit. Application of the rule in the British Westinghouse case relevantly requires some use of the substitute which the plaintiff has obtained which can be said to form part of a 'continuous dealing with a situation in which the plaintiff has found himself as a result of the defendant's breach of contract or of duty."
49 Samuels JA thought that the principle expounded in the British Westinghouse case had no relevance to Hoad's case. Even more certainly, in my opinion, does it have no relevance to the present case. The plaintiff had no reasonable choice but to replace the defective pavement with new pavement.
50 In Murphy v Brown [1985] 1 NSWLR 131 at 133 Mahoney JA in reasons for judgment with which Hope JA agreed said at 133:
"In some cases, to put the plaintiff in the physical position in which, uninjured, he would have been will result in his being financially in a better position than he was. Thus, it may be that to give the plaintiff what he had before, eg, a factory, would result in his being in a better financial position than he was: a new factory may be worth more than the factory that he had. In such circumstances, the sum to be awarded will sometimes, though not always, be reduced: cf Harbutt's case. Rules of this kind are, in principle, directed to ensuring that the plaintiff has, but has no more than, what will put him in his uninjured position.
But there is a further rule which operates by way of qualification of the general principle. Where a plaintiff claims the cost of the work necessary to put him or his property in the pre-injury condition, the work must not merely be necessary for that purpose but 'it must be a reasonable course to adopt' to do that work: Bellgrove v Eldridge (1954) 90 CLR 613 at 618. And, as the defendant's argument here suggested, it will not normally be reasonable to spend, for example, $4,000 to restore a vehicle which, undamaged, was worth, say, $1,000."
51 In the recent New Zealand case of J & B Caldwell v Logan House Retirement Home [1999] 2 NZLR 99 Fisher J noted at 106 that "two somewhat extreme positions" had been taken over betterment. At 107 his Honour expressed the view that neither of those extremes fully accorded with the fundamental object of damages to restore financially the plaintiff to no more and no less than the position which it would have occupied if the contract had been performed. His Honour regarded the logical middle ground to be to make a deduction for betterment but only after allowance to the plaintiff for any disadvantages associated with the involuntary nature of the additional investment.
52 Fisher J referred to the decision of the Ontario Court of Appeal in James Street Hardware and Furniture Co v Spizziri (1987) 62 OR (2d) 385. At 403-4 the Court of Appeal of Ontario quoted from Waddams, The Law of Damages (1983) [see now the 2nd edition (1991) at 1.2730 and following] and summarised what Dr Lushington said in The Gazelle about the plaintiff being obliged to submit to "some loss or burden" and what Widgery LJ said in Harbutt's about "forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them". The Court of Appeal went on:
"These considerations, however, do not necessarily mean that in cases of this kind the plaintiff is entitled to damages which include the element of betterment. As Waddams suggests, the answer lies in compensating the plaintiff for the loss imposed upon him or her in being forced to spend money he or she would not otherwise have spent - at least as early as was required by the damages occasioned to him by the tort. In general terms, the loss would be the cost (if he has to borrow) or value (if he already has the money) of the money equivalent of the betterment over a particular period of time."
53 However as there was no evidence on the effect of the replacement of new for old components on the value of the building, the Court of Appeal concluded that there was no reasonable basis for a deduction on account of betterment and pointed out that the trial judge had not considered the concomitant question of loss flowing to the plaintiff if its compensation was reduced by the deduction for enhancement.
54 In a sense the British Westinghouse case may represent the middle ground. However, the context was that the railway company had replaced the defective turbines with superior turbines. In my opinion, if a defendant negligently damages or destroys the plaintiff's property and there is no evidence that the plaintiff had any reasonable choice other than to replace or repair what had been damaged or destroyed, the cost of replacement or repair, provided it is not extravagant, is recoverable as damages. In each case it is a question of fact.
55 The facts in Hoad and British Westinghouse are distinguishable from the facts in this case. The plaintiff had no choice but to replace the defective pavement with new pavement. It could not do so by paying less for a four year old pavement. There was no evidence of any advantage to the plaintiff beyond the speculative proposition that the new pavement might last longer than the old one would have, if it had been properly laid. Moreover as Giles JA has remarked in his reasons for judgment, it is not appropriate to use a "crude percentage discount" to reduce the amount awarded. Ordinarily if such a reduction is to be made the formula mentioned in Waddams and referred to with approval by the Court of Appeal of Ontario should be applied. On the evidence in this case, no allowance should have been made for betterment and this ground of cross-appeal fails.
56 GILES JA: Wilh Wilhelmsen Agency Pty Ltd ("the owner") owned industrial premises at 1 Hale Street, Botany. Oswalds Pty Ltd ("the occupier"), then a wholly owned subsidiary of the owner, conducted a container terminal at the premises as lessee from the owner. The owner decided to redevelop the premises. It engaged James Thiessen & Associates Pty Ltd ("the architect") as its primary consultant for the project.
57 The redevelopment included a new area of pavement. The architect engaged Acer Wargon Chapman (NSW) Pty Ltd ("the engineer"), later known as Hyder Consulting Australia Pty Ltd, to provide engineering services, including the design and documentation for the pavement. The conditions on which the engagement was made included that the engagement was with the owner and that as primary consultant the architect would be coordinating all services.
58 In March 1994 the architect provided the engineer with design load information for the pavement. The information included that the pavement should be designed "for 8 tonne and 10 tonne container forklifts", meaning forklifts capable of lifting 8 tonne and 10 tonne containers, and that a particular number of repetitions was to be assumed and that the pavement should have a life expectancy of approximately 20 years. Within a short time the engineer prepared a design for the pavement and supplied it to the architect. The design was appropriate for the design load information as provided.
59 In March 1995, before the construction of the pavement commenced, the owner informed the architect that it proposed to acquire a forklift capable of lifting much heavier containers. In April 1995 the occupier provided to the architect information relevant to design load for the pavement consequent on the use of the larger forklift.
60 The architect should have sent this information to the engineer so that modification of the pavement design could be considered. The trial judge accepted that the architect faxed the information to the engineer, but also accepted that the fax was not received by the engineer. Nothing was done by the architect to confirm that the information had been received by the engineer, and the trial judge was not satisfied that the proposal to acquire the larger forklift was made known to the engineer in discussion at an earlier site meeting or in a later communication between the architect and the engineer.
61 Had the engineer been made aware or become aware of the information, the pavement design would have been modified to withstand the heavier loads consequent on the use of the larger forklift. It was not modified. The pavement was constructed in June 1995. Within a short time it began to fail under the loads to which it was subjected.
62 Early in 2000 the owner brought proceedings against the architect and the engineer, alleging that each had been negligent in the provision of its services. On 6 November 2000 Sorby DCJ held that each had been negligent, that the owner had not been contributorily negligent, and that as between the architect and the engineer liability should be apportioned equally. He assessed the owner's damages at $578,163.
63 The engineer appealed in relation to liability, damages and the apportionment of liability. The architect cross-appealed in relation to damages. The owner cross-appealed in relation to interest on its damages.