Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2009] NSWCA 61 | Case summary

1 McCOLL JA: This is an application for leave to appeal from a decision of McDougall J refusing the applicant leave to amend a cross-claim to insert an alternative claim for damages: Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2008] NSWSC 1248. 2 In the principal proceedings, Walton Construction Pty Ltd, the respondent, seeks declaratory relief in relation to a contract with the applicant to carry out refurbishment and other works in respect of hotel premises at Wollongong of which the applicant was the proprietor. The applicant has cross-claimed against the respondent seeking to recover damages in relation to an allegation of delay in completion of the works and alleged incomplete and defective work: primary judgment (at [1] - [4]). 3 It appears to have been common ground on the amendment application that after the building contract was made the applicant had leased the hotel premises to Vosava Pty Ltd and Gamone Pty Ltd, who, trading together as "Hotel Illawarra", operated the hotel business and thus received its revenues: primary judgement (at [9]). Although entered into after the building contract, the term of the lease was expressed to commence prior to the start of the building works. Other background to the proceedings is set out in McDougall J's reasons. What I have set out sufficiently describes the area of controversy for the purpose of considering the leave application. 4 There were two applications before his Honour: the application to amend the cross-claim and the respondent's application to strike out, inter alia, par 10 of the applicant's cross-claim list statement. 5 The primary judge described the relevant part of the cross-claim as follows: "10. Paragraphs 1 to 9 of Illawarra Hotel's contentions in its list cross-claim statement, allege among other things, the letter of intent, the contract, relevant terms of the contract and what is said to be Walton's failure 'to proceed with due expedition and without delay' so as to complete works by the date of practical completion. A number of particulars of this allegation are given. 11. Paragraph 10 then alleges that by reason of those breaches, Illawarra Hotel suffered loss and damage in that it did not receive the rent that it should have received over the period of delay: said to be 29 November 2006 to 10 July 2007. It appears to be common ground that the claim for loss of rent is made by reference to a lease of the hotel premises from Illawarra Hotel to Vosava and Gamone." (emphasis added) 6 The respondent sought to strike out par 10 contending that the case it propounded was hopeless on the basis that the lease was not an arm's length transaction and that a claim for damages formulated or calculated by reference to such a transaction could not be said to fall within either of the heads of damage for breach of contract recognised in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145: primary judgment (at [15]). The primary judge rejected that application without expressing any view on its merits on the basis that it would require the court to engage in a preliminary trial of factual issues inappropriate to a strike out application: primary judgment (at [16] - [17]). 7 The applicant sought to amend its cross-claim to add the following paragraph: "10A. Alternatively to paragraph 10, by reason of the Cross-defendant's aforesaid breaches, the Cross-claimant has suffered loss and damage in that it was deprived of the benefit of trading profits which would have been received from the operation of the Hotel but have not been received as a result of the delay until 9 July 2007 in the cross-defendant bringing the relevant contract to practical completion." 8 The primary judge described the basis upon which the applicant propounded the amendment as follows: "62. The case sought to be advanced by that paragraph is apparently intended to accommodate the possibility that [Walton's] submissions, as to the claim for damages based on the lease to Vosava and Gamone, might succeed. However, that does not mean that Illawarra Hotel should be given leave to amend. It is not a case of alternative claims available on the overall factual matrix, or presumed factual matrix. The position is that, for better or worse, Illawarra Hotel has chosen to put in place the arrangements to which I have referred. Those arrangements include one whereby Illawarra Hotel does not operate the hotel business, and thus does not receive trading profits from the operation of that business. The hotel has been leased to, and the hotel business is operated by, Vosava and Gamone. They receive the profits, or suffer the losses, of the operation of that business." (emphasis added) 9 In those circumstances his Honour concluded (at [63]): "…[I]t would be entirely inappropriate, and inimical to the just, quick and cheap resolution of the real issues in dispute, to permit Illawarra Hotel to maintain, in the alternative, a claim for which, on any view, there is simply no available factual foundation. This is not a case where one view of the facts might indicate some support for the case proposed to be advanced. The situation is, rather, that the arrangements that have been put in place necessarily foreclose, against Illawarra Hotel, the case that it would seek to advance through paragraph 10A." 10 The applicant submits that the application for leave raises the question whether the principle enunciated in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 may apply so as to render the respondent liable to pay damages which were within its reasonable contemplation at the time it entered into the building contract, even though the actual damages it suffered may not have been within the respondent's reasonable contemplation. 11 The applicant describes the case it sought to advance in par 10A as being "an alternative claim for damages based on the profits [it] would have lost had it continued to operate the Hotel business", that such loss would have been in the respondent's reasonable contemplation at entry into the building contract and, in any event, may be considered to arise naturally or in the ordinary course of events from the breaches identified in the cross-claim. 12 The applicant points to an assertion by the respondent, presumably in a pleading, that it always believed the applicant operated the hotel business to contend that as the respondent was unaware of the lease it should have contemplated that any delay in executing the works would necessarily result in the applicant suffering trading losses. It complains that if it is not permitted to amend it will be deprived of the opportunity to advance its alternative damages formulation and may, thereby, have a pyrrhic victory in the event that it establishes breach, but, presumably does not make good its par 10 damages claim. 13 The respondent opposes the grant of leave, principally on the basis that by virtue of the lease the proposed amendment lacks a factual and legal foundation. It contends that because of the lease the applicant is confined to a claim for loss of rent and that any claim for loss of profits damages would, if open, have to be made by Vosava and Gamone, as operators of the hotel. It does not dispute the application, in appropriate circumstances, of Victoria Laundry. 14 In my view the application for leave to appeal should be refused. The applicant has not advanced any reason why it should be entitled to advance an alternative damages case at trial to that already pleaded for loss of rent based on the validity of the lease. The applicant, hardly surprisingly, did not seek to impugn its own lease when seeking leave to amend. It does not advance any such submission now. Nor did, or does, the respondent suggest the lease is a sham. 15 I note that the claim which was sought to be made through par 10A was a claim for lost trading profits as such. It was not the type of claim which, it emerged in argument, the applicant wishes to make, namely an alternative claim for part only of the lost rent, the amount to be calculated by reference to the lost profits which would have been in the contemplation of the respondent. Such a claim may have an arguable basis in the Victoria Laundry case, and despite the applicant's professed concern would not, in my view, be shut out by the last sentence of par 63 of the primary judge's reasons. 16 In those circumstances, in my view, the primary judge did not err in concluding there was no available factual foundation for the amendment in the terms proposed in par 10A. I would dismiss the application for leave to appeal with costs. 17 MACFARLAN JA: I agree with McColl JA. 18 McCOLL JA: The order of the court therefore is as I propose. **********

Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd

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Judgment (16 paragraphs)

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Cases Cited (1)