Scott v Ennis-Oakes

The primary judgment

1. The primary judge concluded that there was "no proper basis" for the appellants to claim loss of bargain damages. He stated that the claim was precluded by the application of clear statements of principle made by the High Court in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260-261; [1988] HCA 11 to the effect that an entitlement to loss of bargain damages requires termination of the contract due to the defendant's wrongful conduct. He noted that the same conclusion had been reached by this Court in Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW [1999] NSWCA 125 per Sheller JA at [48] with whom Priestley and Stein JJA agreed.
2. The primary judge stated that even if it was assumed in favour of the appellants that the conduct of the respondent was wrongful such that the appellants could have terminated the contract, "their failure to do so meant that the contract remained on foot for the benefit of both parties". He stated that "[s]upervening circumstances then arose which operated to discharge the contract, namely, the circumstances underpinning the rescission" pursuant to AC 37.
3. The primary judge noted that the provisions of condition 19 applied to a rescission of the contract under AC 37 and that cl 19.2.3 expressly enabled a party to claim damages arising out of a breach of contract. However, he concluded that cl 19.2.3 should not be read as to provide for a right to claim loss of bargain damages as the clause operated only where the contract has come to an end by the exercise of a right to rescind. He stated that the clause operated to permit the pursuit of a claim for damages that had accrued by the time of the rescission. By contrast, he concluded that a claim for loss of bargain damages only accrues where the contract had been terminated due to the wrongful conduct of the defendant.
4. The primary judge also concluded that the appellants had not established that the respondent had breached AC 36.2 although he concluded that the defendant's purposed rescission of the contract on 14 June 2017 amounted to repudiation of the contract.

The grounds of appeal

1. The appellants relied on the following grounds of appeal: "1. That the primary judge erred in failing to conclude that when the respondent terminated the contract for sale of land entered into by the parties on 9 June 2015 (the Contract) pursuant to Additional Condition (AC) 37 of the Contract (the Termination Step), the appellants became entitled to loss of bargain damages. 2. That the primary judge erred in failing to conclude that AC 37 had the effect of permitting the appellants to sue for loss of bargain damages following the Termination Step. 3. That the primary judge erred in concluding that the appellants' claim for loss of bargain damages was precluded by clear statements of principle made by the High Court of Australia and applied by this Court ([27] of the Reasons). 4. That the primary judge erred in finding that the Contract came to an end because of supervening circumstances ([38] of the Reasons)."
2. It should be noted that the appellants did not assert on the appeal that the primary judge was incorrect in concluding that the respondent did not breach AC 36.2 of the contract. Further, it was common ground between the parties on the appeal that the purported rescission of 14 June 2017 amounted to a repudiation of the contract.

The appellants

1. Although the submissions at the hearing focussed primarily on grounds 1 and 2, it is convenient first to deal with grounds 3 and 4 which do not turn on the construction of AC 37.
2. The appellants in their written submissions submitted what they described as the absolute statement by the primary judge that there could be no claim for loss of bargain damages unless the subject contract is brought to an end by the innocent party by acceptance of the promisor's breach was inconsistent with what was said by the High Court in Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 (Tabali). It was submitted that in Tabali an order was sought for possession of premises pursuant to a covenant in a lease permitting re-entry and taking of possession for non-payment of rent which was submitted to be different from a right to rescind under general law for breach of a fundamental term. The appellants noted that Mason J, with whom Wilson, Deane and Dawson JJ agreed, found that the conduct of the lessee amounted to a repudiation of the lease and the lease having been brought to an end by reason of re-entry for forfeiture, the lessee was liable for loss of bargain damages.
3. The appellants submitted that it followed that there was no necessary nexus between the claim for loss of bargain damages and termination for repudiation. They referred to the statements made by Mason J in Tabali at 31 that the "essential foundation [for loss of bargain damages] may be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power to do so.
4. The appellants submitted, referring to what was said by McLelland J in The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547, that the reason there was no need for a nexus between loss of bargain damages and termination for repudiation is that the relevant cause of action arose not on termination but on the repudiation itself. They submitted, referring to what was said by McLelland J at [15], that the significance of termination for loss of bargain damages lies not in the termination giving rise to the cause of action but rather in the fact that "until the contract is terminated, it cannot always be predicted that the party in breach will not remedy the breach … But if, ultimately, the contract is terminated, so that thereafter the breach is incapable of being remedied by performance of the relevant obligation, then damages may be assessed on that basis; but the cause of action still remains the same breach".
5. It was submitted that it follows from what was said in that case that all that was necessary for the claim for loss of bargain damages was for the contract to have come to an end which it did as a consequence of the respondent's rescission pursuant to AC 37.
6. So far as the authorities relied upon by the primary judge were concerned, the appellants submitted that what was said by Sheller JA in Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW at [47]-[51] "may be inconsistent with later decisions of this Court". They did not identify those later decisions. So far as Sunbird Plaza v Maloney was concerned, they submitted that the Court was not required to decide whether the only method of bringing the contract to an end to allow the vendors to sue for loss of bargain damage was termination for breach. They submitted that the decision was that there could be no loss of bargain damages whilst an order for specific performance remained undischarged and the contract was on foot. They submitted statements to broader effect made by Mason J and Gaudron J were obiter. They made similar submissions in respect of the statement of principle made by Nettle, Gordon and Edelman JJ in Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164 at [196].
7. The appellants also submitted that the decision of the Privy Council in Dominion Coal Co Ltd v Dominion Iron and Steel Co Ltd [1909] AC 293 did not support the conclusion reached by the primary judge. Counsel for the appellants submitted at the hearing that in that case, although there had not been an election to terminate the agreement, the plaintiff, having been held to be not entitled to specific performance, was entitled to damages for loss of its bargain. However, this was a case where the contract had been brought to an end as a result of the respondent's refusal to perform its obligations.
8. So far as ground 4 is concerned, it was submitted that the circumstances underlying the rescission were not supervening circumstances which operated to discharge the contract. Rather, it was submitted that what brought the contract to an end was the respondent's rescission pursuant to AC 37. It was submitted, particularly having regard to the opening words of AC 37, that it would be "wrong" to treat that rescission as barring the appellants' claim for loss of bargain damages.

The respondent

1. It is unnecessary to set out the respondent's submissions on these grounds in any detail. Put shortly, it was submitted that the authorities relied on by the primary judge not only justified but compelled the conclusion he reached.

Consideration

1. In my opinion, the conclusion reached by the primary judge was clearly correct.
2. It is clear that a right to claim loss of bargain damages, whether for wrongful repudiation as alleged in the present case, anticipatory breach or breach of a condition arises on termination of the contract by the innocent party. On such termination, both parties are absolved from future performance of the contract and the defaulting party comes under what has been described as a secondary obligation to compensate the innocent party for the loss of the bargain. However, until the contract is terminated by the innocent party, it remains on foot and no right to loss of bargain damages arises. The position was summarised by Viscount Simon LC in Heyman v Darwins [1942] AC 356 at 361 in the following terms: "If one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further, the other party has an option as to the attitude he may take up. He may, notwithstanding the so-called repudiation, insist on holding his co-contractor to the bargain and continue to tender due performance on his part. In that event, the co-contractor has the opportunity of withdrawing from his false position, and even if he does not, may escape ultimate liability because of some supervening event not due to his own fault which excuses or puts an end to further performance: a classic example of this is to be found in Avery v. Bowden. Alternatively, the other party may rescind the contract, or (as it is sometimes expressed) 'accept the repudiation,' by so acting as to make plain that in view of the wrongful action of the party who has repudiated, he claims to treat the contract as at an end, in which case he can sue at once for damages. 'Rescission (except by mutual consent or by a competent court)' said Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. 'is the right of one party, arising upon conduct by the other, by which he intimates his intention to abide by the contract no longer. It is a right to treat the contract as at an end if he chooses, and to claim damages for its total breach, but it is a right in his option.' But repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation, on the one side, and acceptance of the repudiation, on the other." See also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849.
3. The position is the same in this country. Thus in Sunbird Plaza v Maloney Mason CJ with whom Deane, Dawson and Toohey JJ agreed, succinctly expressed the principle in the following terms at 260-261: "Loss of bargain damages are recoverable only if the contract is at an end. Once termination due to the defendant's wrongful conduct is established the plaintiff is entitled to damages for loss of bargain: Dominion Coal Co. Ltd. v. Dominion Iron & Steel Co. Ltd.. Barwick C.J. suggested in Ogle, that termination is not an essential element in an action for loss of bargain damages, except in the case of anticipatory breach, but the preponderant opinion in Australia and England is against his view: see Ogle, per Gibbs, Mason and Jacobs JJ.; Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd., per Mason J. (with whom Wilson and Deane JJ. agreed generally, and Dawson J. agreed); Photo Production Ltd. v. Securicor Ltd." See also Gaudron J at 272-273.
4. More recently in Mann v Paterson Constructions Pty Ltd Nettle, Gordon and Edelman JJ stated the principle as follows at [196]: "The position is clearer still with respect to damages for anticipatory breach of contract. By itself, the repudiation of a contract does not entitle the innocent party to loss of bargain damages for anticipatory breach: the entitlement arises only, if at all, upon the innocent party's election to terminate the contract, and the power of termination itself arises by operation of law, with the result that clear words are necessary to exclude it. It follows, a fortiori, that the law, not the agreement of the parties, furnishes the obligation to pay damages consequent upon termination for breach. And that conclusion is only reinforced by authority to the effect that such damages are 'available under the general law' upon termination for breach of a term fundamental in character, but 'require very clear words' where the term is expressly deemed to be fundamental."
5. Contrary to the appellants' submissions, nothing was said of the contrary by the High Court in Tabali. In Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 it was held that the exercise of a right of re-entry pursuant to a provision in the lease in question did not make the breach of a covenant to pay rent in respect of which the right of re-entry was exercised a breach of an essential term as the evidence did not justify finding that there was a fundamental breach of contract which would have entitled the lessor to rescind the contract under the general law and sue for damages. In Tabali Mason J noted that in Shevill the Court was "not called upon to decide whether a lessor can sue to recover damages for loss of bargain when he [or she] re-enters under a proviso for re-entry in consequence of the lessee's repudiation or fundamental breach". He stated his conclusion at 31 in the following terms (citations omitted): "It is often said that repudiation or fundamental breach - in the sense of breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract (Federal Commerce & Navigation Co. Ltd. v. Molena Alpha) - entitles the innocent party to rescind the contract and sue for damages for loss of the bargain: see, e.g., Ogle v. Comboyuro Investments Pty. Ltd.. But this does not mean that such damages are recoverable only in the event of discharge for breach though it is essential to an award of damages for loss of bargain that the defendant can no longer be required to perform his contractual obligations in specie. This essential foundation may be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power so to do. In either event, assuming repudiation or fundamental breach by the defendant, he could no longer be required to perform the contract and is liable for damages for loss of bargain. The well-recognized distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not in the other, provided of course that the exercise of the power is consequent upon a breach or default by the defendant which would attract an award for such damages. Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach. This is because the termination, so far from insisting on performance by the party at fault, brings to an end his obligation to perform his promise in specie."
6. By contrast in the present case, the appellants affirmed the contract and it was terminated by a supervening event, namely the entry by the respondent into a scheme of arrangement which gave rise to the right to terminate under AC 37. Thus the contract came to an end not as a result of termination for breach of a contractual term or repudiation, but rather, as a result of a supervening event which occurred whilst the contract remained on foot. The consequence was stated by Kitto J in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 235 at 250; [1954] HCA 25 in the following terms (citations omitted): "The doctrine of anticipatory breach is, of course, applicable as soon as A has communicated to B his refusal to carry out the contract. Under that doctrine B is put to his election. He may, if he chooses, treat the contract as brought to an end in consequence of A's default, and recover damages from A for loss of the benefit of the contract. Alternatively, he may treat the contract as continuing on foot, in which case it will remain in force for the benefit of both parties, just as it would if the refusal had never been declared. If A persists in his refusal, B may at any time while the refusal continues elect to treat the contract as at an end and sue for damages; but unless and until he does so the contract remains on foot, and A may withdraw his refusal and require B to perform the contract on his part, subject only to giving B reasonable notice of his change of intention, or he may take advantage of any supervening circumstances of such a character as to discharge the contract."
7. Nor does the decision of McLelland J in The Millstream Pty Ltd v Schultz provide any assistance to the appellants. In that case, the non-defaulting party, not being entitled to specific performance or equitable damages, sought common law damages for loss of its bargain and it was argued that it could not do so as the contract had not been terminated at the time the proceedings commenced. McLelland J rejected the proposition stating that the cause of action arose at the time of repudiation not at the time of termination. He noted at [15] that "until the contract is terminated, it cannot always be predicted that the party in breach will not remedy the breach", but that if the contract is ultimately terminated, then damages may be assessed for the loss of the bargain but the cause of action remains the same breach. His Honour was not dealing with the question of whether a claim for loss of bargain damages can be maintained when the contract is not terminated for breach but by reason of a supervening event.
8. In these circumstances, grounds 3 and 4 of the grounds of appeal have not been made out.

The appellants

1. The appellants submitted that the opening words of AC 37 "Without any manner negating limiting or restricting any rights or remedies which would have been available to the other party at law or in equity had this clause not been included" (see [5] above) meant that the appellants' right to terminate and sue for loss of bargain damages was preserved.
2. Counsel for the appellants submitted that to reach that conclusion it was unnecessary to turn to cl 19.2.3 to determine the remedial consequences as they were dealt with within the chapeau to AC 37.
3. In support of this proposition, he relied on comments made by the plurality in Sibbles v Highfern Pty Ltd (1988) 164 CLR 214 at 227; [1987] HCA 66 (Sibbles) where it was stated that an election to affirm a contract did not deprive the innocent party of the right to rescind where the repudiatory conduct continued. He submitted that the right to terminate and the entitlement for damages for loss of bargain were "so closely aligned" that both would be intended to be protected by the opening words of AC 37.
4. In answer to the proposition that by electing to rescind under AC 37, the respondent was affirming the contract he submitted that "there was no gap between the repudiation and the rescission". Referring to the correspondence between the parties, he submitted that it was clear that the respondent had no intention to honour the contract.
5. Counsel for the appellants submitted that notwithstanding that there was no termination up to the time of rescission, the appellants had that accrued right which was preserved as was the consequence, namely, the right to claim loss of bargain damages. He referred in that context to the width of AC 37.
6. Counsel for the appellants accepted that a possible reading of AC 37 was to protect the party who had an accrued right to damages in respect of conduct or breaches up to the time of rescission under that clause but stated that the construction for which he contended merely required giving the clause an "expansive meaning" which, on its face, it had. He submitted that the rescission under AC 37 brought the contract to an end thereby enlivening the claim for loss of bargain damages. He accepted that after the rescission under AC 37, the appellants persisted in their claim for specific performance but stated that "the appellants were entitled to turn on a dime and terminate the contract at any time". He submitted that was the effect of the passage in Sibbles on which he placed reliance. He submitted that the fact the rescission was not accepted for two years was irrelevant on the question of accrued rights.
7. Counsel for the appellants submitted that in construing AC 37 it was relevant to consider what was "the danger which the parties contemplated and against which the parties were content to allow the other [party] to protect itself" per Warrington LJ in Re Gibbs and Houlder Bros & Co Limited's Lease [1925] Ch 198 and to the principle that a person should not be allowed to take advantage of his or her own wrong: see for example Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 188-189. He also referred to the plurality's approval in Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at [23] of the reference by Hope JA in Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 487 to "the familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law". He emphasised the use of the words "without [in] any manner" and "negating" in the opening words of AC 37 which he submitted showed an intention to protect the position of the parties to the extent rationally available.

The respondent

1. Senior counsel for the respondent referred to the use of the word "available" in the chapeau to AC 37. He submitted that no matter how generously the words could be construed, they do not embrace rights which were not available at law or in equity at the time of rescission. He stated that the preconditions to loss of bargain damages are that there is a contract in existence and that this contract is brought to an end by reason of the wrongful conduct of the defendant.

Consideration

1. The issue concerning the construction of AC 37 is to determine what a reasonable person in the position of the parties would have taken it to mean: see, for example, in respect of commercial contracts, Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35].
2. The clause self-evidently assumes that the contract is in existence at the time the right to terminate is exercised. Further, it deals with termination in circumstances not amounting to default by either party to the contract.
3. It seems to me that in those circumstances, the clause is designed to protect rights enforceable at the time of termination including, relevantly, preserving rights for damages for breach of contract which had already accrued to either party. The application of cl 19.2.3 to termination under AC 37 makes this clear. Further, cl 19.2.4 of the contract makes it clear that there is no other right to damages.
4. The appellants sought to overcome this difficulty by reliance on the chapeau to AC 37 which preserves "any rights and remedies which would have been available". However, the rights and remedies referred to are rights and remedies which are available at the time of termination, not rights or remedies which may have arisen had the clause not been invoked.
5. In the present case, rather than terminating and seeking loss of bargain damages, the appellants elected to affirm the contract and seek specific performance. In these circumstances, at the time of termination, they had no right to loss of bargain damages and therefore nothing was preserved by AC 37. Once the contract had been terminated pursuant to AC 37, there was, in effect, no contract to terminate and thus no right to loss of bargain damages.
6. The principles of construction referred to by the appellants which I have set out at [51] above do not assist. So far as the first is concerned, the object of the parties in entering into the clause was to provide what they considered to be an appropriate adjustment of rights if any of the eventualities in AC 37 occurred. As to the second, the exercise of a right conferred by a contract does not involve a person taking advantage of his or her own wrong. As to the third, there was no abandonment of remedies. The appellants elected to affirm the contract. Whilst they maintained that position they were not entitled to loss of bargain damages, the remedy not being available by virtue of their election to keep the contract on foot.
7. In these circumstances, grounds 1 and 2 have not been made out.

Conclusion

1. In the result, I would make the following orders: 1. Appeal dismissed. 2. Order the appellants pay the respondent's costs of the appeal.
2. BELL P: I have had the benefit of reviewing the reasons for judgment of the Chief Justice. I agree with those reasons and the orders his Honour proposes.
3. In short, the appellants never terminated the contract by reason of the respondent's repudiatory conduct. In fact they positively sought, through their claims for specific performance, to keep the contract on foot. This was the opposite of any claim for loss of bargain damages. The appellants were, at all material times, asserting their right to preserve and enforce the bargain.
4. What occurred was that, in the interim, the contract was validly terminated by the respondent in circumstances where that was contractually permitted. There was no operative breach of contract which was capable of sustaining a claim for loss of bargain and damages.
5. GLEESON JA: I agree with Bathurst CJ.

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