Toplace Pty Ltd v Rashidianfar

The Tribunal's decision

1. Both parties appeared before the Tribunal at a hearing on 13 January 2020. Toplace was represented by its contract manager, Ms Yako.
2. In relation to the amounts claimed for damage to his personal belongings, Dr Rashidianfar provided photographs of items he stated were damaged by water and mould and receipts for replacement items purchased by him. He also claimed the cost of the mould inspection report referred to above.
3. Toplace agreed that defects were not repaired in a timely manner and that it would pay for the mould report. In relation to the other items claimed, Toplace stated that Dr Rashidianfar should have removed his personal property into storage to avoid damage from mould. In addition, Toplace stated that the cost of the replacement items was higher than the value of the items destroyed.
4. The Tribunal found that the defective water proofing caused damage to Dr Rashidianfar's goods and was satisfied that the amount claimed was fair and equitable, particularly as Toplace had not provided any evidence disputing the receipts provided by Dr Rashidianfar for the purchase of replacement items. The Member made orders awarding $11,167.15 to Dr Rashidianfar for damage to his personal effects.
5. At the hearing before the Tribunal, Toplace conceded that the unit was uninhabitable from 2 February 2019 to 18 August 2019 due to water and mould issues. It argued, however, that the loss of rent was too remote and referred to the fact that Dr Rashidianfar had occupied the property before moving to Wagga Wagga, that the property had not been advertised for rent, that there was in fact no tenancy and there had been insufficient contact with the real estate agent.
6. In its decision the Tribunal referred to the principle in Hadley v Baxendale [1854] EngR 296; (1854) 9 Ex 341 that damages are only recoverable for losses that arise naturally from the breach or may be reasonably supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach. The Tribunal found that, on the basis of the evidence contained in emails sent by Dr Rashidianfar to Toplace and his communications with the real estate agent as conveyed to Toplace, Toplace was aware that Dr Rashidianfar was seeking to rent the property and that a loss was a probable result as the property remained uninhabitable until 18 August 2019 due to delays with effecting repairs.
7. The Tribunal found that Dr Rashidianfar was entitled to loss of rental income as it was within the reasonable contemplation of the parties and the parties knew, or it is reasonably inferred from the information contained in the emails, that the damage would result from the breach. After allowing a period for advertising and finding a tenant, the Tribunal awarded Dr Rashidianfar $13,036.66 being rent from 2 March 2019 to 18 August 2019 at $540 a week.

The Appeal

1. In its appeal Toplace stated that the Tribunal made errors of law with respect to both aspects of the damages awarded. In relation to the award of compensation for damage to personal property, Toplace submits that Dr Rashidianfar should have been required to mitigate his loss and, in particular, should have removed all his personal belongings from the property to prevent damage. It is also submitted that any award should not have been made for the cost of the replacement of the damaged goods with new items but should have been at the value of the damaged items.
2. Toplace also argues that the Tribunal Member erred in awarding damages for loss of rent. Toplace disputes that Dr Rashidianfar intended to rent out his apartment while he was in Wagga Wagga. Toplace also argues that, at the time he purchased the property, Dr Rashidianfar did so as an owner occupier and remained an owner occupier until he moved to Wagga Wagga on 4 February 2019. As we understand it, Toplace argues that it could not have been in the contemplation of the parties at the time the contract was entered into, that is, at the time of purchase, that Dr Rashidianfar would suffer loss of rent from the breach, that is, the defective building work which resulted in water ingress.
3. In his reply to the appeal, Dr Rashidianfar states that all of the matters raised in the appeal by Toplace were considered by the Tribunal Member. He notes that before the Tribunal Toplace conceded that there was a major defect and that damage was caused to his property. He states he moved the items he had left at the apartment away from the location of the previous leaks but that the flooding event on 8 February 2019 resulted in water ingress in other areas.
4. Dr Rashidianfar also notes that at the hearing Toplace conceded that the property was uninhabitable from 2 February 2019 to 18 August 2019 and states that the evidence he provided showed he wanted to rent the apartment out but could not because of its condition and the delay in having the repairs done.

Applicable legal principles - internal appeals

1. Section 80(2)(b) of the Civil and Administrative Tribunal Act 2013 ( NCAT Act) states: Any internal appeal may be made: (a) in the case of an interlocutory decision of the Tribunal at first instance - with the leave of the Appeal Panel, and (b) in the case of any other kind of decision (including an ancillary decision) of the Tribunal at first instance - as of right on any question of law, or with the leave of the Appeal Panel, on any other grounds.
2. In the present appeal Toplace states that it is appealing on questions of law. In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel set out at [13] a non-exclusive list of questions of law: 1. Whether there has been a failure to provide proper reasons; 2. Whether the Tribunal identified the wrong issue or asked the wrong question; 3. Whether a wrong principle of law had been applied; 4. Whether there was a failure to afford procedural fairness; 5. Whether the Tribunal failed to take into account relevant (i.e., mandatory) considerations; 6. Whether the Tribunal took into account an irrelevant consideration; 7. Whether there was no evidence to support a finding of fact; and 8. Whether the decision is so unreasonable that no reasonable decision-maker would make it.
3. Toplace has not identified with any particularity the precise nature of the errors it submits the Member made in his decision. In relation to the claim for compensation in respect of the personal property of Dr Rashidianfar damaged by mould etc, it appears that Toplace does not dispute liability but is arguing that the Member applied the wrong principles to the assessment of damages. In relation to the claim for loss of rent, Toplace appears to submit that there was no evidence to support the Tribunal's finding that Dr Rashidianfar intended to rent out his apartment. In addition, Toplace argues that loss of rental income from the breach could not have been within the contemplation of the parties when he purchased the apartment. It therefore argues that the Tribunal applied a wrong principle of law to its assessment.
4. For the reasons which appear below we are satisfied that the Tribunal made an error of law with respect to its assessment of the claim for lost rent.

Compensation for damage to personal belongings

1. The Member correctly identified the general rule as set out in Robinson v Harman (1848) 154 ER 363, and which has been applied in Australia, that where a party sustains a loss by reason of a breach of contract, the party is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. Toplace, although not couching it in these terms, appears to argue that, by awarding Dr Rashidianfar the cost of replacement goods, Dr Rashidianfar was better off than he otherwise would have been if the damage had not occurred.
2. At the hearing before the Tribunal, Toplace conceded that the defects in the property led to damage to Dr Rashidianfar's goods. We see no reason to depart from that concession and the Member's findings as we agree that damage to Dr Rashidianfar's personal belongings in the apartment arose naturally from the breach, namely water ingress as a result of defective waterproofing.
3. Toplace, although it disputed the amount claimed, provided no evidence that the amounts were excessive or unreasonable. The Tribunal referred to the High Court's judgment in Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 6. That case is authority for the proposition that the onus for proving the loss rests with the person claiming it. It was also said in that case that that mere difficulty in estimating damages does not relieve a court (or tribunal) from the responsibility of estimating them as best it can.
4. In our view, on the state of the evidence before him, it was open to the Member to award the amount he did.
5. In relation to mitigation, the Member's reasons do not specifically refer to mitigation, although do note that Toplace argued that Dr Rashidianfar should have moved his goods from the property to prevent damage. It is well established that damages cannot be recovered for any loss which could have been prevented by reasonable mitigation action of the injured party: [23.41] Cheshire and Fifoot: Law of Contract 10th Edition. A loss which is attributable to the failure to mitigate can be regarded as an aspect of causation: Castle Constructions Pty Ltd v Fekula Pty Ltd [2006] NSWCA 133 at [21].
6. The action that must be taken in mitigation is only that which is reasonable. In his reasons the Member noted that the premises provided to Dr Rashidianfar in Wagga Wagga were fully furnished and that when he left for Wagga Wagga it was his intention to rent out his apartment as fully furnished. He also notes that the damage occurred after Dr Rashidianfar left for Wagga Wagga. Unfortunately, the Member does not explicitly go on to address what, if any, reasonable steps could have been taken by him in mitigation. However, it is implicit from his decision that he was not of the view that, in the circumstances, Dr Rashidianfar should have removed his goods from premises, particularly where the major inundation occurred after he had left for Wagga Wagga.
7. At the hearing before us, Toplace also sought to argue that Dr Rashidianfar should not have locked his apartment up and should have arranged for his parents to air it out to prevent a build-up of mould. This does not appear to have been argued before the Member and, in any event in our view, is not what would be reasonably required in the circumstances.
8. We find no error in the Member's approach to the issue of damages.

Loss of rent

1. At the hearing before us Toplace's representative accepted that there was defective work and that the company had responsibility to repair the defective work, although sought to distance herself from the statement made by the person who attended the Tribunal hearing on the company's behalf that the premises owned by Dr Rashidianfar were uninhabitable between 2 February 2019 and 18 August 2019. A party is bound by the manner in which it conducted its own case and it is not now open for Toplace to dispute the concession which was made by its representative at the hearing.
2. Dr Rashidianfar purchased the apartment in July 2017 from the previous owner, Zheng Zhang, and thus became the successor in title and able to make a building claim in reliance upon the statutory warranties set out in s 18B of the Home Building Act 1989 (see s 18D of the Home Building Act). A claim for a breach of statutory warranties is a contractual claim and subject to the contractual measure of damages as set out in Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 (see Allianz v Waterbrook [2009] NSWCA 224 at [69]; Building Insurers' Guarantee Corporation v The Owners - Strata Plan No. 57504 [2010] NSWCA 23 at [61]-[62]).
3. In Leeda Projects v Zeng (2020) 61 VR 384; [2020] VSCA 192 Kaye JA at [12] set out the following in relation to contractual damages (citations omitted): The fundamental principles, for the determination of damages for breach of contract, are well established. Essentially, damages are awarded in order to compensate the injured party for the loss and damage arising from the breach of contract. Thus, damages consist of the sum of money which will put the injured party in the same position as if the breach of contract had not occurred. In order to determine the appropriate measure of damages in a particular case, it is necessary first to identify the kind of loss for which the injured party claims compensation. The loss, which is compensable in an action for breach of contract, is that which may fairly and reasonably be considered as arising naturally, that is, according to the usual course of things, from the breach of contract itself, or such as may be reasonably 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.
4. As was stated by Lord Reid in C Czarnikow Limited 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.
5. The principle enunciated by Lord Reid and referred to by Kaye J in Leeda Projects is generally known as the principle in Hadley v Baxendale.
6. We accept that under a claim for breach of a statutory warranty a successor in title is able to claim for damage flowing from the breach by the builder. The successor in title must, however, prove that a loss was sustained and that there was an appropriate causal connection between the loss and the breach of the statutory warranties (Allianz v Waterbrook at [71]). We accept that the cost or repairs may be awarded as damages in this context or the builder be ordered to undertake remedial work.
7. In his decision, as noted above, the Member referred to Hadley v Baxendale and framed the question that he had to answer as being whether the loss of rent was in the reasonable contemplation of the parties at the time they made the contract. We agree that this was a correct characterisation of the issue as it could not be said that loss of rent arises naturally from the breach. In this context we note that repairs to the apartment were carried out by Toplace and that it was liable for the damage to Dr Rashidianfar's personal property which occurred as a direct result of the breach.
8. Toplace submits that it could not have been in contemplation of the parties at the time of the contract that Dr Rashidianfar would suffer loss of rental income from the defective work which allowed water to enter the apartment. Toplace does not identify the relevant contract but states that, to its knowledge, Dr Rashidianfar purchased the apartment to live in and up until the time he went to Wagga Wagga was an owner occupier.
9. Hadley v Baxendale requires an assessment of what could be reasonably 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. We agree with Toplace that the relevant time for assessment of what was in the parties contemplation is the time at which the contract was entered into. The Member in his reasons refers to a contract and seems to make a temporal connection between the date of the breach - 2 February 2019 and ongoing - and Toplace's liability for damages, particularly as at that time Dr Rashidianfar had stated he intended to rent the property and had taken some steps in that regard. The Member, however, does not specify what contract he is referring to or when that contract was entered into. No information has been provided which would support any contention that a contract was entered into between Toplace and Dr Rashidianfar around that time. As noted above, Toplace appears to indicate that the relevant time for the assessment was at the time Dr Rashidianfar purchased the apartment.
10. We are not aware of any authority concerning the meaning of "at the time the contract was entered into" in the context of a claim by a successor in title in reliance upon the statutory warranties under the Home Building Act when assessing damages for the consequence of a breach under what is often described as the second limb in Hadley v Baxendale. When making this assessment, what then is the contract and the relevant time for assessment of what could be reasonably supposed to have been in the contemplation of both parties?
11. The statutory warranties are implied into every building contract by virtue of s 18B of the Home Building Act. It is clear that Dr Rashidianfar was not a party to the building contract but is able, through the legislative provisions, to take advantage of those warranties as successor in title. There is no separate contract between the builder and the successor in title. In effect, the successor in title subsumes the rights under the building contract to enforce the statutory warranties against the builder who was a party to the building contract. The builder, of course, is only responsible for works contracted for under the building contract and the time within which those warranties may be enforced runs from the date of completion of the building work (see s 18E). We also note that under s 18BA(2) the successor in title is under the same duty to mitigate as the original contracting party.
12. As can be seen from the matters referred to in the previous paragraph, the rights of a successor in title to enforce the warranties are, with good reason, tied back to the original building contract. In our view, the relevant time for the assessment of whether loss of the kind claimed should have been within the contemplation of the parties is the time at which the building contract was entered into.
13. In our opinion, the Tribunal was in error in assessing what may have reasonably been in completion by the parties at the time the breach occurred in February 2019 and Dr Rashidianfar moved to Wagga Wagga. This was a misunderstanding of the applicable principles in Hedley v Baxendale and was an error of law.

New hearing

1. In accordance with s 80(3)(a) of the NCAT Act, we consider that the grounds of appeal warrant a new hearing by us. However, we do not consider that it is appropriate to permit any fresh evidence, given that the parties had an adequate opportunity to provide all the evidence on which they wished to rely to the Tribunal.
2. As a consequence of the Tribunal's error and because of the approach it took in determining the claim, findings about whether loss of rent may be reasonably supposed to have been in the contemplation of the builder at the time the building contract was entered into need to be made. We think it appropriate for us to proceed to determine this issue in the interests of the efficient disposition of the dispute between the parties, particularly bearing in mind the limited material that needs to be examined and that no issues arise concerning the credit of witnesses.
3. The cases that have dealt with whether the loss of the kind claimed may be reasonably supposed to have been in the contemplation of the party against whom the claim is made indicate that some knowledge of the relevant circumstances and an undertaking of the risk, whether that be express or implied, are required (see Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528; Diamond v Campbell-Jones [1961] Ch 22). Bergin J in Sumy Pty Ltd v Southcorp Wines Pty Ltd [2004] NSWSC 1000 at [77], after reviewing cases in the area, albeit in relation to a contract for the sale of land, noted that there must be some specific knowledge at the time of entering the contract. The person claiming damages must be able to show that, in this case, loss of rent, was more than merely one of a range of foreseeable outcomes (Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 at [52]).
4. The following cases illustrate that there be must be some knowledge on the part of the builder at the time the contract is entered into. In Bui v DB Homes Australia Pty Ltd [2017] NSWCATAP 218 in hearing an appeal from homeowners in relation to claimed loss of rental income as a result of delay by the builder in completing the construction of a granny flat, the Appeal Panel noted at [28] that it cannot be assumed that the mere fact that someone is building a granny flat is for the purposes of rental. Similarly, in Ippolito v Cesco [2020] NSWSC 561 Ball J did not allow a claim for lost rent in circumstances where at the time the building contract was entered into it was not anticipated that the premises would be rented out.
5. Neither party has provided any evidence of the date of the building contract in relation to the development in which Dr Rashidianfar's apartment is located. We note, however, from correspondence sent to Dr Rashidianfar by the solicitors for the owners corporation on 10 July 2019 that an occupation certificate was issued on 11 November 2016.
6. The documents provided by Dr Rashidianfar show that Zheng Zhang bought the apartment from the developer and that settlement in relation to that purchase was in March 2017. Dr Rashidianfar signed a contract with Dr Zhang to purchase the apartment on 22 July 2017. There was a 28 day settlement period in the contract and he and his wife occupied the property some two months later.
7. On 23 May 2019 Dr Rashidianfar was offered a position by NSW Health as a Basic Trainee in Psychiatry managed by Concord Hospital. He was advised that during his employment he may need to work at other facilities, including at rural hospitals.
8. On 19 August 2019 Ms Larissa Mouawad on behalf of Toplace wrote to Dr Rashidianfar about a range of issues. In relation to his claim for loss of rent she stated: "Toplace's understanding from previous communication with your family and yourself is that the apartment was owner occupied and you would be returning to your apartment after your leave." Relevant documents provided by both parties indicate that Dr Rashidianfar first communicated with Toplace about his intent to rent out the apartment in January 2019.
9. An email from Dr Rashidianfar's father to Ms Mouawad (no date supplied, but in response to her email of 19 August 2018) states that Dr Rashidianfar intended to rent out the unit "while he was away for six months". Other correspondence provided by Dr Rashidianfar shows that he was employed for a six month period in Wagga Wagga from 2 February 2019 to 4 August 2019. During that period he was provided with a fully furnished two bedroom house. He told us at the hearing that it was not until June 2019 that he signed a further contract and therefore knew he would be returning to Sydney in August.
10. While we do not have information before us about when the contract to build the apartments was entered into, it is clear from the available material that it would be some time before November 2016 when the first occupation certificate was issued. The contract clearly precedes Dr Rashidianfar's purchase of the apartment in 2017 and was certainly entered into prior to him being sent to Wagga Wagga in February 2019 as part of his traineeship. It was only in January 2019 that he formed an intent to rent out his apartment.
11. In our view, it could not reasonably be supposed to have been in the contemplation of the builder at the time the building contract was entered into that a successor in title to an original owner may be transferred to a regional location for work for a six month period and may wish to rent out his apartment during that period and, presuming a tenant is found, would suffer loss of rent. The builder would have no way of knowing that such circumstances were foreseeable and likely to arise from a breach by the builder of the contract.
12. We therefore find that loss of rent is not something that ought reasonably to have been within Toplace's contemplation at the time the contract was entered into so as to fall within the principles stated in Hadley v Baxendale. Dr Rashidianfar is therefore not entitled to damages for lost rent and we make orders accordingly.

Orders

1. We make the following order: 1. Appeal allowed in part. 2. Order 2 made in matter HB 19/42035 on 18 March 2020 is set aside. 3. In substitution, Toplace Pty Ltd is to pay Amirsalar Rashidianfar the sum of $11,167.15 by 20 August 2021. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 06 August 2021