The loss lies when it falls – court considers extending time for appeal and the appropriate time to assess damages for breach of contract
May 2015 |
Introduction
In the recent case of Baguley v Lifestyle Homes Mackay Pty Ltd [2015] QCA 75 the Queensland Court of Appeal refused to depart from the longstanding principle that damages for breach of contract are to be assessed at the time of the breach.
Background
By contract dated 6 August 2010 Mr and Mrs Baguley (applicants) sold their Mackay property (property) to Lifestyle Homes Pty Ltd (respondents) for $400,000.
The date for settlement was 15 October 2010. The respondents failed to settle on the due date.
On 2 August 2011 the applicants commenced proceedings against the respondents for breach of contract, claiming damages, interests and costs.
The property was finally resold by the applicants on 17 October 2012 for $300,000 (resale).
At the assessment hearing, the applicants submitted that damages should be assessed by reference to the value of the property at the date of resale and accordingly the loss of bargain was $100,000 (being the difference between the sale price agreed with the respondents and the resale price). The respondent submitted that the applicants were entitled to damages assessed for loss of bargain at the date of breach of contract.
The primary judgment was delivered on 3 April 2014 in favour of the applicants for the sum of $88,982, made up of $49,000 for loss of bargain and $39,982 for loan interest between 1 November 2010 and 21 August 2012.
The $49,000 was the difference between the contract price of $400,000 and the value, as found by the Primary Judge, of the property at the date of breach ($350,000) less the $1,000 deposit paid by the respondents.
The applicants wished to appeal the decision however did not do so within 28 days from the decision as required by the Uniform Civil Procedure Rules (UCPR). They therefore needed to seek an order from the court pursuant to r 748 to extend the time within which to appeal.
Issues
In deciding whether r 748 should be enlivened, the court was tasked with considering the following:
- The length of the delay;
- The adequacy of the explanation of the delay; and
- The merits of the proposed appeal in relation to the appropriate date to assess damages.
Decision
Length of delay
The court did not consider a period of 127 days to be excessive, and of significance was the fact that it did not give rise to any prejudice to the respondent. Gotterson JA was of the view that the length of the delay weighs relatively lightly in the discretion, and the more important consideration is the explanation for the delay.
Explanation of delay
One of the explanations for the delay proposed by the applicants was that they were awaiting the costs decision before appealing. They further submitted that they were under the impression that the costs decision would be handed down relatively quickly. The court viewed this as a deliberate decision to not appeal within time. The applicant would have known that the costs decision would not be delivered within 28 days because their written submissions on costs had not even been filed at that time. In any event the court found the arguments to be unpersuasive owing to the fact that the appeal did not involve the issue of costs.
Although the court found the applicants’ delay did not in itself warrant a refusal of an extension of time, it did find that due to its deliberate postponement of the filing of a notice to appeal had the same impact as the comparable decision in Spencer v Hutson,1 that is, that the applicants had to demonstrate a substantial injustice would result if the extension of time was not granted. This issue required consideration of the merits of the proposed appeal, specifically, the assessment at first instance of the loss of bargain component of damages.
Correct assessment of the loss of bargain
A major factual issue to be decided was whether or not, at the time of the resale, the property was included in the National Rental Affordability Scheme (NRAS). Expert evidence suggested that inclusion in the scheme would increase the value of the property, and was therefore highly relevant to the valuation.
There was little evidence that the property was a part of NRAS at the time of the resale. The Court of Appeal relied on the fact that no contract of sale, apart from the original, had any clauses which implied that NRAS approval was current at the date of the contract. There was little other probative evidence offered and the Court of Appeal was satisfied that the Primary Judge had not erred in concluding that there was no NRAS approval at the time of the subsequent sale.
In regard to the appropriate date to assess the damages for breach of contract, the starting point is the rule as stated in Johnson v Perez,2 which provides that in a contract for sale of land, the relevant date of assessment is the date of the breach, unless a departure from that date is necessary to properly compensate the plaintiffs/applicants. The onus is on the applicants to prove factual circumstances which would justify a departure from that date to compensate properly.
The applicants failed to argue any basis to depart from the rule. Gotterson JA did consider evidence of why and how the NRAS approval lapsed, and particularly that if the respondent had caused the approval to lapse in any way, it may have been sufficient to depart from the rule.
The applicants made repeated references to the reasonable efforts made to resell the property between the date of the breach and the effective resale, and argued that since they had made those efforts, that the later date should be adopted. The court disagreed, noting that the proposition was irreconcilable with the rule in Johnson.
Ultimately the task for the applicants was to prove that the extension of time to appeal was necessary to prevent a substantial injustice. As there were no prospects of success for any of the grounds they wish to rely on in the proposed appeal, they had failed in that task and the application to extend the time upon which to appeal was denied.
Comment
This case demonstrates the courts’ reluctance to deviate from the traditional method of assessing damages. Damages for breach of a sale of land contract will generally be assessed at the time of breach unless there is good reason for assessing them at the time of the eventual sale.
Although the applicants in this case upheld their obligations under the contract and claim to have diligently attempted to mitigate their loss, they were still unable to recoup the additional amount of money they would have made from the earlier, more lucrative bargain they struck with the respondents.
1 [2007] QCA 178.
2 (1998) 166 CLR 351.
