Case: Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) 166 FCR 494
Outcome: cited
The situation has some similarity to assessing damages where building work is defective. Recently, Finkelstein and Gordon JJ said that, speaking generally in cases of work done or not done, or damage caused to property in breach of contract, there are two bases for assessing damages: first, the cost of reinstatement, or secondly, the diminution of the value of the property due to the breach. They held that the correct measure is '... whatever is reasonable for the wronged party to recover': Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) 166 FCR 494 at 503 [29]. I examined the authorities and concluded that the principle applicable based on Bellgrove v Eldridge [1954] HCA 36 ; (1954) 90 CLR 613 was ( Bowen Investments 166 FCR at 524 [98]): '... that the building owner was entitled to recover the cost of rectification provided that the rectification proposed was both necessary, to bring about conformity with the contract, and a reasonable course to adopt. "Reasonableness", in that context, can be seen to be what the owner could require having regard to the terms of the contract and the nature of the departure from them in the performance proffered by the other party. That is, of course, a factual enquiry.' 384 The new line was a working asset used by North East Equity in its business from March 2003 to at least October 2007. On the hypothesis that I ought to have found that the new line was defective because it did not always pack out carrots with a core temperature of 5deg.C or less, such an event had no pecuniary consequence. And, the carrots were still packed chilled but perhaps not as low as exactly 5deg.C or less. The performance offered by the new line as installed was not productive of any relevant determent to North East Equity. It saw no need to reinstate, supplement or replace the refrigeration system. And it suffered no commercial detriment as a result. I am of opinion that North East Equity has not established that the cost of bringing the new line into conformity with the contractual term or representation relating to the 5deg.C requirement would be reasonable to award as damages: see Bowen Investments 166 FCR at 503 [29], 522 [93]. 385 In final address, counsel for North East Equity suggested that its reliance damages should be calculated on the basis set out below. It argued that it would not have entered into the contract and subsequent lease agreement with the bank, had it not acted in reliance on Proud Machinery's and Mr Proud's misleading representations, or if they had not been negligent. North East Equity's methodology used a number of approximations in claiming that it had suffered a loss of $1,300,000. In the calculations below, I have attempted to remove those approximations so that the result, using North East Equity's methodology, can be compared with other calculations, which I explain below. (Negative values are in parenthesis) Exact calculation North East Equity's approximation in its submissions (a) Total cost to North East Equity of new line (Based on North East Equity making all lease payments to the bank for 5 years to 30 May 2008. This figure was agreed by the parties.) $ (4,328,230) $ (4,328,230) (b) Add the current value of the new line (Based on Mr Gregson's evidence that at May 2007 the new line had an auction value of between $640,000 to $960,000.) $ 960,000 $ 1,000,000 (c) Add North East Equity's savings on labour costs: &#8226; based on a period of 4 years; &#8226; assuming savings per carton reduced by 30cents to 90cents per carton for 1,955,000 cartons p.a. (based on Mr Langridge's analysis that 23,000,000 kg p.a. were produced); &#8226; 0.30 x 1,955,000 = $586,500 p.a. labour savings; &#8226; subtract from this figure additional power costs of $89,700 p.a. that North East Equity claimed were incurred; &#8226; net saving of $586,500 - $89,700 = $496,800 p.a. (approximated by North East Equity to a net saving of $500,000 p.a.), or a total net saving of $1,987,200 (approximately $2 million) over 4 years. $ 1,987,200 $ 2,000,000 (e) Net expenditure by North East Equity $ (1,381,030) $ (1,328,230) approx $1.3 million 386 The above calculation mixed the costs in (a) for a 5 year lease, with only 4 years worth of savings in (c). The new line had been retained beyond the 4 year period and there was no evidence that North East Equity intended to bring the lease to an end before the expiry of the 5 year term. In that situation, I consider that credit should be given for the savings over the whole 5 year term of the lease not for only 4 years. I have rejected the claim that any representation was made to the effect that North East Equity's power costs would be less if the new line were acquired.