FEATURE ARTICLE -
Advocacy, Issue 97: September 2024
In Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192 (11 July 2024), the Court of Appeal addressed, inter alia, whether the pleaded case extended to a claim for damages for loss of rental, and the evidentiary basis upon which that assessment ought be undertaken. Leeming JA (with whom Ward P and Mitchelmore JA agreed) wrote:
[2] Messrs Giuseppe and Matthew Carbone, who are father and son, and to whom I shall refer for simplicity and without disrespect as Joe and Matthew, bring separate appeals from the dismissal (in the case of Joe) and the substantial dismissal (in the case of Matthew) of actions brought by them in the District Court of New South Wales against Fowler Homes Pty Ltd arising from the delayed completion of the construction of residential buildings on their neighbouring blocks of land. All save one of the grounds of appeal are from the judgment of 17 February 2023, delivered promptly after a five-day trial: Giuseppe and Matthew Carbone v Fowler Homes Pty Ltd [2023] NSWDC 29 . The appeal is as of right pursuant to s 127(1) of the District Court Act 1973 (NSW) because those grounds of appeal involve matters in issue amounting to more than $100,000. In those circumstances, the appellants are also entitled to challenge within their appeals a subsequent order made in each proceeding in the course of assessing damages, despite its being worth only $20,000.
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[81] Fowler Homes said that the case that was run did not extend to one which included a claim for damages for breach of contract. Further, Fowler Homes contended that considerable legal significance attached to the decision not to seek an amendment. It is convenient to deal with this latter point immediately.
[82] Fowler Homes said that Joe and Matthew should have made the application to amend, as a result of which there would have been a ruling, from which the disappointed party could appeal. It is true that the failure to make an application meant that there was no ruling, but I cannot agree that the forensic decision not to make the application stands in the way of, or indeed in any way affects, the answer to either aspect of this ground. In particular, I do not accept Fowler Homes’ submission that “by then not making the amendment application, that can also be understood as the plaintiffs accepting that that part of the claim was not part of the pleaded case”. As was pointed out by members of this Court at the hearing, and by Mr Herzfeld in reply, either the pleadings disclosed a cause of action for damages for breach of contract or they did not, and if they did not, then either the trial had been conducted in such a way that that case was in play or it was not.
[83] It is tolerably plain that counsel for Fowler Homes regarded as a live issue whether foregone rent was recoverable damages, or something which was outside the scope of what the company had promised. In addition to opening on the point, he cross-examined on that basis, and even after the exchange of written submissions and after his opponent had been confronted by the primary judge with the proposition that it was outside the pleadings, continued to address on why there could be no contractual obligation to pay damages for lost rent.
[84] Conversely, at no stage was it said on behalf of Fowler Homes words to the effect that “although my opponent keeps referring to Hadley v Baxendale , we are here to defend the claims advanced on the pleadings, which are claims for damages based on statutory unconscionability and, in the case of Joe, deceit, and there is no claim for damages for breach of contract”. To the contrary, Fowler Homes engaged with the issues of reasonable foreseeability, in opening, in cross-examination and in closing address.
[85] “Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted”: Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 287 ; [1990] HCA 11 . Here, each counsel explicitly opened and cross-examined on the basis that whether foregone rent was within the parties’ expectations was in issue. That question was unequivocally referable to a claim for damages in that amount for the delayed performance by Fowler Homes.
[86] The position may be summarised thus. Joe and Matthew were plainly advancing a claim for lost rent; the affidavits sworn by the real estate agent had no other purpose. Joe and Matthew were also plainly advancing a claim for breach of contract; even if that was not clear from prayer 4 in the summons, it was explicit in the carve-out from the claim for exemplary damages. It is clear that one of the breaches alleged was that Fowler Homes took too long to complete. Most importantly, in both sides’ openings and in both sides’ cross-examination, both sides engaged explicitly with whether the lost rent satisfied the first limb of Hadley v Baxendale . Even in final address Fowler Homes did not unequivocally resist the claim. I would conclude that this trial was conducted in a way to extend to such a claim.
[87] Counsel for Joe and Matthew submitted to the primary judge that this claim was within the case as run, even if it was outside the pleadings. That submission was not addressed by the primary judge. It should have been addressed, and having regard to the conduct of the trial, it should have been upheld. I have concluded that this ground is made out.
Was the lost rent proven?
[88] These grounds of appeal may be addressed much more concisely. They have two components. The first concerns a challenge to the rejection by the primary judge of the entirety of affidavits sworn by Mr Nick Alexopoulos in each proceeding. He was an experienced real estate agent operating in the area who purported to give expert evidence of the likely rentals which the completed dwellings would achieve. His opinions were scarcely supported by reasoning, and mentioned no comparables. The entirety of his report was excluded on the basis that no reasoning was disclosed, in accordance with Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 .
[89] In this Court, it was not suggested that there was error in rejecting that evidence as expert opinion evidence. Instead, Joe and Matthew submitted that Mr Alexopoulos was more than an expert witness. It was said that substantial parts of his evidence should have been admitted as evidence of primary fact. For Mr Alexopoulos said that he had met the appellants in around 2013 when he had acted as the selling agent for Joe on a property. He said “Joe and I quickly became friendly and have stayed in touch since”. He gave evidence of a conversation in January 2019 where he gave an estimate of the likely rentals for two duplexes on each of the properties which were “going to be four bedders with two bathrooms and single garages” but with high level finishes. He also gave evidence of his conduct in actually marketing the properties for rent in April 2021, and annexed leases which had been entered into over the properties.
[90] In this Court, Joe and Matthew contended that so far as the real estate agent gave evidence of what in fact had happened, both before and after the dwellings had been completed, that was evidence that bore upon the likely rents: in the case of the evidence before, as admissible evidence bearing upon the rents to be achieved, and in the case of the leases, at least insofar as they were arms-length transactions, they were capable of bearing upon the rentals that would have been achieved had completion occurred in accordance with the contract. No such submission was made at trial.
[91] Further, in this Court — in contrast to the position below — it was conceded that the properties had some value for rent. Mr Bedrossian, who led Mr Stitt in this Court and had not appeared below, conceded candidly:
In our written submissions we accept that, and I’ll be blunt about this, his Honour was wrong to reject the leases as being irrelevant. I accept that. There were fundamental problems with that affidavit as an expert report but the leases themselves were at least some identification of the value of the properties. I accept that. I also accept, as I hope we fairly have done in our written submissions, that it would be absurd to say that the properties when finalised had no rental value.
[92] It was refreshing and appropriate in this litigation about a relatively small amount of money for concessions to be made so as to permit attention to be given to the real issues dividing the parties. The fact that both sides accused the other of fraud did not relieve the parties nor their lawyers from the obligations in s 56(3) and (4) of the Civil Procedure Act 2005 (NSW). I would have reached all of the conclusions conceded by Mr Bedrossian.
[93] I see no error on the part of the primary judge in rejecting Mr Alexopoulos’ testimonial evidence concerning rents which he said he discussed with Joe before the contracts were performed, which were only tendered as expert evidence, and it is too late now for that evidence to be adduced. But the leases of the actual land were admissible as bearing upon the evidence of the rent the same dwellings built on the same land would have achieved had they been completed some months earlier.
[94] More generally, this is not a case where the plaintiffs should fail on the basis that they had not proven loss. The principles were summarised by Black J in Sabouni v Revelop Building and Developments Pty Ltd [2021] NSWSC 31 at [41] –[42] . In short, the Court must do the best it can to make a reliable assessment of damages, where damages are difficult to assess, including where a party has failed to lead the best evidence of damages: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 , 125 , 153 ; [1991] HCA 54 . In Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 at [135] , Beazley JA with whom Basten JA agreed said that:
Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provides for breach of contract, an award of damages …. Such damages should not be nominal only, notwithstanding that the award may be difficult to assess. …
[95] That said, where damages were susceptible of evidentiary proof, but there is an absence of raw material to which good sense may be applied, “[j]ustice does not dictate that … a figure should be plucked out of the air”: Troulis v Vamvoukakis [1998] NSWCA 237 . Likewise, in McCrohon v Harith [2010] NSWCA 67 at [128] , this Court said that an estimate of damages, in the nature of a “guess”, should not be made where precise evidence of the damages suffered could have been adduced but was not.
[96] Thus the law draws a distinction between cases of mere difficulty in proving damages, which must often be assessed on a counter-factual basis, and cases where damages are refused because the position is too speculative. In such cases it is important to have regard to the capacity of the plaintiff to adduce evidence, and how truly speculative the loss is. In the present case, the plaintiffs sought to adduce testimonial evidence of the man who let the very properties when it became possible to do so, not to mention the leases themselves, while the defendants adduced no evidence at all. And it is perfectly plain that there was some loss occasioned by the continued dispossession of the plaintiffs from their land, and far from being complicated, the quantification of lost rent turns on a small number of integers, principally, the number of weeks and the weekly rate. The rents on the leases actually entered into remove this case from being one where there is an absence of raw material on which to base a figure. Further, the leases in evidence demonstrate that the premises were let promptly after they became available. I consider that the case is the opposite of the sort of case where a plaintiff who is otherwise entitled to succeed for breach of contract should fail by not having established loss, and the primary judge erred in buttressing his decision by way of fallback on the failure to establish loss.
[97] This ground is made out. I will turn below to the quantification of loss.
(emphasis added)
The full decision may be found here.
