Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 concerned damages for a tenant’s unauthorised replacement of a building’s foyer. The High Court of Australia upheld an award covering reinstatement and the rent lost during the works. Compensation was not confined to the comparatively small reduction in the property’s market value.
Facts
Bowen Investments owned an office building in Melbourne and granted Tabcorp a ten-year lease commencing in February 1997. The newly completed foyer used high-quality stone and timber materials. Clause 2.13 prohibited substantial alterations or additions without the landlord’s prior written approval, which was not to be unreasonably withheld or delayed.
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In July 1997, the landlord made clear that it had not consented to proposed changes and arranged a site meeting. When its director arrived, parts of the foyer had already been removed and demolition was continuing. Tabcorp knew that written consent was required and had not been given. It nevertheless continued the work and completed a replacement foyer.
The competing measures of damages
The trial judge found a breach of clause 2.13 and awarded A$34,820. Most of that award reflected the difference between the property’s value with the original foyer and its value after the alterations.
The Full Court of the Federal Court increased the award to A$1.38 million: A$580,000 to restore the original foyer and A$800,000 for rental income lost while restoration took place. Tabcorp appealed to the High Court, seeking restoration of the trial judge’s award.
Protecting the contractual benefit
The High Court’s joint judgment focused on the promise in clause 2.13. It protected the landlord’s interest in preserving the physical character of its premises unless it consented to a change. The landlord had contracted for that protection, not merely for the building to retain a particular market value.
Applying Robinson v Harman, the court explained that contractual damages seek, so far as money can, to put the innocent party in the position it would have occupied if the contract had been performed. That is not invariably the same as compensating only for a change in financial value.
The reasoning in Bellgrove v Eldridge supported measuring the loss by the cost of obtaining conformity with the contractual obligation. Here that meant restoring the premises to the condition they would have retained had Tabcorp respected the covenant.
The fact that the building was an investment property did not remove the landlord’s entitlement. A party could bargain for a particular result even if someone else thought another arrangement served its commercial interests equally well.
The reasonableness qualification
The court retained the qualification that rectification must be necessary to achieve conformity and reasonable to undertake. However, reinstatement was not unreasonable merely because its cost exceeded the reduction in market value.
Tabcorp relied on Ruxley Electronics and Construction Ltd v Forsyth, where the cost of rebuilding a swimming pool was disproportionate to the shortfall in depth. The High Court regarded those exceptional facts as distinguishable. It rejected a broad appeal to reasonableness which would substantially deprive the landlord of the benefit of its bargain.
On the facts, restoring the foyer was necessary to secure that benefit and it was reasonable for the landlord to claim the associated damages.
Decision and matters left open
The High Court dismissed Tabcorp’s appeal with costs on 12 February 2009. The A$1.38 million award remained in place. The court upheld it through the common law principles governing breach of clause 2.13, without needing to resolve all the criticisms of the Full Court’s reasoning.
It did not decide the alternative claim for damages in place of an injunction under Lord Cairns’ Act. It also noted that a properly supported reduction for betterment might have had merit, but Tabcorp had not sought one. Nor had it challenged the assessment date used for the common law damages. Those observations were not rulings that such adjustments could never be made.
Report citation: (2009) 236 CLR 272.
Source: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, High Court of Australia, full judgment.
