Whether damages are to be assessed at the date of breach or the date the contract is lost – Remoteness of loss
In this case, the NSW Court of Appeal considered the date of the assessment of damages and whether the loss the respondents suffered was too remote.
The court held that it would be unjust to assess damages at the date of the breach of contract. Instead, they should be assessed at the later date when the mortgagee in possession sold the property, being the date when the contract was 'lost'. The court also held that damages for increased building costs, rent and interest was not within the parties' reasonable contemplation.
This case confirms that damages will usually be assessed at the date of breach of contract. However, the court may depart from the general rule, if needed, to provide proper compensation to the plaintiff, and will do so if the innocent party sought to keep a sale contract on foot following the other party's breach.
Mr El Ali was the owner of vacant land, subject to a registered mortgage. He contracted with Mr and Mrs Tritton to sell the land for $740,000.
On 14 August 2015, Mr El Ali failed to complete the sale, and on 28 October 2015, Mr and Mrs Tritton commenced proceedings for specific performance. During this time, the mortgagee took possession of the property. After sale negotiations with the mortgagee failed, Mr and Mrs Tritton purchased another vacant-land property, for $775,000. On 11 April 2016, the mortgagee sold Mr El Ali’s property to a third party for $800,000.
Mr and Mrs Tritton were awarded damages for breach of the sale contract. The primary judge awarded damages for expectation loss as well as reliance costs.
Mr El Ali appealed, arguing that the expectation damages should have been assessed according to the property's market value at the date of the breach, rather than the date when the property was sold. In addition, Mr El Ali argued that damages for increased building costs, rent and interest on the 'reverse mortgage' were too remote.
The court agreed with the primary judge that expectation damages should be assessed at the date when the contract was lost – the date when the mortgagee sold the property to the third party – and specific performance was therefore no longer available. In this instance, it would be ‘unjust’ to follow the general rule and assess damages at the time of breach. Despite the initial breach, Mr and Mrs Tritton ‘acted reasonably’ and sought specific performance of the contract. The court noted that before the property was sold, Mr El Ali could have fulfilled the contract and paid out the mortgagee. The court dismissed this ground of appeal.
However, the court allowed the appeal regarding the other awards of damages. It reiterated that the common law will not compensate the non-fulfilment of an expectation if it was not reasonably within the parties' contemplation as a probable result of a breach, at the time they entered into the contract.
The court held it was not within the parties' reasonable contemplation that Mr and Mrs Tritton would buy a different kind of property, which would require them to build a house that was different and more expensive than the one they intended to build on Mr El Ali's land. There were also fundamental issues with the evidence, and no evidence was adduced to compare Mr and Mrs Tritton's present position to the position they would have been if the contract had been performed.
Similarly, as regards the ‘reverse mortgage’, there was little evidence of the identity of the financier, the terms of the facility, and so on. The court held that even if there was such evidence, the loss was too remote. It would not have been within the parties' reasonable contemplation that Mr and Mrs Tritton would have drawn down financing before settlement.
The court also held that damages for rent paid from 14 August 2015 to the date Mr and Mrs Tritton contracted to purchase the other property was too remote. There was also no evidence adduced comparing the position they would have been in had the contract been performed.