Contracts: What is the amount of damages available to an owner for late completion of work on a residence that the owner does not intend to live in or rent?
By Dr Keith Lupton, Content Management Analyst – Contract and Intellectual Property Law
Has the owner really sustained any loss at all? This was the issue that tested the Victorian Supreme Court of Appeal in Leeda Projects Pty Ltd v Zeng (2020) Aust Contract Reports ¶90-484,  VSCA 192. The builder in this case entered into a contract with the property owner, Mrs Zeng, to fit-out her residential apartment into a private art gallery for her own enjoyment. While the contract did not set a date for completion, there was an implied obligation to complete the works within “a reasonable time”. The builder admitted breach, after a delay of 130 weeks to complete the works. The issue in dispute was the assessment of damages.
Initially, the Victorian Civil and Administrative Tribunal awarded only nominal damages of $100, based upon the evidence that Mrs Zeng never intended to reside in the apartment, or lease the apartment out for rent. The Tribunal concluded that Mrs Zeng had sustained no pecuniary loss that could be “identified and quantified with specificity”. On appeal, the primary judge in the Victorian Supreme Court awarded substantial damages for the “loss of use and enjoyment” of the property, which is a recognized head of damage in contract and tort, at least when the property is used to generate income. The primary judge arrived at an estimate of $357,500 by applying a notional rental value of the property to the delay period of 130 weeks. This is the customary measure of delay in building contracts, in the absence of a liquidated damages clause.
The Court of Appeal reversed the decision of the primary judge. The lost rental value of the property should not apply in this case, based upon the evidence that Mrs Zeng never intended to lease or rent the property for gain. Neither did Mrs Zeng need to incur any cost for alternative accommodation during the delay period. Further, such an award would be inconsistent with the compensation principle in contract because Mrs Zeng would make a windfall pecuniary gain from award of damages assessed on that basis.
Instead, the Court of Appeal awarded damages for the so-called “wasted expenditure” on the property, that was better described by the Court as the “costs of ownership of the property” over the delay period. These costs were the owners’ corporation fees, council rates, electricity and water charges, in the sum of $283,802. 17. These charges were incurred and paid by Mrs Zeng during the delay period, while she was excluded from the use and enjoyment of her property by the delayed building works. This measure of damages by wasted expenditure had been considered and rejected by the primary judge because the costs were incurred in any event, regardless of the contract.
Source: Leeda Projects Pty Ltd v Zeng (2020) Aust Contract Reports ¶90-484,  VSCA 192, (31 July 2020)