The Material Facts of the Tabcorp Case

Case: Tabcorp Ltd v Bowen Investments Pty Ltd

A) Provide a summary account of the material facts of the Tabcorp case and its progression from the original hearing before a single trial judge, Tracey J, in the Federal Court to appellate hearing before the full bench of the High Court of Australia.

Material Facts:

The Bowen Investments had constructed a new building and installed an expensive high quality foyer. The entire building was leased to Tabcorp for 10 years from 1 February 1997. It contains options to renew for a further five years in 2007 and 2012. According to the Lease a clause 2.13 prohibited the tenant from making substantial alteration or addition to the leased premises without first obtaining the lesser’s written consent. Within six months of taking possession of the new building, the tenant demolished the foyer. Only days earlier the landlord had arranged for the tenant to be told that no consent to any alteration of the foyer would be granted. Mrs Bergamin, director of Bowen Investments had also written to the tenant saying the landlord could not consent until the tenant’s proposed alterations were examined at a site meeting scheduled within days. The destruction was in progress with jack hammers when the landlord attended at the premises for the site inspection on Monday 14 July 1997. The landlord was confronted with a fait accompli and was too late to obtain an injunction as the damage has been done. The Bowen considered the new foyer to be of inferior quality and would not have consented to it being introduced by the tenant.

Progression: Bowen Investments sued Tabcorp for damages and commenced proceedings in the:

Federal Court of Australia: In September 2005, Applicant (Bowen) claimed $1.38 million, the full cost of restoring the demolished foyer including loss of rent while the works were carried out. The trial judge, Tracey J delivered judgement in this matter on 18 May 2007 and found that the tenant acted well aware that written consent from the landlord was needed, that the consent did not exist, and that the tenant’s conduct was in “contumelious disregard” for the landlord’s rights. On 12 June 2007, he awarded the landlord damages of $33820, being the cost of reinstalling a wall, plus $1000 nominal damages for the tenant’s failure to abide by its obligations under the lease or breach of clause 2.13.

Federal Court of Australia – Full Court: On 13 March 2008, the Full Federal Court unanimously allowed damages on the cost of reinstatement and Judges Finkelstein, Rares and Gordon JJ allowed $1.38 million, including $800,000 for a period of loss of rent.

Costs: The case had a second hearing on 13 June 2008, and the majority ordered that 70% of the appellant’s trial costs and full costs of the appeal to be paid by the Tabcorp (respondent).

Special Leave: Tabcorp Holdings was not agreed by the decision of the Full Court, appealed to High Court. Two Justices of the High Court Gleeson CJ and Crennan J granted special leave to appeal on 1 August 2008.

High Court of Australia: On appeal to the High Court, the award of $1.38 million was upheld and the appeal dismissed on relatively narrow grounds which focused upon the nature of the covenant not to alter the premises.

b) According to the High Court, how were covenants (i.e. clauses) 2.10 to 2.13 of the December 1996 lease to be construed and applied?

Answer: In the high Court distinct covenants according to the lease were explained as follows:

By cl 2.10, cl 2.11 and cl 2.12.4 the tenant covenanted to keep the premises in good repair, to yield up the premises on the determination of the lease in good repair and, to make good any breakage or damage respectively. In High Court the tenant argued that Clause 2.10, to maintain and keep the premises in repair had no application because the altered foyer was in good repair and the Court found it unnecessary to decide anything concerning clause 2.10, or Joyner v Weeks issues. By cl 2.13 Tabcorp also a covenant to the effect that he should not to make or permit any substantial alteration or addition to the premises without the approval of Bowen. The covenant in the lease forbidding unauthorized alterations was a negative covenant.  The High Court noted that the particular use of such a covenant is that it enables a landlord who learns of a threat to make a substantial unauthorized alteration to make a speedy application for an injunction restraining the tenant’s conduct (by way of specific performance).

c) If Tabcorp had entirely dismantled the existing foyer over the weekend preceding Mrs Bergamin’s visit on Monday 14 July 1997,would Bowen Investments (the Landlord) have grounds under general contract law (assuming it applied unaltered by the lease) to terminate the lease for breach?

Answer: In this scenario the relevant law is Contract Law which contains an offer and acceptance, intention to create legal relations, consideration passed both ways, legality of the objects of the agreement with express and implied conditions.

When Breach occurs: If a party, without lawful excuse, fails to perform the things promised in the contract, that party is in breach of contract. Contract exists condition (essential term) and warranty (inessential term). Where there is a breach of condition, the innocent party may terminate the contract and sue for damages. Where there is a breach of warranty the only remedy available is damages. The innocent party is not obliged to terminate the contract for breach of a condition.

According to the case the Tabcorp agreed to maintain the property in good repair and not to alter the leased premises without consent. Tenant demolished the foyer and breached the condition to preserve the demised premises the important term of lease. A breach of condition deprives the tenant of the whole benefit of the contract and therefore termination is allowed (Brendan P, Stephen G, Jann L & David p 2003).Breach of essential term gives the rights to Bowen Investments to terminate for breach.

d) How did the High Court deal with (e.g. distinguish, apply, overrule, harmonise or merge etc) the key following cases and the legal propositions they were cited for: Joyner v Weeks [1891] 2 QB 31; Robinson v Harman (1848) 1 Ex 850; Bellgrove v Eldridge (1954) 90 CLR 613; Radford v de Froberville [1978] 1 ALL ER 33; Ruxley Electronics and Construction Ltd v Forsyth [1994] 3 ALL ER 801.

Answer: The High Court deal with following cases as follows:

Joyner v Weeks: In Joyner v Weeks it was held that where a tenant breaches its covenant to repair under the lease, the landlord is entitled to recover damages for all the costs of restoring the premises to the state of repair required by the covenant. The case’s primacy on the2.10 and 2.11 clause and indicated to differentiate between the diminution in value and reinstatement costs.By altering the foyer the tenant has breached the clause 2.10 which is a repair covenant and breached the lease as held by the High Court. The high Court determined that in such jurisdictions Joyner v Weeks [1891] 2QB 31 should not apply. The court found that if Joyner v Weeks applied, it was wrongly decided and ought be overruled. So, the High Court had no problem in putting Joyner v Weeks lesser and lessee issues to one side. Therefore the landlord was assigned the cost of reinstatement, not diminution in the value of the demised premises.

Robinson v Harman (1848) 1 EX 850: The court interpreted the ruling principle regarding the common law for breach of contract. Parke B in Robinson v Harman stated:

“The rule of common law is, that where a party sustains a loss of reason of breach, he is, so far as money can do it, to be placed in the same situation, as if the contract had been performed.”

The High Court was of the view that the ruling principles of this case were altogether resembled the given case and the damages in Robinson v Harman have been assessed according to the general rule of law. The High Court completely harmonized it with the given case and repeatedly elaborated the judgment in the above case.

Bellgrove v Eldridge (1954) 90 CLR 613: The High court decided that Bellgrove v Eldridge applied. The issue aroused as to how the Tabcorp should be compensated, either by the difference in the market value of the property or on the cost of restoring the faulty work. The Bellgrove v Eldridge stated general rule that reinstatement damages rather than diminution in value damages is the correct measure. The trial judge found that Bowen Investments failure to comply with the building specification resulted in grave instability of the whole structure and reordered the damages on the cost of demolishing and rebuilding it. The High court straight away applied this case to Bowen investment v Tabcorp and has no hesitation in putting Joyner v Weeks to one side.

Radford v de Froberville: In Radford v De Froberville the words “the same situation”, with respect to reinstatement cost does not mitigate the lesser’s financial position. The court contain, the covenant is in the form of clause 2.13. The judge Oliver j observed that:

“The disappointment of the plaintiff’s hopes and expectations from the contract becomes a relevant consideration only so far as it is measurable either by some deterioration of the plaintiff’s financial situation or by some failure to obtain an amelioration of his financial situation”.

The Bowen was entitled to have its foyer back regardless of whether the market or the tenant (Tabcorp) valued it as highly as the landlord did. In other words, it was not just about money. In this case the defendant failed to erect a dividing wall which he was obligated contractually. That’s why High Court appropriately merged the decisions of this case to Bowen investment v Tabcorp.

Ruxley Electronics and Construction Ltd v Forsyth: In Ruxley Electronics and Construction Ltd v Forsyth’s case applicant failed to construct a swimming pool according to the respondent contract and was sued for the reinstatement damages.

The High Court declared that the building case was not reasonable to award the cost of reinstatement to the Tabcorp and granted the diminution value of the property.

The findings of this case were not varying with their decision that’s why during the decision of Bowen Investments v Tabcorp Holdings the House of Lords overruled the authority of this case law.

e) If as a variation on the existing facts, Tabcorp without the Landlord’s prior authority spent $6 million on a new foyer (supervised by a leading architect) that was functionally equal to the original foyer but by popular consensus far more aesthetically pleasing and virtually immune to wear and tear, would the High Court (i) still likely have confirmed the Full Federal Court’s damages award of $1.38 million, or (ii) have applied some version of the “reasonableness” exception rule?

Answer: As above scenario the House of Lords may address the following situations:

Confirmed the Full Federal Court’s damages:

If in this condition there is a breach of covenant in clause 2.13 the High court may apply the reasonableness rule and the qualification rule, opposite to the decisions of the Full Federal court. The court applied qualification rule to this case and elaborated that, the expression ‘necessary to produce conformity’ means ‘apt to bring about conformity between the foyer as it would become after the damages had been spent in re-building it and the foyer as it was at the start of the lease’. Arguments arise that is it reasonable course to adopt and replace the current foyer with the original foyer? The Court stated that at common law the ruling principle for assessment of damages for breach of contract was that the innocent party should, as far as money can do, be put in the same situation as if the contract had been performed.” Therefore, even there is a breach of 2.13 the High court found the Full Federal Court’s damages award of 1.38 million were inappropriate and would have justified in different way.

Applied “reasonableness” exception rule:

The Court recognised that damages equivalent to restoration may be unreasonable in “exceptional” cases. The Court said if the benefit of the covenant is to be secured to the Bowen investments, it is necessary that reinstatement damages be paid. It held the landlord was not unreasonable to insist on them being paid. The two related examples of unreasonableness (Ruxley Electronics and Construction Ltd v Forsyth and Bellgrove v Eldridge) were given in the case.The altered foyer becomes advancement and has increased the value, the “reasonableness” exception rule is justified to be applied. The difference in the cost of reinstatement and the cost of refurbishment, put the landlord in position referred to as “betterment” the court would have applied the reasonableness.

f) What is the ratio decidendi of this case? That is, the proposition of law or legal principle for which this case – Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 – is authoritative, underpinning the concluding Order(s) of the full High Court.

Answer: Ratio Decidendi: The meaning of ratio decidendi is “the point in a case which determines the judgment” or the reason. In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case depends. It is a legal phrase which refers to the legal, moral, political, and social principles used by a court to compose the rationale of a particular judgment.

The process of determining the ratio decidendi is a correctly thought analysis of what the court actually decided-essentially, based on the legal points about which the parties in the case actually fought and all other statements about the law in the text of a court opinion.

In the Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, when Tabcorp demolished the foyer and constructed the new without the consent of Landlord than the High Court found that there was no differentiation between the full repair covenant and clause 2.13 which was breached. The High Court awarded to the tenant the cost of reinstatement rather than diminution in the value of the demised premises. In reaching the conclusion, the High Court reasoned that by altering the foyer Tabcorp Holdings had indeed failed to perform its contractual obligation to preserve the foyer, and in all the circumstances, the appropriate loss of landlord was the cost of restoring the foyer to its original condition before the breach occurred, As a result the submissions of Tabcorp were not accepted by the High Court. The High Court dismissed the appeal and cost was awarded against tenant (Tabcorp). The breach of authority of repair covenant is awarded on the basis of restoration cost and not on the rectification cost.

Question 2

With reference to the leading cases, provide an account of the common law rules in relation to agency concerning breach of warranty of authority, and the remedies available (if any) to the principal and/or third party in the event that the agent has committed a clear breach of warranty of authority.

Answer:

Introduction:

This essay contrasts the breach of warranty of authority and the common law remedies for breach of contract. It explains when breach of warranty occurs and also discusses how the remedies directly related to breach of contract. The essay focuses on the creation of agency and common law rules. The relation between agent and principle, and relation with third party also consists in this topic. The main focus of the essay is the breach of warranty of authority and common law remedies. The common law basic remedy is damages for breach of contract. Third person can sue agent for breach of warranty of authority if agent has no authority (Paul L, 2009). An agency is where one person, the principle, appoints another person, the agent, to do business on his or her behalf. All of these topics discuses in body properly with reference to the leading cases.

Body:

Explanation of common law rules in relation to agency concerning breach of warranty of authority, and the remedies:

Common Law: The procedures used by common law courts are based on English courts where each side has responsibility for presenting its case. The term common law is a reference to a system of law where legal principles are developed by judges through case law and to the workings of this particular legal system, where the mode for solving disputes within the court system is adversarial (Brendan P, Stephen G, Jann L & David P, 2003).

Agency: “Agency” in law means the person who is intermediary in business and who can contract for the principal. In other words agency is the legal relationship between principal and agent. Agency law involves three people: principal, agent and third party. An agency relationship is a fiduciary relationship and it results from the principal agreeing to the agent acting on its behalf, and the agent agreeing to act for the principal.

Sources of Agent’s Authority: The agent’s authority to do things may come from distinct sources: It may be given orally or in writing, implied by the conduct of the parties, may arise from necessity, formally and expressly given in an instrument of appointment and may come from a valid ratification by the principal after the event.

Authority of the Agent may be classified in these ways:

Actual Authority: Actual authority given orally or in writing and includes authority to make representations for which principal will be responsible and to representations from third party on behalf of principal.

Implied Authority (between principal-agent): An agent may have a authority implied from the circumstances or from principals conduct to achieve principals purpose.

Apparent or Ostensible Authority (effect on principal-third party): Authority or agency by estoppel. Agent does not have actual authority from principal but only the appearance of authority.

Authority by operation of law: An agent of necessity is a person who has authority to act as an agent for principal if there is an emergency and communication is possible.

Authority by ratification: Principal can adopt (confirm) an act done by A for Principal which was not originally binding on principal. This is ratification or retrospective approval. Ratification of agent’s actions is equivalent to original or antecedent authority.

Breach of Warranty of Authority: If Agent acting as an agent but has no authority than third party can sue agent for breach of warranty of authority. To sue for breach of warranty of authority, Third party must prove the elements of breach of warranty of authority:

That Agent claimed to have authority.

Third Party was induced to enter into the transaction because of this claim.

Third Party would not have entered the transaction otherwise (Paul L, 2009).

A person who purports to act as an agent impliedly warrants that they have authority and is liable for breach of that warranty even though their authority has come to an end by reason of facts of which they have means of knowledge or no knowledge (Turner, 2009).

The Common Law rule is clearly illustrated in the some given case laws.

Suleman v Shahsavari [1988] 1 WLR 1181, noted (1989) 63 ALJ 421

In this case a solicitor (Agent) signing a contract on behalf of a client (Principal) must first get the client’s authority for the contract to bind Principal.

If the contract is not binding, the solicitor may be liable to the other party to the contract (Third Party) for breach of warranty of authority even if Agent has signed the contract on the basis that principal (the client) would approve Agent signing the contract.

Collin v Wright (1857) 8 EL. & BL. 647, 120 E.R 241 (Ex. CT)

In this case plaintiff under assumption that the defended was implied agent of William done (principal) signed a twelve year lease for a farm property owned by the principal and spent considerable money on its renovation after getting the possession. Later the principal refused to ratify the lease stating that defendant was not his authorized agent.

Lloyd v Grace Smith & Co [1912] AC 716

In the, a solicitor’s clerk who was in charge of the office defrauded a client. Because the clerk was acting within the apparent scope of the business, his employer was answerable for the fraud committed on the client. The employer had placed the clerk in a position to transact business of this kind and liable for the consequences.

The result is that the third party can sue agent for breach of warranty of authority. The remedy is for damages which are calculated by the actual loss sustained. An agent will not be held liable for breach of warranty of authority if principal gave ambiguous instructions.

The breach of warranty of authority is clearly mentioned in Leggo v Brown & Dureau Ltd [1923] HCA 19. Issacs J stated in the case:

Assertion of authority;

Inducement by asserting;

Transaction which but for assertion the other party would not have entered into. Where they co-exist there is warranty.

Remedies: The basic common law remedies in breach of warranty of authority are damages. At common law, any breach of contract gives rise to a right to at least nominal damages where actual damage is proved, substantial damages may be awarded (Brendon P, Stephen G, Jenn L & David P, 2009). The aim of common law damages is to compensate the innocent party. The principal reason for granting damages is to put the innocent party into the position he or she would have been in had the contract been properly performed; that is, had the breach not occurred. The action of breach of warranty of authority allows the third party to sue the agent in relation to the recovery of damages suffered by the unauthorized acts of the agent.

Conclusion:

In conclusion, the measure of damages for breach of warranty of authority is the loss which the parties should reasonably have deliberate as liable to result from the breach of warranty. The third party can sue agent for breach of warranty of authority if he has no authority. Actual (real), implied (inferred) and apparent or ostensible (appearance) are the authorities of the agent. The agency is a relationship between agent, principal and third party. The common law is a system of law where legal principles are developed by judges through case law. From this essay we concluded all the topics as above.

Question 3

Is there a contract in existence between the parties at the time of Sunset’s gas plant catastrophe under which QMW would have potential remedies against Sunset for non supply etc?

Issue:

Whether contract exists between the Sunset Gas Ltd and QMW when Sunset’s catastrophic gas plant failure occurred? If contract exists then what type of remedies will sunset get? Contractual remedies or Remedies in tort?

Facts:

A Brisbane based firm Sunset Gas Ltd supplying coal seam gas to medium to large commercial users in Brisbane. Queensland Metal Works Ltd (QMW) a medium sized smelting and manufacturing was also a tenth largest customer of Sunset and gas was supplied to QMW under a more or less standard annual contract. However, the last annual contract had recently expired but the gas was still being supplied and billed on a weekly basis, just because of prior ten year contracting history and on the good faith between them. In November 2009 – a month after expiry of that last annual contract, Sunset’s main gas plant suffered a sudden catastrophic failure due to the poor maintenance, causing gas production and supply to cease abruptly. All essential repairs and maintenance took about three months to be carried out. On 7 March 2010 gas production and supply resumed. Catastrophic gas plant failure caused, Inter alia, QMW suffered $6 million physical damage on recently upgraded smelting plant. It would have taken about 6 months to effect the $ 6 million repairs, so on Sunset’s advice that gas supply would likely resume in about three months, QMW decided to buy and install a new $ 12 million higher capacity smelting plant. On 7 March 2010 when Sunset resumed gas production and supply, QMW was able to have it fully installed ready for production. QMW was able to sell that $ 12 million buffer inventory in next non production months which was unsold at that time when Sunset’s catastrophic gas plant failure occurred. As a result QMW lost three month’s potential production value $36 million pending the resumption of production, utilizing its newly installed higher capacity plant. It also expended $ 12 million to replace the buffer inventory it had unexpectedly sold. We have to assume that QMW had sales of $ 12 million and average monthly production costs of $4 million, generating net monthly profits of $ 8 million.

Relevant Rule/ Law:

The laws applicable here are Implied term to act in good faith and Tort of Negligence.

Implied contracts or Implied term to act in good faith: Implied contract occurs where the terms of the contract are inferred from the actions of the parties and the surrounding circumstances.

If person voluntarily give promises to each other and assume an obligation to make good those promises, a contract may come into existence. In implied term to act in good faith the concept of good faith combines a number of concepts: fairness, fair dealing, ethical behavior and honesty.

The related cases:

Hutton v Warren (1836) 1 M & W 466; 150 ER 517

Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151: 146 ALR 1

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61

Negligence: Negligence is an action in tort, actionable by a party suffering damage as a result of the defendant’s owing a duty of care and breaching the duty, causing damage as a consequence. The tort of the negligence requires the proof of the three elements:

Duty of care

That there has been a breach of that standard of care

Loss, injury or damage as a result of that breach

Donoghue v Stevenson is the case which set out the liability of a manufacturer in the tort of negligence to the ultimate consumer of its product where there was no contact between them. The House of Lords first decided the liability could arise from a negligent misstatement if there was a “special relationship” between the parties (Gibson 2005, p542). The courts have allowed the recovery of loss in Perre v Apand Pty Ltd that the defendant has made a negligence misstatement, the plaintiff’s loss was the result of professional negligence and loss flowed from damage to the property of a third party

O’Leary and Short v Lamb and Lensworth Finance Ltd (1974) 7 SASR 159

White v John Warwick & Co Ltd [1953]1 WLR 1285

Application:

The liability for misstatement is arisen due to negligent misstatements of Sunset and QMW suffered economic losses. Sunset was supplied gas to QMW but it failed to maintain it infrastructure. So this is the case of tort of negligence and Sunset owed duty of care to QMW. Secondly, the last annual contract had recently expired but the gas was still being supplied and billed on a weekly basis, just because of prior ten year contracting history and on the good faith between them. In other words, contract contains an implied term to act in good faith. There was no written contract available but an implied contract exists between the two parties,

Conclusion:

This is the case of test of negligence and implied contract. Sunset Gas Ltd firm has breached duty of care which resulted in the disruption of gas supply to QMW. On the base of prior ten year contracting history and good faith the gas was still being supplied and billed on weekly basis. In the absence of express terms but the existence of implied duty of good faith in contract performance, the contract was existed between both parties during the failure of catastrophic gas plant.

Answer: Yes, the contract exists between the Sunset and QMW at that time when Sunset suffered a sudden catastrophic failure.

Question 3

Conveniently assuming in ( a) above, no contract or dual contract/tort remedies, with reference solely to the Australian common law rules vis-à-vis negligence and liability for pure economic loss and the Civil Liability Act 2003 (Qld) if applicable, advise QMW of its rights (if any) against Sunset to recover (i) up to $ 12 million in plant related damages and expenditure; and (ii) up to $ 36-48 million in production related losses and the cost of replacing it buffer inventory.

Issue:

If applying Australian common law rules vis-à-vis negligence and liability for pure economic loss and the Civil Liability Act 2003 (Qld) what damages Sunset gas recover:

$12 million plant related damages and expenditure

Up to $36-48 million in production and buffer inventory related losses

Facts/Background:

A Brisbane based firm Sunset Gas Ltd supplying coal seam gas to medium to large commercial users in Brisbane. Queensland Metal Works Ltd (QMW) a medium sized smelting and manufacturing was also a tenth largest customer of Sunset and gas was supplied to QMW under a more or less standard annual contract. However, the last annual contract had recently expired but the gas was still being supplied and billed on a weekly basis, just because of prior ten year contracting history and on the good faith between them. In November 2009 – a month after expiry of that last annual contract, Sunset’s main gas plant suffered a sudden catastrophic failure due to the poor maintenance, causing gas production and supply to cease abruptly. All essential repairs and maintenance took about three months to be carried out. On 7 March 2010 gas production and supply resumed. Catastrophic gas plant failure caused, Inter alia, QMW suffered $6 million physical damage on recently upgraded smelting plant. It would have taken about 6 months to effect the $ 6 million repairs, so on Sunset’s advice that gas supply would likely resume in about three months, QMW decided to buy and install a new $ 12 million higher capacity smelting plant. On 7 March 2010 when Sunset resumed gas production and supply, QMW was able to have it fully installed ready for production. QMW was able to sell that $ 12 million buffer inventory in next non production months which was unsold at that time when Sunset’s catastrophic gas plant failure occurred. As a result QMW lost three month’s potential production value $36 million pending the resumption of production, utilizing its newly installed higher capacity plant. It also expended $ 12 million to replace the buffer inventory it had unexpectedly sold. We have to assume that QMW had sales of $ 12 million and average monthly production costs of $4 million, generating net monthly profits of $ 8 million.

Rule/ Law:

Here the Relevant laws are Duty of Care, Breach of Standard of Care, Damages, Causation and Concept of pure economic loss under Tort Law.

Tort Law: Torts are civil wrongs, actionable under civil law. They are acts or omissions by one party (the tortfeasor) that are not authorized by law and which infringe someone else’s private or public rights, giving that other person a right of action. In short torts are civil wrongs that result in loss, damage or injury to others and those who suffer all of these can be afforded as remedy. The person claiming to have suffered the tort wrong has the responsibility of proving the wrong on the balance of probabilities.

Duty of Care: The duty of care involves a level or standard of care to which the defendant must, but does not, conform. If there is duty of care then the