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In this matter the parties were seeking the specific performance of a transaction deed dated 13 March 2014. The issue in dispute was the amount the plaintiffs needed to tender to effect settlement, the difference in settlement amount being primarily the quantum of damages sought to be set-off against the balance purchase price by the plaintiffs for an alleged breach of one of the contracts for the sale of a resort and its associated properties, the subject of the deed. The plaintiffs alleged that, in breach of the contract of sale, the defendants altered the lease arrangements in respect of two of the lots the subject of the contract without the plaintiff’s consent.
Following a detailed consideration of the evidence presented by both parties, the Court, preferring the oral testimony of the defendants, concluded that the alterations to the relevant lease arrangements had been made with the knowledge and consent of the plaintiffs. In particular, the Court found that this consent was, in the circumstances, implicit in the plaintiffs' continuing authorization for the defendant to enter into lease arrangements for the relevant lots. Though, given this conclusion, it was unnecessary to do so, the Court proceeded to consider what would have been an appropriate quantum of damages.
It was the plaintiffs’ contention that the measure of damages ought to be the aggregate shortfall of rental and electricity charges MSD Securities claimed it would have been entitled to charge the lessee over the currency of the two unamended leases. For the reasons that follow the Court disagreed with this contention.
The amount to be awarded by way of damages for breach of contract should, as near as possible, put the party in the position it would have been in had the contract actually been performed. , . The defendants alleged that, as was the case here, where the object of the contract is the acquisition of a marketable asset, vindication of the party’s expectation interest can adequately be achieved by an award of damages which is reflective of the diminished value of the asset concerned as an article of commerce, being “that amount of money which reflects the difference between actual realisable value in the market and the realizable value the product should have had”. ,  see also UI International Pty Ltd v Interworks Architects Pty Ltd. On this basis, the measure of damages ought to be the diminution in value of the land transferred, rather than the difference in projected rental income streams. The Court, agreeing with this approach, noted that “irrespective of any particular commercial context, the applicable principles remain the same”. –, see also Bellgrove v Elridge.
Right to legal or equitable set-off
The Court then turned to consider whether the plaintiff would have had a legal or equitable right to set-off these damages against the balance purchase price otherwise payable at settlement.
Legal right to set-off
While by the terms of the relevant contracts the parties had not expressly excluded the right to assert a set-off of damages for breach of contract. The Court accepted the defendants’ submission that, by their commitment to a “specific and prescriptive contractual regime” as to how the balance purchase price was to be adjusted, the parties had excluded any legal set-off for damages for breach of contract. .
Equitable right to set-off
Equitable set-off will only be available where the set-off is bound-up with and goes to the root of, challenges, calls into question or impeaches the title of the claimant – “the mere existence of a cross-claim is not sufficient”. , see HP Mercantile Pty Ltd v Dierick. The plaintiff submitted that an award of damages for breach of a contractual obligation of warranty may be set-off against the purchase price payable under the contract citing Drane v Aqualyng Holdings and Davis v Perry O’Brien Engineering Pty Ltd. The Court distinguished these cases on the basis that in both there was a readily apparent cross-claim, such a cross-claim was not evident in the present circumstances, the Court noting that both parties were “desirous of the relevant agreements being specifically performed” such that “the balance purchase price [did] not constitute a cross-claim”. . The Court also rejected the plaintiffs' submission that the effect of the defendants pleading that the plaintiffs be obliged to tender the full settlement sum, amounted to a (cross) claim for an amount owning by the plaintiffs to the defendants. . The Court, noting the interdependent contractual obligations of the parties, concluded that the fact the parties could not agree on the appropriate adjustments to the balance purchase price did not mean that the defendants were counterclaiming for any monetary amount.