Wadman v Kamea [2001] FJLawRp 29; [2001] 1 FLR 144 (19 April 2001)

DERRICK WADMAN v CHARLES KAMEA & VITI AESTHETIC PARTNERSHIP LTD.

High Court Civil Jurisdiction

11 April, 2001, 19 April, 2001

HBC 307/00S

Building contract – breach - assessment of damages where no defence filed – house incomplete by contract date - whether daily penalty clause for non-completion or liquidated damages for genuine pre-estimate of damages – award for rent provides adequate cover for pecuniary loss under penalty clause - High Court Rules O.10 r.2, O.19 r.7

The Plaintiff contacted the Defendants to build a 2 br house within 3 months for $36.7K. The parties extended contract to include further building works for a price of $44.4K, and extended again by another 6½ months, at which time the Defendants would pay a daily penalty if incomplete. The Defendants completed 50% of the house, and did not pay any penalty, and the Plaintiff spent a further $20K on another builder to complete the upper levels. The Plaintiff filed a Writ, and in absence of a defence, sought assessment of damages. The Court proceeded to discuss the Plaintiff's entitlement to liquidated and unliquidated damages. It discussed whether a clause of the contract could properly be construed as a genuine pre-estimate of damage, and thus a clause for liquidated damages or a penalty clause for non-performance. The Court concluded that the Plaintiff was entitled to beyond the damages stipulated, but declined to award under this head, as rental had already been awarded as sufficient cover for pecuniary loss.

Held–(1) The measure of damages due to the Plaintiff, is the cost to him of completing his house at a reasonable time, in a reasonable manner, without delay, and the value of the use of the premises lost by reason of the delay. The parties must have known that if the house was not completed, the Plaintiff would have to pay another builder to finish it, and that the Plaintiff would have to live somewhere else while the house was under construction. The cost of completion must be assessed when the contract had in effect, been terminated. The Plaintiff is entitled to the sum paid to the Defendant over and above the value of the work done, provided it is not remote and that the Defendant must have realised was a likely result of his breach of contract.

(2) A clause for liquidated damages inserted to persuade a party to the contract to honour its terms (a threat fixed "in terrorem") is a penalty clause. It is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach, and where it consists of paying a sum greater than the sum which ought to have been paid. If this is a liquidated damages clause for a genuine pre-estimate of damage, then a Plaintiff cannot claim additional damages, nor ignore the clause, and claim only unliquidated damages. The history of continuous breaches by the Defendants means clause 3 is a penalty clause. There was no accuracy of calculation in money's worth of losses accrued as a result of non-completion, nor provision for gradient of damages. The potential pecuniary loss to the Plaintiff on non-completion of the house far exceeded the $100 a day stipulation, and could not represent actual potential losses. Although the Plaintiff is entitled to greater than $100 a day, no award is made where $900 rental per month adequately covers the Plaintiff's pecuniary loss.

Damages of $66,133.20 awarded, being overpayment to the Defendants under contract ($15,485.00), cost of completing house ($30,399.00) together with costs of obtaining engineer's certificate, electrical works and 5 months rental.

Cases referred to in Assessment of damages

Bank of Baroda v Chauhan Investments Ltd. (FCA) Civ App. No. 33/92
Dunlop Pneumatic Tyre Co. Ltd. v New Garage & Motor Ltd. [1914] UKHL 1; 1915 AC 79
Koufos v C. Czarnikow (1969) 1 AC 350
Mertens v Home Freeholds Co. (1921) 2 KB 526
Victoria Laundry (Windsor) Ltd. (1949) 2 KB 52

Devanesh Sharma for the Plaintiff
No appearance by the Defendants

19 April, 2001

ASSESSMENT OF DAMAGES

Shameem, J

The Plaintiff owns a piece of land at Pacific Heights in Deuba. The 1st Defendant is the Managing Director and principal shareholder of Viti Aesthetic Partnership Ltd., a company trading under the name of Heritage Homes. Heritage Homes engages in the business of building homes.

On 25th June 1999 the Plaintiff and the 1st Defendant entered into a building contract. The Defendant was to build a two-bedroom house for the Plaintiff on his property at a price of $36,676.59, to be completed by 30th September 1999. Work was to commence on 25th June 1999.

On 27th July 1999 the contract was varied to include further building work, and to increase the contract price to $44,410.00. The house was not completed by the agreed date of 30th September 1999. The contract was again varied on the 1st of March 2000, extending the completion date to 11th April 2000. This variation, included a clause (Clause 3) which provided that if the house was not completed by 11th April 2000, the Defendant would pay the Plaintiff $100.00 per day.

The house was not completed by 11th April. On 17th April 2000, the Plaintiff's solicitors wrote to the Defendant, giving his company 7 days to complete the house. Further time was given until the 27th of June 2000, when the Plaintiff demanded the balance owed to the Plaintiff under the contract, and special damages. The Plaintiff had already paid the 1st Defendant $37,825.00.

The Defendant did not pay the Plaintiff and did not complete the house. The Plaintiff then obtained quotations from three other builders, and paid one of them to complete the house, paying him $20,399.00 to complete the upper level of it. A further $10,000.00 will be needed to complete the lower part of the house.

On 3rd August 2000, the Plaintiff filed a writ against the 1st and 2nd Defendants, claiming damages for breach of contract. Acknowledgment of service of writ was filed by the Defendant in Person.

No defence was filed, and on 8th November 2000, the Plaintiff filed summons to enter judgment under Order 19 Rule 7. There were difficulties in serving the Defendants with the summons, which was eventually posted to him under Order 10 Rule 2. The Defendant did not appear, and the assessment of damages hearing was eventually set for 11th April 2001.

The Plaintiff gave evidence of the facts leading to the filing of the writ. He said that only 50% of the work on the house had been done by the Defendants, although the Plaintiff had paid the 1st Defendant a total of $37,825.00.

He said that his claim is as follows:

	Value of Contract	$44,410.00
	Amount paid	37,825.00
	Less value of work done	22,250.00
		__________
	Reimbursement due to Plaintiff	$15,485.00
		__________
2.	General Damages
	Completion of upper level	$20,399.00
	Sum for lower level	10,000.00
	Engineers fee	500.00
	Electrical Work	2,100.00
	Liquidated Damages from April 12th to July 17th	8,200.00
	Travelling to Pacific Harbour from Suva	250.00

$900 per month for rented property from January 2000 to 16th September 2000. Costs and Interests.

In submissions, Mr D. Sharma for the Plaintiff, submitted very fairly that the $100 a day liquidated damages under the contract could be set off against the rental claim.

The measure of damages due to the Plaintiff, is the cost to him of completing his house in a reasonable manner, and the value of the use of the premises lost by reason of the delay (Mertens v Home Freeholds Co. (1921) 2 KB 526.)

In Bank of Baroda v Chauhan Investments Ltd. Civil App. No. 33/92, the Fiji Court of Appeal said:

"The Company was entitled to recover as damages all losses resulting from the breach of the contract which were within the reasonable contemplation of the parties when they entered into the agreement (Victoria Laundry (Windsor) Ltd. (1949) 2 KB 52 and Koufos v C. Czarnikow (1969) 1 AC 350)."

Clearly the parties must have known that if the house was not completed, the Plaintiff would have to pay another builder to finish it, and that the Plaintiff would have to live somewhere else while the house was under construction.

The cost of completion must be assessed when the contract had in effect, been terminated. The Plaintiff must show that he completed his house at a reasonable time and in a reasonable manner, and that he has not delayed the building unnecessarily.

Having heard the Plaintiff in the witness-box, I accept his evidence that the house, which was to be completed by April 11th 2000, under the terms of the contract dated March 1st 2000, was only half-completed, by that date. I accept that the Plaintiff paid the 1st Defendant $37,825.00, and that the value of the work done was only to the cost of $22,250.00.

I also accept his evidence that the completion of the house has cost him $20,399, with a further $10,000 needed to complete it. He also had to pay $500 for an engineer's certificate (which the Defendants had undertaken, by contract, to provide) and $2,100 for electrical works. I further accept the Plaintiff's evidence that he was forced to rent a home while his house remained incomplete, at $900 per month.

Assessment

The Plaintiff is therefore entitled to the sum paid to the Defendant over and above the value of the work done by the Defendants. The sum he is entitled to is $15,485.00, the Plaintiff, being entitled to the cost of completing the building, a further award of $30,399.00. Also under this head of general damages the Plaintiff is entitled to $500 for the engineer's certificate; and to $2,100 for electrical works, both of which had been the responsibility of the Defendants under Clause 7 of the contract of the 1st of March.

The cost to the Plaintiff consequential upon the delay in the completion of the house, is recoverable provided it is not remote and that the Defendant must have realised was a likely result of his breach of contract.

The Defendant must certainly have known that the Plaintiff was forced to rent property because of the delay in the building of the house, and I therefore award the sum of $900.00 per month from 11th April to 16th September 2000, in the total sum of $4,500.00. I decline to award $250.00 for trips to Pacific Harbour. I have no doubt that the Plaintiff would in any case, have visited the building site frequently to check on progress.

What of the liquidated damages under clause 3 of the March 1st contract? Clause 3 says:

"Possession of the said property in question shall be given to the builder who shall commence the said works on that site and shall continuously proceed with the building and completion of the said works as per the said design, plans and specification and complete the said works within ... 42 ... days of the date of this agreement after which the builder shall be liable for agreed liquidated damages at the rate of $100.00 per day...."

This clause can only be described as a clause providing for liquidated damages, where it is a genuine estimate of the damage which would probably arise from breach of the contract. If the clause was simply inserted to persuade a party to the contract to honour its terms (a threat fixed "in terrorem" - Clyde Bank Engineering Co. v Don Jose Ramos Yzquierdoy Costaneda (1905) AC 6) then it is a penalty clause. If this is a liquidated damages clause, then the Plaintiff cannot claim additional damages, nor ignore the clause, and claim only unliquidated damages. The exception is where other breaches have occurred which fall outside the ambit of the liquidated damages provision.

The use of the word "liquidated damages" in the contract, is of little relevance. The question of whether the clause constitutes liquidated damages is a matter of construction. As a matter of principle Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd. v New Garage & Motor Ltd. [1914] UKHL 1; 1915 AC 79, 86 said:

"To assist this task of construction, various tests have been suggested, which if applicable to the case under consideration may prove helpful or even conclusive. Such are:

(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. This, though one of the most ancient instances, is truly a corollary to the last test.

(c) There is a presumption (but no more) that it is a penalty when 'a single sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage.'

(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable the pre-estimated damage was the true bargain between the parties."

On the facts of this case, I consider Clause 3 not to be a clause for liquidated damages, but to be a penalty clause. I come to this conclusion because the history of the relationship between the Plaintiff and the Defendants shows continuous breaches by the Defendants as to the agreed completion date. The Plaintiff was obviously anxious to ensure completion of the house. Furthermore, the potential pecuniary loss to the Plaintiff on non-completion of the house, far exceeded the $100 a day stipulation, and could not have been considered by the parties to represent actual potential losses. This clause cannot therefore be said to be a genuine pre-estimate of damage. This is particularly so because the parties could have, at the time of contracting, accurately calculated in money's worth, the losses accrued as a result of non-completion. Nor was there a provision for the graduation of damages payable, the longer the delay.

In Cellulose Acetate Silk Co. v Widnes Foundry (1933) AC 20, a clause providing that the Defendants should pay £20 for each week's delay in delivering an acetone recovery plant to the Plaintiffs was held to be a liquidated damages clause by the House of Lords on the ground that the parties had agreed that although actual damage would be more than £20 a week, the sellers should be limited to that amount.

Having heard the evidence of the Plaintiff, it does not appear to me, that the parties agreed to limit liability for breach of the contractual time to $100.00 a day. I find therefore that the Plaintiff is entitled to damages for breach of contract over and above the $100 stipulated in the contract. I do not propose to make any award under this clause, as I consider the $900 per month award for rental a consequential loss which adequately covers the Plaintiff's pecuniary losses.

In summary therefore the assessment is as follows:

	Overpayment to the Defendants under contract	$15,485.00
2.	Cost of completing house	30,399.00
3.	Engineers Certificate	500.00
4.	Electrical Works	2,100.00
5.	Rent for 5 months	4,500.00
		$62,984.00
	Plus interest at 5% per annum from breach from 12th April 2000	3,149.20
	TOTAL	$66,133.20

I also award costs of this action which I set at $600.00.

Damages awarded.

Marie Chan