Court awards damages for building works not completed in a reasonable time

In brief

In a recent Supreme Court case[1], the Court overturned a VCAT judgment and held as follows:

1. There was an implied term requiring building works to be completed within a reasonable period of time.
2. Damages were awarded by reference to the rental value of the property during the delayed period.

Facts

 The Court outlined the facts as follows:

• Yun Zeng (Zeng) purchased a whole floor apartment at Eureka Tower in Melbourne for $5,838,000.00. The apartment was a shell and required fit out works before it could be occupied.
• Zeng entered into a building contract with the defendant to carry out internal fit out works which included a private art gallery and a residence. The contract price was $1,168,558.24.
• The contracted works should have been completed by 3 December 2014, however were not completed for a further 130 weeks.
• The case was heard in VCAT who held that damages were not applicable because Zeng wasn’t intending to rent out the property. The case was appealed to the Supreme Court.

The Supreme Court held as follows

1. There was an implied term that the works must be completed within a reasonable amount of time.
2. Even though the intention was for Zeng to live in the apartment, it was reasonable to provide compensation by way of the rental equivalent of the apartment for the delayed time (130 weeks).

This was despite the following:

• There was no loss of residential income because Zeng never intended to lease the apartment.
• Zeng did not incur the expense of having to rent other accommodation during the delay period because at all relevant times she had access to a number of her own residential properties in Melbourne.
• The Court held that despite this, Zeng still suffered a loss. She was therefore entitled to be compensated. This was because had the defendant completed the fit out within a reasonable period, Zeng would have been able to exercise her right of occupancy of the apartment for the 130 weeks.
• Damages for breach of contract are intended to restore the plaintiff to the same situation as if the contract had been performed. If the contract had been performed in accordance with its terms, Zeng would have been able to use the property during the delayed period of 130 weeks.  The property would have been available for use both as accommodation and an art gallery for Zeng’s extensive art collection.
• The defendant knew when it entered into the fit out contract it was undertaking to fit out the apartment for use both as a residence and an art gallery. A reasonable person in the defendant’s position would have realised that Zeng’s loss of use of the apartment would flow from the breach of the implied terms that the works would be completed in a reasonable time.
• The Court held that damages be awarded in favour of Zeng at the rate of the commensurate rental for the apartment.

Lessons

 This case is authority for the fact that in some circumstances, even if you have not suffered a direct loss (such as loss of rental income), that you still may be entitled to damages for breach of contract.

[1] Zeng v Leeda Projects Pty Ltd [2019] VSC106