This case has potential consequences for builders with respect
to receiving payment for works undertaken on behalf of tenants of
In 1997 Bowen Investments, owner of a unique commercial building
in Melbourne, discovered that its corporate tenant Tabcorp had
engaged its own architect, internal designer and contractors to
renovate the premises. The contractors jack-hammered and filled
with debris the building's foyer. The original foyer featured
San Francisco Green Granite and Sequence and Matched Crown Coat
Tabcorp had agreed in the lease not to make any substantial
alteration or addition to the premises without the prior consent of
Bowen Investments. Tabcorp had also agreed in the lease to make
good any damage incurred to the premises. Bowen Investments had not
given prior consent to the alterations to the foyer, and Tabcorp
refused to make good the damage it caused. The estimated cost of
restoring the premises was $1.38 million.
In January 2009, all 5 judges of the High Court of Australia
determined that the actions of Tabcorp showed "contumelious
disregard" for the rights of Bowen Investments as
At the first hearing of this case, the Federal Court of
Australia awarded damages to the landlord of only $38,820.00 (the
difference between the value of the premises with the original
foyer and the value of the premises with Tabcorp's newly
constructed foyer). As a result, Bowen Investments felt that the
law essentially allowed tenants complete liberty to breach their
leases provided they paid adequate damages to compensate the
landlord ("the doctrine of efficient breach").
Bowen Investments appealed the decision to the Full Federal
Court of Australia, which awarded Bowen Investments damages of
$1.38 million to restore the foyer to its original condition.
Tabcorp appealed to the High Court of Australia which, in
January 2009, upheld the previous decision to award Bowen
Investments $1.38 million in damages, and noted that the
"ruling principle" in relation to damages for breach of
contract is that the innocent party is to be placed, so far as
money can do it, in the same situation as if the contract had been
properly performed. The Court found that the landlord's loss
was the cost of restoring the premises to the condition it would
have been in had the lease not been breached by the tenant. The
Court said restoration was necessary to produce conformity with the
condition of the foyer as it was at the start of the lease. The
Court did not find that Bowen Investments' requirement to
restore the foyer was unnecessary or unreasonable.
Tabcorp neglected to request a discount in the damages awarded
against it to account for the fact that if Bowen Investments used
the damages to restore the foyer after the expiry of the lease, it
would be 'better off' with a brand new foyer it
wouldn't ordinarily have had. As a result, the High Court did
not allow for that discount.
The lessons from Tabcorp Holdings Ltd
–v– Bowen Investments Pty Ltd are
Tenants can no longer impose a form of economic rationalism on
an unwilling landlord by making substantial alterations or
additions to premises without prior consent, as it will likely
result in restoration of the premises at great cost to the
Builders engaged by tenants should ensure that the prior
approval of the landlord has been given to any building
alterations. Builders should at least obtain appropriate
indemnities from the tenant, as (although it didn't occur in
this case) tenants may find themselves financially overburdened by
builders' claims for progress payments in addition to
landlords' claims for substantial damages, which will in turn
affect the ability of the tenant to pay the builder on time or
perhaps at all. Building contracts AS 4000 – 1997 (cl
15.2) and AS 2124 – 1992 (cl 17.2), for example, provide
that a principal must indemnify the contractor in respect of claims
challenging the right of the principal to carry out the work under
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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