Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8

Breach of covenant not to alter premises without consent; measure of damages

Facts

Bowen Investments Pty Ltd (BIPL) constructed a new office building and installed an expensive high quality foyer. A 10-year lease of the whole building was granted to Tabcorp Holdings Ltd (THL). The lease contained a term providing the tenant could not make alterations to the demised premises without the approval of the landlord. Within six months of taking possession, THL demolished the foyer. BIPL brought an action for breach of contract.

Issues

BIPL contended the demolition of the foyer without consent amounted to a breach of contract and they, therefore, sought to recover the costs of fully restoring the foyer to its previous state, on the basis that damages should place them in the position they were in, but for the breach of contract. THL argued the damages should be restricted to any diminution of the value of the building as a whole because of the breach of covenant. Since there had been no significant loss to the value of the building in its entirety, the landlord should only be awarded nominal damages to reflect his actual losses.

Held

BIPL successfully recovered damages for the full reinstatement of the foyer. Damages for breach of contract at common law should, so far as is possible, restore the innocent party to the position he would have been in, had the contract been performed. Damages based on the diminution of value of the building in its entirety, would undermine the nature of the contractual covenants.