Lloyd's Maritime and Commercial Law Quarterly


Tabcorp Holdings v. Bowen Investments


A recent decision of the Australian High Court in Tabcorp Holdings Ltd v. Bowen Investments Pty Ltd 1 raises two questions. First, what is the measure of damages for a breach of a negative covenant in a lease not to alter premises: the diminution in value or the cost of cure? Secondly, can damages be awarded for an injury to the innocent party’s performance interest? These questions arise from the following facts.
Bowen Investments (landlord) leased an office building in Melbourne to Tabcorp Holdings (tenant) for ten years commencing on 1 February 1997. The tenant had an option to renew the lease and, in April 2006, the parties reached an agreement on extending the lease from 1 February 2006 until 2012. An option of another extension until 31 January 2017 was also agreed. The lease included covenants to keep the premises, and to yield them up, in repair. Most importantly, the tenant covenanted not to make any substantial alteration to the premises without the landlord’s approval (cl 2.13). Early in July 1997, the landlord was informed about the tenant’s proposal to alter the foyer. The landlord wanted to see the proposed plans before giving its consent. Deciding not to wait for the approval, the tenant demolished the foyer. On 30 September 2005, proceedings were commenced in the Federal Court of Australia. Whilst there were several claims, it was the damages claim for breach of cl. 2.132 which was upheld by the Federal Court and which was the subject matter of further proceedings. The trial judge awarded $34,820 as the difference between the value of the property with the old foyer and its value with the new foyer. The majority of the Full Court of the Federal Court increased the damages award to $1.38m ($580,000 as costs of restoring the foyer and $800,000 for loss of rent for the period of restoration).

Breach of a negative covenant

In the absence of a relevant statute,3 as was the case here, the common law draws distinctions between various types of covenant for the purpose of determining the applicable measure of damages. A breach of covenant to deliver premises in repair at the expiration of a lease or at an earlier determination of tenancy will trigger the cost of cure measure (Joyner v. Weeks).4 Where a claim is brought during the tenancy for breach of a covenant to keep premises in repair, the assessment will be based on the diminution in the value of the reversion.5 It is considered unfair to rely on costs of cure “for in such cases, when the damages are awarded to the landlord, he is not bound to expend them in



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