Commonwealth of Australia v Silverton Ltd, Commonwealth Banking Corporation, Peabody Resources Limited, W L Meinhardt & Partners Pty Limited, Dowell Australia Limited, Ccn Pty Limited (Trading As Cameron Chisholm & Nicol) and Bond James Laron [1997] ACTSC 73 (2 October 1997)

SUPREME COURT OF THE ACT

COMMONWEALTH OF AUSTRALIA v. SILVERTON LTD, COMMONWEALTH BANKING CORPORATION,
PEABODY RESOURCES LIMITED, W L MEINHARDT & PARTNERS PTY LIMITED, DOWELL
AUSTRALIA LIMITED, C.C.N. PTY LIMITED (trading as CAMERON CHISHOLM & NICOL)
and BOND JAMES LARON & MURTAGH PTY LIMITED (in liquidation)
No. SC 723
of 1989
Number of pages - 49
Real Property - Constitutional Law (Cth) -
Damages
(1997) 130 ACTR 1

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

HIGGINS J

CATCHWORDS

Real Property - Leases - Termination for breach - Serious structural defects - Loss and damage.

Constitutional Law (Cth) - Agency of Government - Whether Commonwealth can sue one of its statutory corporations for breach of contract - Lease between Commonwealth and Commonwealth Banking Corporation (CBC) - Principal and Agent - Agent's right to indemnity - Crown privileges and immunities - Separate corporate status of CBC - Commonwealth can sue CBC - The Constitution, ss9, 61, 64, 69, 75, Chapter III - Judiciary Act 1903 (Cth), ss 61, 67A - Commonwealth Banks Act 1959 (Cth), ss 7, 7A, 11, 27, 40,110.

Constitutional Law (Cth) - Jurisdiction - Claims by and against the Commonwealth - "The Commonwealth" - Includes the Commonwealth Banking Corporation - Supreme Court has jurisdiction to hear claim - The Constitution, ss 75(iii), 77 - Judiciary Act 1903 (Cth), ss 38, 39, 56, 64 - Commonwealth Banks Act 1959 (Cth), s 7(2)(c).

Damages - Remoteness - Causation - Breach of Lease - Loss of opportunity to exercise options to renew - Whether a consequence of the breach - Whether unlikely to renew due to unsatisfactory performance of building prior to termination - Whether any damage sustained.

Damages - Remoteness - Causation - Relocation of offices - Cost of removal and set-up - Whether entitled to extra ongoing costs - Only if permanent accommodation not available immediately.

Damages - Remoteness - Causation - Relocation of offices - Loss of residual value of recent fitout - Useful life of fitout - Fitout should be amortised over shorter period.

Damages - Remoteness - Causation - New fitouts - Temporary premises - Permanent premises - Double compensation - Duty to mitigate damages - Whether avoidable benefit obtained.

Damages - Remoteness - Causation - Further relocation to permanent premises - Causally related to breach - Offset by potential cost of chance of relocation at end of lease where no breach - Discounted due to uncertainty - One third discount allowed for chance of relocation - Fifty per cent discount allowed where expense inevitable and chance of relocation existed.

Damages - Interest - Pre-judgment - Rate - Where expense already incurred - Whether sum awarded should reflect inflationary loss as well as nett earnings loss - Effect of plaintiff's status as public sector borrower - Effect of Commonwealth's lack of income tax liabilities - Underlying logic of Todorovic v Waller - Discount factor of 4% (four percent) allowed - Supreme Court Act 1933 (ACT), ss 69(1)(b), (2)(a), Practice Direction No 1/1993.

Damages - Remoteness - Causation - Inter-Governmental payments - Whether payment by one Crown agency to another is a cost or expense incurred by the Crown - Where payment by Commonwealth to statutory corporation rather than directly to consolidated revenue - Where doesn't alter nett state of consolidated revenue - Where rent due under lease between Health Insurance Commission (lessor) and Commonwealth (lessee) - Whether profit element ultimately belongs to Commonwealth - Whether Crown has same rights as individual to recover profit element upon remedial work self-performed by its employees or agencies - Reasonableness - Only excess of rent and outgoings recoverable - Judiciary Act 1903 (Cth), s 64.

Damages - Remoteness - Causation - Inter-Governmental payments - Payments to Crown employees for additional work done to remedy damage suffered representing loss to Crown of all but sum retained for income tax - Whether nett negative effect on consolidated revenue.

Damages - Remoteness - Causation - Claim by Commonwealth for utilisation of otherwise idle resources - Whether entitled to be compensated for value of resources - Whether real economic activity - Whether even if no additional appropriation required, stock of resources available to Commonwealth for other purposes diminished - Value in dollar terms - Effect of Commonwealth control over its agencies and employees on its duty to mitigate.

Damages - Remoteness - Foreseeability - Uninhabitable office building - Whether loss of value of fitout less salvage foreseeable - Whether costs of relocation foreseeable - Whether change in market circumstances foreseeable.

Damages - Remoteness - Foreseeability - Whether future need for refurbishment foreseeable - Where options for relocation - Whether cost of staging space reasonable if space used - Whether extra expense incurred to keep several options open too remote.

Damages - Remoteness - Foreseeability - Whether relocation inevitable - Whether claims for additional costs terminated upon relocation - Whether ongoing loss established.

Damages - Duty to mitigate - Where choice made of most expensive option - Choice itself not causally related to breach - Extra costs not recoverable.

Minister of Supply v British Thomson-Houston Co [1943] 1 KB 478

Inglis v Commonwealth Trading Bank of Australia [1969] HCA 44; (1969) 119 CLR 334

State Bank of NSW v Commonwealth Savings Bank of Australia [1986] HCA 62; (1986) 161 CLR 639

Maguire v Simpson [1977] HCA 63; (1977) 139 CLR 362

Crouch v Commissioner for Railways (Q) [1985] HCA 69; (1985) 159 CLR 22

Deputy Commissioner of Taxation v State Bank of New South Wales [1992] HCA 6; (1992) 174 CLR 219

State Superannuation Board of Victoria v Trade Practices Commission [1982] HCA 72; (1982) 150 CLR 282

Superannuation Fund Investment Trust v Commissioner of Stamps (SA) [1979] HCA 34; (1979) 145 CLR 330

The Commonwealth v Australian Commonwealth Shipping Board [1926] HCA 39; (1926) 39 CLR 1

Australian National Airlines Commission v The Commonwealth [1975] HCA 33; (1975) 132 CLR 582

Bainbridge v The Postmaster-General [1906] 1 KB 178

International Railway Company v Niagara Parks Commission [1941] AC 328

Townsville Hospitals Board v Council of the City of Townsville [1982] HCA 48; (1982) 149 CLR 282

Workers' Compensation Board of Queensland [1983] 1 Qd R 450

Wynyard Investments Pty Ltd v The Commissioner for Railways (NSW) [1955] HCA 72; (1955) 93 CLR 376

Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd [1979] HCA 15; (1979) 145 CLR 107

Bropho v State of Western Australia [1990] HCA 24; (1990) 171 CLR 1

Whiteford v Commonwealth (1995) 128 FLR 1

Westropp v Solomon (1849) 8CB 345; 137 ER 542

The Law of Agency, Stoljar, 1961

Adams v Morgan & Co [1923] 2 KB 234; Affor [1924] 1 KB 751

Bowstead on Agency, 14th ed, 1976

Baume v The Commonwealth [1906] HCA 92; (1906) 4 CLR 97

The Commonwealth v Evans Deakin Industries Ltd [1986] HCA 51; (1986) 161 CLR 254

Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17

The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Koufos v C Czarnikow Ltd [1967] UKHL 4; [1969] 1 AC 350

Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344

Hadley v Baxendale [1854] EWHC J70 (Exch); (1854) 9 Exch 341; 156 ER 145

Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310

March v Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500

Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613

Auburn Municipal Countil v ARC Engineering Pty Ltd [1973] 1 NSWLR 513

Murphy v Brown [1985] 1 NSWLR 131

Grosvenor Hotel Co v Hamilton [1894] 2 QB 836

Bushells Pty Ltd v The Commonwealth [1948] St R Qd 79

Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673

MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657

Marsland v Andjelic (No. 2) (1993) 32 NSWLR 649

Van Gervan v Fenton [1992] HCA 54; (1992) 175 CLR 327

Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1

Protonotarios v Zapasnik (1992) 106 FLR 243

Hallett v Schoevers (1992) 106 FLR 233

Whitaker v Federal Commissioner of Taxation (1996) 140 ALR 257

Commissioner of Taxation v Northumberland Development Co Pty Ltd (1995) 59 FCR 103, 138 ALR 89

Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60

Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402

Price v Commissioner of Highways [1968] SASR 329

Commonwealth Railways Commissioner v Hodsdon (1970) 16 FLR 437

Commissioner of Railways v Luya, Julias Ltd [1977] Qd R 395

Zappulla v Perkins [1978] Qd R 92

Wroth v Tyler [1974] Ch 30

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

The Hebridean Coast [1961] AC 545

HEARING

CANBERRA, 21 April to 28 May 1997 (hearing), 2 October 1997 (decision)

2:10:1997

Appearances

Counsel for the Plaintiff: Mr D A Cowdroy QC with Mr M Gracie

Instructing Solicitors: Australian Government Solicitor

Counsel for the First Defendant: Mr T Wood QC

Instructing Solicitors: Mallesons Stephen Jaques

Counsel for the Second Defendant: Dr K Crispin QC with Mr R J Weber

Instructing Solicitors: Blake Dawson Waldron

Counsel for the Secondnamed

Third Party: Mr Digby QC with Mr J Wilson

Instructing Solicitors: Wood Fussell as agents for Herbert Geer & Rundle

Counsel for the Thirdnamed

Third Party: Mr G E Underwood

Instructing Solicitors: Allen Allen & Hemsley as agents for Murphy

Moloney

Counsel for the Fifthnamed

Third Party: Mr M Haynes

Instructing Solicitors: Phillips Fox

ORDER

THE COURT ORDERS THAT:

1. The parties have leave to bring in Short Minutes of orders to give effect to these reasons or to make further submissions in consequence of findings made herein as they may consider appropriate.

DECISION

HIGGINS J

The Claim

In 1982, Silverton Limited (Silverton), as a result of negotiation with the Returned and Services League Memorial and Citizens Club Limited (RSL), became the registered proprietor of a Crown Lease over a newly subdivided site known as Block 10 Section 23 Canberra City.

Silverton then caused an office building of nine levels to be erected on the site. It was known as the Silverton Centre (Centre).

During 1983, the Commonwealth of Australia (the Commonwealth), the plaintiff in these proceedings, entered into a sublease of the Centre. It was for a period of ten years from 1 January 1984 but granted to the Commonwealth the right to exercise an option to renew the lease for a further term of five years. That further lease was also to contain an option to renew it for five years but the second renewed lease was not to contain such a term. Thus the Commonwealth, as sublessee, could by the due exercise of both options, enjoy the right to exclusive possession of the Centre until 31 December 2003.

For present purposes, it is necessary only to note that the rental clause in the sublease provided that, in respect of each successive two yearly period, there should be the opportunity for the sublessor, Silverton, to initiate a rental review. The rental to be so fixed was the sublessor's assessment of "current market rent" as at the review date. There was also, in considerable detail, a process enabling the sublessee to challenge that assessment and to have the current market rent independently assessed.

Accordingly, it might be that if the sublessor incorrectly assumed that market rent, as at the review date, 90 days before the expiration of the then current rental period, was higher than current rent, the rental for the next period might be reduced. However, it would be expected that over the term of the lease the rent would remain as it was at the relevant review date unless the market rate exceeded current rent. In other words, it would increase but not reduce.

No doubt the Commonwealth could, towards the end of the fixed term of ten years, negotiate with the then sublessor with a view to gaining more favourable terms in consideration of a promise to exercise its option.

On 21 December 1983, Silverton transferred the Crown Lease to the second defendant, the Commonwealth Banking Corporation (CBC) in consideration of the payment of $12.95m.

A fully tenanted building with a long term lease to a reliable tenant no doubt seemed a good investment at that time. That comfortable impression was rudely shattered on 17 January 1989. CBC received a report from a Professor Campbell-Allen, responding to various complaints as to building defects, to the effect that there was a serious risk of a collapse of the building.

Needless to say, CBC responded quickly. The Commonwealth was advised to withdraw all employees from the building immediately. It did so.

Subsequently, whilst limited access was permitted to remove furniture and some fittings, the Centre remained unfit for occupation. On 12 October 1989 the Commonwealth formally gave notice that it terminated the sublease.

It is admitted that the Commonwealth was legally entitled to give that notice and that CBC was, viz a viz the Commonwealth, in breach of the terms of the sublease.

In consequence of that breach, on 17 January 1989, the Commonwealth instructed each of its tenant departments and agencies to vacate the Centre forthwith. This implied that each of the functions being performed by the Centre tenants had to be performed from alternative premises. That relocation had to be undertaken, almost literally, at a moment's notice.

There were three agencies accommodated in the Centre,

1. Department of Social Security (DSS) Regional Office

That Office received and processed requests and claims by members of the public for social security assistance. It was, and is conceded to have been, reasonable for the Commonwealth to make temporary arrangements to maintain continuity of service to the public.

2. Department of the Arts, Sport, Environment, Tourism and Territories (DASETT)

The major location of that Department was Tobruk House, a building quite close to the Centre. The Centre accommodated the Sport and Recreation Branch (297m<=), the Tourism Branch (445m<=) and the Bureau of Tourism Research (205m<=).

The officers assigned to those Branches were temporarily relocated to other office space available to the Commonwealth.

It had also been intended to relocate the Territories Branch within the Centre from the Sydney Building (a nearby building) but that move was cancelled.

The Department was subsequently reorganised but before then all the Centre Branches had, after the initial temporary redeployment, been relocated to Matrix II, a building in Moore Street, Turner.

3. Australian National Audit Office (ANAO)

ANAO had located its Head Office in the Centre. It occupied 4430.72m<= of space including storage bays. It was allocated 19 of 29 car bays. DSS had the rest. Officers of ANAO were spread over six floors being all of levels four to seven and part of the Ground floor and level one.

Following closure of the Centre, ANAO was temporarily relocated to Medibank House at Woden. That was a building the Crown Lease of which was owned by the Health Insurance Commission (HIC), a corporation established under Commonwealth law for public purposes.

During 1993, the ANAO was faced with a further relocation. There were options of continuing with a refurbished Medibank House which would require gradually staged relocations of parts of the ANAO until completion of the refurbishment, or a move to the nearby and recently refurbished Sir Keith Campbell Building, or to various possible locations in Barton, most particularly the proposed Centenary House, owned by a company controlled by the Australian Labor Party.

As a result of those relocations, the Commonwealth claims to have suffered loss and damage.

That damage can be generally categorised as follows,

- costs incurred for each of the ex-Centre tenants to be temporarily accommodated;

- costs of further re-location to permanent premises of ex-Centre tenants and, if applicable, the addition of ongoing cost of that accommodation relative to that of remaining in the Centre.

CBC concedes that expense was incurred by the Commonwealth in relocating its employees.

However, it denies liability for "expenses" arising from what it calls "intra-governmental transfers". For example, it objects that the Commonwealth is not entitled to recover sums invoiced from one department to another setting out what purports to be a commercial charge for the service apparently rendered as detailed in that invoice.

That same objection applies, it contends, to the utilisation of space already leased by the Commonwealth. It submits that it is only if additional space needed to be leased that the cost of such space by way of rental and outgoings could be recoverable. The same objection extends to the use by the Commonwealth of goods and chattels already at its disposal.

The evidence, it is contended, goes no further than to identify some additional costs relating to power, cleaning and the like.

Further, it was objected that sums due pursuant to a sublease from HIC should be disregarded for the same reason. HIC was, CBC contended, a Commonwealth agency and, therefore, it was not open to the Commonwealth to take a sublease from itself or, at least, to reflect the profit element of that sublease as a loss.

That latter submission opened up a far more significant legal issue.

On 21 December 1983, Silverton transferred the whole of its then interest in the Crown Lease, including the benefit of the sublease, to CBC. That corporation, like HIC, was then a body incorporated by statute to perform what were then perceived to be public purposes, that is, to provide banking services to the public.

The purchase of the Centre was, it is conceded, intended to provide a return on that investment for the benefit of the superannuation fund for bank officers employed by CBC. The setting up and administration of such a fund was then a statutory duty of CBC.

On 16 August 1991, the Land Titles Register revealed that the name of the registered proprietor was changed to "Commonwealth Bank Officers' Superannuation Corporation" (CBOSC). That corporation is a statutory successor to CBC.

Since that time CBC itself has been "privatised". It no longer can be regarded as a Commonwealth agency.

However, the issue raised is as to the status of CBC at the time the breach of sublease occurred, that is, 17 January 1989. If, as at that date, no liability was in law then created as between the Commonwealth and CBC, none now exists to be assumed by CBOSC or the newly privatised entities now comprising the "Commonwealth Bank". Conversely, if CBC is liable, then, depending on the arrangements with CBOSC and the new shareholders, there is, or may be, a considerable debt burden on the assets and undertakings of CBC, as transferred to it, thereby arising.

There were, additionally, more specific issues raised as follows,

- Non-exercise of options at the Centre

Apart from the structural concerns which caused the building to be vacated, CBC submits that, despite its best endeavours, the performance of services, that is, lifts and airconditioning, was so chronically appalling that no rational tenant would have hesitated to vacate at the expiration of the term if not before. A list of complaints from occupants to the managing agent is relied on in support of this contention.

- Fitout lost at the Centre

The parties agree that save for $20,000.00 worth of salvage, the value of the Centre fitout was lost when the building was vacated. However, there is disagreement as to the methodology by which the loss of fitout value is to be ascertained and as to the offsetting factors, such as need to replace fitout at tenant's expense at the Centre as against refurbishment at landlord's expense at other replacement premises.

- CBC contends that the decision of ANAO to cause the Commonwealth to take a sublease of Centenary House should not be regarded as giving rise to any additional cost attributable to the breach of covenant by CBC. That is, it was "too remote" or, at least, not a reasonable or comparable replacement for the sublease from CBC to the Commonwealth.

- CBC further contends that the decision of ANAO to cause the procurement of "staging space" to enable the refurbishment of Medibank House was either "too remote" or premature and unnecessary so that the costs thereof should not be regarded as attributable to the loss of the sublease of the Centre.

- CBC also contends that, whilst the decision of DSS to cause the Commonwealth to take a sublease of Monaro House was reasonable as a temporary measure, the decision to take a newly constructed building at 15 Lonsdale Street, Braddon, purpose built for DSS, was inevitable and terminated any claim for additional costs. In any event, it was an equivalent space, pro rata, costing an equivalent sum.

- As to the National Capital Centre (NCC), this was space taken to relocate, long term, the Sport Recreation and Tourism Branch of DASETT. The claim relating to fitout is contended by CBC to be inappropriate in that it is not proved that the actual cost exceeded replacement of the Centre fitout which, by then, would have itself needed replacement. I will proceed to consider these submissions further.

1. Is CBC, as at the time when the cause of action accrued, an agency of the Commonwealth Crown?

That the Crown cannot sue itself in its Courts is axiomatic. That does not mean that an action by the Crown against a Crown servant or agent for a wrong done to the Crown is not justiciable.

The Commonwealth is established, at least formally, by 63 and 64 Vict C12, s3, The Constitution. It is, by virtue of s9 thereof (covering clause), constituted as a body politic having specified sovereign powers.

Under s61, The Constitution vests the executive power of the Commonwealth in "the Queen" though it is "exercisable" by the Governor-General and "extends to the execution and maintenance of this Constitution, and of the laws of the Commonwealth".

Section 64 of The Constitution allows the Governor-General to,

... appoint officers to administer such departments of State of the Commonwealth as the Governor-General in Council may establish [that is, Ministers of State].

Subject to laws made by the Parliament, the power of appointment of other officers of the Executive Government is vested in the Governor-General in Council.

Section 69 of The Constitution provides that,

On a date or dates to be proclaimed by the Governor-General after the establishment of the Commonwealth the following departments of the public service in each State shall become transferred to the Commonwealth:-

Posts, telegraphs and telephones: Naval and military defence: Lighthouses, lightships, beacons and buoys: Quarantine.

But the departments of customs and of excise in each State shall become transferred to the Commonwealth on its establishment.

Quick and Garran in The Annotated Constitution of the Australian Commonwealth, at 715, comment that the transfer there referred to relieved the State concerned of the burden of the annual expenditure in respect of the department referred to and transferred the property used in connection therewith to the Commonwealth.

However, nothing in The Constitution confers any corporate status on any department of State or vests property occupied or used by any such department otherwise than in the Crown in right of the Commonwealth.

The Judiciary Act 1903 (Cth) (Judiciary Act) includes in its definition of "the Commonwealth", a person suing or being sued on behalf of the Commonwealth, see s67A. Section 61 assumes an antecedent right in the Commonwealth to assert its rights by legal action.

Thus a Minister, if so authorised by statute, might sue on behalf of the Commonwealth and a subject so sued may counterclaim against the Minister, see Minister of Supply v British Thomson-Houston Co [1943] 1 KB 478. But absent such statutory authority, no Minister or other servant of the Crown can be sued either personally or in the name of his or her office if the act sued upon was done for or on behalf of the Crown, see Minister of Supply v British Thomson-Houston Co (supra) 481-2.

Goddard LJ summarised the situation where a Minister or Department of State is, by statute, declared to be entitled to "sue or defend" in the following terms, at 492-3,

(1) Where a statute says that a minister or a department of State may sue and defend any action, that is equivalent to saying he or it may sue or be sued.

(2) These words mean what they say and make the minister liable to be sued as such. The statute, in effect, changes his position from that of an agent to a principal, the object being to simplify process, but the minister is not personally liable to satisfy the judgment because it is clear that the action is against his office and not against the individual, as it is provided that the action shall not be affected by any change in the person for the time being holding the office. It must be presumed that the minister will satisfy the judgment out of monies provided by Parliament for his office, just as, if he brings an action and fails, he will satisfy the judgment for costs which would follow.

Of course, where the servant or agent of the Crown is a body corporate there is no need to provide that an action will not be affected by a change in office holder.

The next question is whether CBC, at the relevant time, was an agency of the Commonwealth Crown.

CBC was created by s7 of the Commonwealth Banks Act 1959 (Cth) to succeed to the Commonwealth Bank of Australia established under the Commonwealth Bank Act 1911 (Cth) and continued under the Commonwealth Bank Act 1945 (Cth).

Under s7(2)(c), CBC,

... is capable of acquiring, holding and disposing of real and personal property and of suing and being sued.

Relevant also, given the purpose of the acquisition now in question, is s7(3),

The Corporation shall provide and make available to the Commonwealth Bank, the Savings Bank and the Development Bank such officers and employees as are necessary for efficiently conducting the business of each of those banks.

Section 27 provides for the continued existence of the body corporate, previously known as Commonwealth Trading Bank of Australia, under the name "Commonwealth Bank" (CTB). Section 40 preserves and continues the "Commonwealth Savings Bank of Australia" (CSB). Under s71, a further bank, the Commonwealth Development Bank of Australia (CDB), was established.

Under s7A, all property of CBC, whether present or future, vests in CTB. All liabilities, whether present or future, are deemed to be "liabilities incurred by the Commonwealth Bank" (CTB), see s7A(2). Section 7A was inserted by Act 182 of 1987. The sole exception to the latter provision is created by s7A(5) which provides,

This section does not apply in relation to any property held by the Corporation [CBC] in respect of a superannuation fund established under section 110 or any liability incurred by the Corporation in respect of such a fund.

In the present case, the decision to purchase the Centre was made in order to obtain an investment of the bank officers' superannuation fund.

The provision of superannuation benefits for bank officers is expressly referred to in s110, which is in the following terms,

(1) There shall be a superannuation fund of the Corporation.

(2) The Corporation may, with the approval of the Minister for Finance, make rules, not inconsistent with this Act or the regulations, for or in relation to the superannuation fund.

CBC was managed by a Board appointed pursuant to the Act, see ss8-10. Under s11 the Board was obliged to keep "the Government" informed of its "policy" and the "banking policy" of the three Banks.

Section 11(2) then provided,

In the event of a difference of opinion between the Government and Board whether any policy referred to in subsection (1) is directed to the greatest advantage of the people of Australia and has due regard to the stability and balanced development of the Australian economy, the Treasurer and the Board shall endeavour to reach agreement.

In the event that the Board and the Treasurer remain in disagreement, then the Treasurer, under s11(4) may,

... submit a recommendation to the Governor-General, and the Governor-General, acting with the advice of the Federal Executive Council, may, by order, determine the policy to be adopted ...

The Board is then obliged to give effect to that policy, s11(6).

It is, therefore, apparent that CBC was an agency of the executive government of the Commonwealth.

In Inglis v Commonwealth Trading Bank of Australia [1969] HCA 44; (1969) 119 CLR 334, the question was whether the CTB was "... the Commonwealth, or a person suing or being sued on behalf of the Commonwealth ..." within the meaning of s75(iii) of The Constitution. That question was opened up by the passage of the 1959 Banking legislation. The 1911 and 1945 Acts had created a corporation which was not only subject to government policy but also exercised central bank functions. That Bank had been held to be a corporate agency or instrumentality of the Commonwealth. The question was whether the non-central bank portion of the pre-existing corporate entity enjoyed the same status as that which the combined corporate entity had done.

As Kitto J noted at 337-8, under the Banking legislation of 1959, the question was,

...not whether the activities and functions with which the respondent is endowed are traditionally governmental in character, though their possession of a traditional or generally accepted governmental character may well help in the ascertainment of the legislative intention. The question is rather what intention appears from the provisions relating to the respondent in the relevant statute: is it, on the one hand, an intention that the Commonwealth shall operate in a particular field through a corporation created for the purpose; or is it, on the other hand, an intention to put into the field a corporation to perform its functions independently of the Commonwealth, that is to say otherwise than as a Commonwealth instrument, so that the concept of a Commonwealth activity cannot realistically be applied to that which the corporation does?

The effect of the 1959 legislation was to split the Commonwealth Bank of Australia, and its functions, between two banks, the Reserve and CTB. Three additional corporations were created, CBC, CSB and CDB.

That legislation pointed to the function of each corporation as being "... a convenient means of carrying on a Commonwealth activity", see 339.

The relationship and status of CBC, CTB, CSB and CDB were the same then as they were in the present case when CBC acquired the sublease to the Commonwealth over the Centre and when the terms of that lease were breached.

Kitto J further noted that the chief executives and members of the Boards of each corporation were appointed by the Governor-General. CBC had overall policy control subject to the Government being entitled to resolve policy differences in its own favour. Net profits belonged to the Commonwealth, though CTB was subjected to income tax. Further, the accounts of the corporations were subject to audit by the Auditor-General.

His Honour then stated, at 341,

When all these considerations are taken into account, the conclusion seems to me inevitable that the Trading Bank, the Savings Bank and the Development Bank are established simply as instruments by which the Commonwealth participates in the business of banking.

Thus, CTB was sued as, at 342,

... the emanation by which the Commonwealth operates in the field of general banking, and is therefore "sued on behalf of the Commonwealth" in the sense ... of that expression in s75(iii) of the Constitution.

Barwick CJ, whilst concurring with Kitto J, went further. His Honour said, at 336,

My own personal preference would be to regard the matter as one in which the Commonwealth was a party.

Windeyer J concurred with Kitto J without reservation.

Owen J dissented. The commercial role of CTB, in his Honour's view, separated it from the Commonwealth.

The most recent consideration of the status of CSB was in State Bank of NSW v Commonwealth Savings Bank of Australia [1986] HCA 62; (1986) 161 CLR 639.

State Bank wished to sue CSB. Proceedings were commenced in the Supreme Court of NSW. CSB objected that the Court lacked jurisdiction. The matter was, it contended, within the exclusive jurisdiction of the High Court by virtue of s75(iii), s77 of The Constitution, and s38, Judiciary Act.

Section 38(d) vests exclusive jurisdiction in the High Court in a suit,

... by a State, or any person suing on behalf of a State, against the Commonwealth or any person being sued on behalf of the Commonwealth.

The status of CSB was shortly dealt with. Their Honours (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ) stating at 643-4,

It is not contested by the appellant that the respondent satisfies the description of "the Commonwealth or any person being sued on behalf of the Commonwealth". In the face of the decision of this Court in Inglis v Commonwealth Trading Bank of Australia [supra] it would be difficult to mount such a contest.

The dichotomy of view between Kitto J and Barwick CJ as to whether CSB was the Commonwealth or was merely "a person sued on behalf of the Commonwealth" was considered.

Their Honours concluded that the view of Barwick CJ that CSB should be regarded as "the Commonwealth" appeared to be preferred,

- by Mason CJ in Maguire v Simpson [1977] HCA 63; (1977) 139 CLR 362, 397-8;

- by Jacobs J [at 405-6]; and

- by Murphy J at 407 and in Crouch v Commissioner for Railways (Q) [1985] HCA 69; (1985) 159 CLR 22, 30-1 and 41-2.

The State Bank legislation was examined in detail to determine if the State Bank was, relevantly, "a State". That legislation was in all material respects similar to the Commonwealth Banks Act with one exception.

The State Governor had no power to resolve a policy dispute between the State Bank's Board and the State Government. However, the Board had a similar duty to follow public policy as that imposed by s11 of the Commonwealth Bank Act so far as the interests of the State of NSW were concerned.

Their Honours concluded, at 652,

Having regard to all the circumstances, we are satisfied that the State carries on banking through its statutory corporation, the Bank, and that it necessarily follows that the Bank is for this purpose the State of New South Wales.

"This purpose" refers to the terms of s38(d) of the Judiciary Act, thus the suit was one within the exclusive jurisdiction of the High Court.

The High Court, may, in such a case, remit the matter to the Federal Court for hearing but not to a Court of a State or Territory, see s44(2A) Judiciary Act.

Any doubt remaining as to the status of the various corporations established or continued under the Commonwealth Banks Act is, to my mind, dispelled by the decision in Deputy Commissioner of Taxation v State Bank of New South Wales [1992] HCA 6; (1992) 174 CLR 219.

At issue was the status of the State Bank for the purposes of s114 of The Constitution. The State Bank claimed immunity from sales tax on its own consumables on the basis that the tax thereby became levied on "property ... belonging to a State" contrary to s114.

In a joint judgment, the Court (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ) found that the term "State" bore the same meaning in s114 as it did in s75 (iii) and (iv) of The Constitution.

The Court applied the decision in State Bank of New South Wales v Commonwealth Savings Bank of Australia (supra) concluding at 230-1,

Once it is accepted that the Constitution refers to the Commonwealth and the States as organisations or institutions of government in accordance with the conceptions of ordinary life, it must follow that these references are wide enough to denote a corporation which is an agency or instrumentality of the Commonwealth or a State as the case may be. The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities of government.

Inglis v Commonwealth Trading Bank of Australia was accepted as determining, at 232,

... that, in an appropriate context, the words "the Commonwealth" are wide enough to include a corporation which is an agency or instrumentality of the Commonwealth.

Thus the State Bank, enjoying like status viz a viz the State of New South Wales as CSB and CTB enjoyed viz a viz the Commonwealth, was, therefore, a "State" within the meaning of s114.

That situation is distinguishable from that in State Superannuation Board of Victoria v Trade Practices Commission [1982] HCA 72; (1982) 150 CLR 282, where the corporation itself was held not to be "the State" though it enjoyed, for certain specific purposes, State Crown immunity.

That decision may be compared with the case of Superannuation Fund Investment Trust v Commissioner of Stamps (SA) [1979] HCA 34; (1979) 145 CLR 330, where, although, (per Barwick CJ and Mason J, Murphy J not deciding, Stephen and Aickin JJ dissenting), the Trust was found to be "the Commonwealth" it was subjected (per Murphy J) to State tax by virtue of the terms of its incorporating legislation.

The present case does not raise any issue as to whether any particular immunity or privilege of the Crown in right of the Commonwealth is conferred upon CBC by statute. It is apparent that CBC was one of four corporations through which the Commonwealth carried on the business of banking and, ancillary thereto, made provision for the superannuation of officers who CBC provided as staff to those other corporations.

CBC was, therefore, at all times relevant for present purposes, "the Commonwealth" within the meaning of that expression in Chapter III of the Constitution and in the Judiciary Act.

That status was terminated with the proclamation of the Commonwealth Bank Sale Act 1995 (Cth). However, that Act and the amendments made thereby to the Commonwealth Banks Act do not affect the issues presently raised. It follows then, that CBC, for the purposes of the present proceedings, represents the Crown in right of the Commonwealth.

2. Can the Commonwealth sue one of the statutory corporations of the Commonwealth for breach of contract?

The question is whether a cause of action can arise as between these parties, each of them being or being an agency of the Crown in right of the Commonwealth.

CBC relies on the self-evident force of a proposition that the Commonwealth cannot and, indeed, need not, sue itself. One department of State, for example, aggrieved by another, could simply request the Governor-General in Council to resolve the issue even if the respective Minister or Ministers could not. Of course, that technique might not resolve an issue between a department of State and a statutory agency.

The Commonwealth points to the corporate status of CBC as justifying the conclusion that the cause of action in question can be litigated between the parties.

The availability of a cause of action as between the various Crowns represented in the Commonwealth of Australia does not, of itself, support the Commonwealth's case. Each State and Territory Crown is a separate body politic. Each such Crown may sue and be sued by any other body politic, including another body politic under the Crown.

The Commonwealth contends that there is nothing to prevent one "emanation" or agency of a body politic suing another "emanation" or agency of the same body politic, at least where one such emanation has separate corporate status.

Reliance was placed on The Commonwealth v Australian Commonwealth Shipping Board [1926] HCA 39; (1926) 39 CLR 1 to support that proposition.

The Board was a body corporate created by and under the Commonwealth Shipping Act 1923 (Cth). The Municipal Council of Sydney had agreed to purchase turbo generators from the Board. The Secretary to the Chamber of Manufacturers in New South Wales complained that the contract was outside the Board's powers. He obtained the fiat of the Attorney-General of Australia to sue the Board and the Council. The action was formally brought in the name of the Commonwealth and the Attorney-General.

Knox CJ, Gavan, Duffy, Rich and Starke JJ, agreed that the Board could not be authorised by Parliament to set up a manufacturing business for general commercial purposes. Their Honours' judgment did not address the question of justiciability. In any event, the Commonwealth was not, in any sense, asserting a cause of action against the Board.

Higgins J did advert to the procedural aspect, albeit briefly. His Honour said at 12-13,

The Commonwealth Attorney-General is a party plaintiff, submitting that it is not competent [that is, the Board lacked the contractual capacity to enter into the agreement in question]. I presume that he allows his name to be used in this litigation adversely to the Commonwealth Board in order that the question may be fairly tested. Another plaintiff is the Commonwealth itself. I do not know why; but no objection is taken to the procedure.

It was not necessary, in that case, to consider whether the Board was "the Commonwealth" for the purposes of Chapter III of The Constitution and the Judiciary Act.

Another suggested example was Australian National Airlines Commission v The Commonwealth [1975] HCA 33; (1975) 132 CLR 582. The plaintiff owned an aircraft allegedly damaged by the negligence of a member of the Department of Civil Aviation.

However, so far as jurisdiction was concerned, it is noteworthy that the trial itself took place, and the action had been commenced, in the High Court. The matter in question related to a claim by the plaintiff to resist production of an audio tape by the second defendant, a Canadian airline company.

The claim to oppose production was based on Crown (or "public interest") privilege. In any event, the objection was overruled without any examination by Mason J of the question of the status of the plaintiff and the first defendant.

A statutory corporation which is a Crown agency can be likened for juristic purposes to an individual Crown servant acting in the course of employment. That may be significant in the case of an allegation of tortious conduct. A statutory corporation such as CBC may "be sued". Its incorporating statute permits that. Any natural person who performed a tortious act while acting on behalf of CBC may impose liability vicariously on CBC rather than the Commonwealth. It depends on the nature of the tortious act. Tortious conduct by CBC itself might impose vicarious liability on the Commonwealth as well. That will depend on the perceived intent of the incorporating statute and the nature of the conduct alleged.

Bainbridge v The Postmaster-General [1906] 1 KB 178, is an example of a statutory office holder held not to be vicariously liable, despite being incorporated, in respect of Crown employees under his control. The question was whether the responsible person was servant to the Postmaster-General or to the King. It was held that the statute had the latter effect to the exclusion of the former.

The present is not a case of vicarious liability, though the focus on the incorporating statute remains appropriate. The rules relating to contracts between principal and agent are relevant. The focus of the question in the case of contractual liability is whether the Crown agent is contracting personally or on behalf of the Crown.

International Railway Company v Niagara Parks Commission [1941] AC 328 is relevant. The Company and the Commissioners entered into an agreement for the construction and operation of a railway. The Commissioners purported to contract "on their own behalf and with the approval of the Government of Ontario". That contract was ratified by statute. The Company sued the Commissioners. That action was dismissed on the basis that, as the Commissioners represented the Crown, they could be sued only by petition of right.

An appeal to the Privy Council was upheld. In their Lordships' opinion, the Commission, as a body corporate representing the Crown, was a "servant or agent" of the Crown. That expression was to be preferred to describing it as an "emanation" of the Crown. Like any other servant or agent, it was able to contract on its own behalf as well as on behalf of its employer or principal.

CBC is given separate corporate status. It may "sue and be sued". It employs staff, not only for itself but also for the other corporations established to carry on banking. If it had entered into a lease, whether as lessor or lessee, other than with the Commonwealth, it would seem surprising if CBC would not be subject to the same contractual liabilities, viz a viz the other party, as any other lessor or lessee.

Given that, one body politic under the Crown may sue and be sued by another. The Judiciary Act and the Crown Proceedings Acts of the various States and Territories have that result. Thus, within the Commonwealth the several Crowns and their agencies are amenable to suit. In the case of the Commonwealth, of course, that submission to suit is a result of Commonwealth law. The question, then, is whether one agency of the Crown, acting for and on behalf of that Crown, may sue or be sued by another agency of the same Crown.

Townsville Hospitals Board v Council of the City of Townsville [1982] HCA 48; (1982) 149 CLR 282, was a case of legal proceedings between two statutory corporations each deriving existence under laws assented to by the Crown in right of the State of Queensland.

The question in that case, however, was not whether the Board was acting for and on behalf of the Crown but rather whether it enjoyed any of the privileges and immunities of the Crown by reason of s4 of the Building Act 1975 (Q). That Act exempted from Council approval a building erected by the Crown, or on behalf of the Crown, or by or on behalf of a body which, at least for the purpose of the erection of the building, represented the Crown.

In essence, it was not a suit whereby one party was asserting a cause of action against another. It was, in reality, a request for the construction of a statute.

Gibbs CJ noted that, although the Board was a statutory corporation, most of whose members were appointed by the Governor, they were not subject generally to direction or control. The relevant Act showed, in his Honour's view, at 289,

... that although the Board has a close relationship with the Crown it does not in all respects act merely at the behest of the Crown.

His Honour further observed, at 291,

All persons should prima facie be regarded as equal before the law, and no statutory body should be accorded special privileges and immunities ... of the Crown, and where it [that is, the relevant statute] does not do so it should not readily be concluded that it had that intention.

Murphy, Wilson and Brennan JJ agreed.

That case is readily distinguishable. Not only was the status of the Council not examined, but it was clearly accepted that the Board was not, and did not represent, the Crown. The corporations established under the Commonwealth Banks Act have, expressly in the case of CTB and CSB, and by necessary implication in the case of CBC and CDB, been authoritatively declared to represent, and to be acting for and on behalf of the Crown.

The issue was more directly addressed in Workers' Compensation Board of Queensland [1983] 1 Qd R 450 by G N Williams J. The Board wished to recover from the State Government Insurance Office (Q) (SGIO) monies paid by it to an injured worker. The SGIO was the insurer of the allegedly negligent driver of a motor vehicle who had caused the relevant injury to the worker. Each body was a statutory corporation capable of suing and being sued. Each was declared by its incorporating statute to "represent the Crown".

There was an issue as to whether the Board's claim was, in any event, barred by the limitation laws of Queensland. That contention was, ultimately, upheld.

His Honour first considered whether the fact that each body "represented" the Crown barred proceedings between them.

As the issue was stated by his Honour at 460,

Question (c) arises because both the Office and the Board "represent" the Crown. Since the same person cannot be plaintiff and defendant in an action (see below), the question arises whether the two bodies here are distinct legal entities so that they can sue each other.

The undoubted capacity of "the Crown" to be divided for juristic purposes so as to represent a State as well as the Commonwealth was noted. Emphasis was placed on the fact that each relevant statute declared that the body so incorporated should "represent" the Crown.

That then required an interpretation of a legislative provision declaring that a statutorily incorporated body should "represent the Crown".

Williams, Webb and Taylor JJ in Wynyard Investments Pty Ltd v The Commissioner for Railways (NSW) [1955] HCA 72; (1955) 93 CLR 376 had viewed that phrase as constituting the corporation in question an agent or servant of the Crown having the benefit of the privileges and immunities of the Crown whilst being a separate juristic person.

In Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd [1979] HCA 15; (1979) 145 CLR 107 it was held that the Commissioner of Railways (Q) as an agent of the Queensland Crown, was entitled to the same immunity from the Trade Practices Act 1974 (Cth) as the Queensland Crown enjoyed. That conclusion was based on the application of the rule of statutory construction that the Crown, whether in right of the Commonwealth or of a State, is not bound by a statute unless that is found to be the parliamentary intention. Bropho v State of Western Australia [1990] HCA 24; (1990) 171 CLR 1 has weakened that presumption but it remains valid. However, whether the Commissioner was an instrumentality or agent of the Crown acting for and on its behalf, was not in issue. The statute constituting the Commissioner as a corporation declared expressly that he represented the Crown and had all its "powers privileges rights and remedies".

G N Williams J, having reviewed the above authorities, including Bradken (supra), concluded, at 461,

Though each of the bodies in question represents the Crown in the sense that it is entitled to claim, inter alia, the privileges rights and immunities of the Crown, each remains a separate legal entity; each is capable of suing the other and being sued by the other. The fact that by virtue of s19A of the Workers' Compensation Act every amount recoverable by the Board "shall be deemed to be a debt due to Her Majesty" does not alter the position.

That decision is authority for the view that two statutory agencies of the same Crown may sue each other. It seems to me to follow that the Crown itself may, similarly, sue one of its statutory agencies if the latter has been given separate corporate status including the capacity to sue or be sued.

The question then arises as to whether CBC enjoys any special privilege or immunity if sued, even if by the Commonwealth.

In Whiteford v Commonwealth (1995) 128 FLR 1, Kirby P (as he then was) considered the position of the Commonwealth as a landlord in relation to defences created by State law. His Honour said, at 9,

Section 64 [Judiciary Act 1903 (Cth)] can, and will, operate to ensure that the rights of a subject will be the same whether the suit is against another subject or the Commonwealth or a State. This is an equitable provision by which the Commonwealth surrenders, by its own legislation, certain immunities which would otherwise attach to it from its nature and from the inheritance of the royal prerogative. Plainly the section will be of no use if the court, in any particular situation, is without jurisdiction.

In entering into the sublease in this case, the Commonwealth, whilst providing office accommodation for its servants, was not performing a peculiarly governmental function. The legal character of and the laws applicable to the sublease would not change, in my view, by reference to whether the occupants were Commonwealth servants or others to whom the Commonwealth itself granted a sublease. Nor should the rights and duties of CBC alter simply because the tenant is not a subject but represents the Commonwealth itself.

CBC is as much subjected to the jurisdiction of the courts of and within the Commonwealth as is the Commonwealth itself.

Thus, assuming jurisdiction in this Court to entertain a suit against the Commonwealth, it seems to me that the rights and liabilities of the Commonwealth and CBC as tenant and as landlord respectively are not to be treated any differently by reason of their identification with the Crown in right of the Commonwealth.

A further complication, of course, arises from the fact that, although, as a Crown agent, CBC may be sued by its principal, the Crown, this is not a case in which the agent has exceeded authority. Indeed, it is quite to the contrary. Nor has the agent acted wrongfully in purchasing the lease of the Centre. It seems common ground that the defects in the Centre were then latent. There is no suggestion that CBC's dealings witht he lease of the Centre were tainted by illegality.

It may be, of course, as in Westropp v Solomon (1849) 8CB 345; 137 ER 542, where the agent sold defective shares and was obliged to replace the same with genuine shares, the right of an agent to indemnity from the principal does not so far extend. That decision has been criticised (see The Law of Agency, Stoljar, 1961) as contrary to Adams v Morgan & Co [1923] 2 KB 234; Affd [1924] 1 KB 751.

However, where the principal has notice of the contract entered into on its behalf and permits the agent to carry it into effect, the agent is usually entitled to indemnity. All such cases involve the agent, on behalf of the principal, incurring liability to a third party, see Bowstead on Agency, 14th ed, 1976, p201-210. I have not found any case in which the third party is also the principal.

Fortunately perhaps, CBC's right or otherwise to indemnity from the Crown in right of the Commonwealth has not been raised as an issue in this case. As a result, I do not need to consider whether as between the Crown and an agency of it, a right to indemnity exists.

3. Does this Court have jurisdiction to entertain a suit by the Commonwealth against a statutory agency of the Commonwealth?

Clearly, for the purposes of s75(iii) of The Constitution, this action is one within the original jurisdiction of the High Court. The Commonwealth and a person suing on behalf of the Commonwealth, that is, CBC, are the parties and each is "the Commonwealth" for the purposes of s75 (iii).

The Parliament is empowered under s77, The Constitution, to confer jurisdiction on federal courts to entertain matters in which the Commonwealth sues or is being sued. If so desired, the jurisdiction in respect of such matters may be made exclusive (s77(ii)), or may be conferred on State courts (s77(iii)).

This suit is plainly a federal matter. No court of any State may entertain it unless invested by the Parliament with jurisdiction to do so.

It is not a matter as to which the jurisdiction of the High Court is declared exclusive, see s38 Judiciary Act.

Section 39(2) confers federal jurisdiction upon the "Courts of the States" in matters "in which the High Court has original jurisdiction".

Section 56 provides that,

(1) A person making a claim against the Commonwealth, whether in contract or in tort, may in respect of the claim bring a suit against the Commonwealth:

...

(b) if the claim arose in a ... Territory - in the Supreme Court of that ... Territory or in any other court of competent jurisdiction of that ... Territory;

...

The term "person" embraces both natural and corporate bodies, see Baume v The Commonwealth [1906] HCA 92; (1906) 4 CLR 97. As for the purposes of s56, CBC is "the Commonwealth". It clearly subjects CBC to suit in this Court. It is arguable that s7(2)(c) of the Commonwealth Banks Act 1959 (Cth) also has that effect. The Commonwealth's substantive rights are the same in this litigation as any other litigant, so far as that is constitutionally possible, see The Commonwealth v Evans Deakin Industries Ltd [1986] HCA 51; (1986) 161 CLR 254.

It will be observed that nothing in the Judiciary Act addresses directly the possibility that the Commonwealth might sue one of the statutory agencies representing the Commonwealth, in contract or tort.

Nevertheless, the Crown needs no statutory authority to sue in the Courts of the States or Territories or any relevant Federal Court.

CBC, as a separate body corporate, is liable to be sued in this Court and, by s64 Judiciary Act or s7(2)(c) of the Commonwealth Banks Act 1959 (Cth), or both, is subject to the same substantive laws as any other litigant. No relevant constitutional limitation appears in this case.

I therefore turn to the remaining issues.

Would the Commonwealth have exercised either option for renewal?

CBC submits that the evidence does not enable that question to be answered affirmatively. Indeed, it goes further, asserting that the performance of the building from occupation to vacation had been so unsatisfactory that, even if the structural defects had not been present, no rational tenant would have remained any longer than legally required.

It is true that, as Mr Ferrari's evidence reveals, there were numerous complaints to the managing agent by or on behalf of the occupants of the building from 1984 and throughout 1988. The air-conditioning and lifts particularly attracted adverse comment. Indeed, during 1984, discontent had created "a strong possibility that a walk-out would occur because of temperatures".

To some extent, the design and construction faults found to warrant immediate vacation on 17 anuary 1989 must have had an effect upon the functioning of mechanical services. However, the evidence does not justify an inference that, if the structural defects had been absent and CBC had carried out proper maintenance and repairs, the history of past complaints would have caused the Commonwealth to decline to exercise its options.

It was CBC's submission that to justify a conclusion that the non-exercise of the options should be regarded as a consequence of its breach, the Commonwealth was obliged to produce an officer or officers having relevant decision-making powers who had decided, at least in principle, to exercise those options.

The plaintiff, in fact, pointed to the evidence of Mr Saye and Mr Mobbs as to the additional fitout of the Centre to meet the needs of ANAO for computer facilities. It is contended that if it was not intended to exercise the options, at least for ANAO's benefit, the Commonwealth would not have authorised the expenditure involved. That work was done between March 1988 and July 1988. It is true that the additional fitout work was planned and undertaken only during the first four years of the sublease. However, it does seem to me to support an inference that ANAO might well have wished to continue occupation of the Centre after the expiry of the initial ten year term. Mr Taylor, although only appointed Auditor-General in 1988, was well-satisfied with the location and presentation of the Centre.

That does not mean that ANAO would necessarily have continued as the major tenant of the Centre. There were two major factors tending against that prospect. One, of course, was the unsatisfactory performance of the building. However, but for the structural defects, I think it likely that the landlord would have been persuaded to carry out effective repairs. The other was the likely increase in demand for space by ANAO. However, that demand might well have been met by relocation of DASETT. The real question is not whether ANAO would have continued as a tenant but, rather, whether the Commonwealth would have wished to utilise the space beyond the initial term.

It is significant that, although Commonwealth departments and agencies are required to meet accommodation costs from their own budgets, the sublease belonged to the Commonwealth not the client agencies. Thus even if one agency was dissatisfied with its accommodation and was prepared to fund its removal, another agency might well be placed by Australian Property Group (APG) in the space so vacated.

There is evidence that DSS found its space quite satisfactory and would, no doubt, have been content to remain long term, provided, of course, the building was functional.

There was also the consideration that any refurbishment of the building was to be at tenant's expense. The landlord, although obliged to repair, had no obligation to fund refurbishment or fitout.

I have no doubt that as the time for exercise of the first option approached, Mr Collins of APG, or his successor, would have placed serious pressure on the then landlord to obtain concessions in consideration of a promise to exercise the option. Those negotiations would have been likely to achieve an outcome reflecting the then current property market conditions. It may well have resulted in promises by the then landlord to accept some responsibilities in the area of refurbishment.

Market conditions as at 1993, according to the evidence, somewhat favoured tenants.

However, it does not seem to me that the outcome of a decision to exercise the option would be any better or worse than a decision to abandon the Centre and seek equivalent space elsewhere. It does seem to me more likely than not that the Commonwealth would not have abandoned its entitlement to space at the Centre, force majeure aside, without obtaining an equivalent benefit elsewhere inclusive of the costs of relocation.

To that extent, whilst I do not accept CBC's submission that damages should not take account of the loss of the right to the options in question, it does not follow that the loss of those options adds in any significant way to the damage sustained. It does not necessarily add any cost over and above market value for the rent payable for space which would have been obtained after 1993 if the options had not been exercised.

Nor is it relevant to exacerbation of damages or otherwise whether the occupying agencies, "the Silverton departments", remained throughout the term of the lease and options or shifted to alternative accommodation being replaced by other agencies. Any such decision would have reflected the then needs of the agencies concerned and the then state of the property market. It is clear that such decisions were at all times made on the basis of the best market advice available and with a view to the most economical commitment of Commonwealth funds.

The real question is as to the causal relationship between the closure of the Centre and any loss allegedly incurred.

General Principles as to Damages

The ordinary principles of contract law relating to assessment of damages apply. That is, it is the loss of the bargain which is to be compensated for, see Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17.

It follows that the Commonwealth is entitled to be placed, so far as money can do it, in the position it would have been in had the sublease continued uninterrupted. That entitles it to recover wasted expenditure and expenditure in excess of that required or likely to have been required if the sublease had continued. In so doing, it may be assumed that expenditure undertaken to enable use to be made of the Centre, would have represented value for money compared with equivalent accommodation elsewhere, see The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64.

This is not a case in which "loss of profits" is relevant.

What is relevant is whether any expenditure incurred flows from the breach or whether it is too remote, see Koufos v C Czarnikow Ltd [1967] UKHL 4; [1969] 1 AC 350.

Of course, had alternative accommodation of equivalent standard not been available elsewhere at the same or less real cost, the Commonwealth would be entitled to recover the difference. Further, temporary relocation expenses, if they would not otherwise have been incurred, are also recoverable. Incidental damage, such as interest foregone on that expenditure, is also, in principle, recoverable.

It is important to allow only additional costs and expenses, otherwise a plaintiff will be overcompensated, see, for example, Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344. The latter case denies recovery to the Commonwealth for mere disappointment, inconvenience or loss of aesthetic appeal. Indeed, no such claim is made.

The test for causal relationship between breach and damage is no different in contract than in tort save for the significant qualification that recovery is limited to the kind of loss which was or may be assumed to have been in the reasonable contemplation of the parties at the time the agreement was made, see Hadley v Baxendale [1854] EWHC J70 (Exch); (1854) 9 Exch 341; 156 ER 145, Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, March v Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506.

Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500 is an interesting example of "reasonable contemplation". Damages were allowed for loss of commercial reputation as a result of the unauthorised use of a design on products inferior to those it had been used for, contrary to an agreement not to use that design without such authorisation.

Clearly, the evacuation of the Centre created a need for the Commonwealth to relocate the Silverton departments.

It created an immediate need, clearly foreseeable when the sublease was entered into, for temporary, then permanent, relocation. It caused wasted expenditure in connection with those purposes.

Further, save for $20,000.00 worth of salvage, the Commonwealth lost the residual value of its fitout of Silverton, some part of which was relatively recent. There was, also, a claim for fitout expenditure for alternative accommodation. That latter claim is disputed.

Ascertainment of residual value

A report from Mr Bracher (Quantification report) calculated the residual value of the fitout on the basis that it had a life co-extensive with the lease plus options, that is, 20 years.

Mr Bracher is not, and does not purport to be an expert on the useful life of a fitout. It is, however, apparent from Mr Collins' evidence, supported by Mr Sichlau, an architect, that a fitout such as was made to the Centre would need substantial refurbishment each 10 years. The indicative cost, currently, is approximately $135.00 per square metre. The cost was approximately the same in 1993.

I am satisfied from the evidence of Mr Collins and Mr Sichlau that it is likely that all the fitout, or substantially all of it, would have required refurbishment and upgrading after 10 years. The likely cost of that refurbishment, probably progressively carried out between 1993 and 1998, would have been about $1.03m.

It is also fair to make allowance for adjustments to fitout from time to time to take account of changed requirements. Some of that allowance would, no doubt, have been absorbed in the progressive refurbishment. Although the alteration for ANAO to install its computer system cost over $500,000.00, I am not persuaded that overall further alterations to it between 1988 and 1993 would have been of that order. In any event, the computer system upgrade would probably not have required as much further upgrade as other parts of the fitout.

It follows that I accept CBC's submission that the original fitout should be amortized over 10 years rather than 20 even though I accept that the Commonwealth should be assumed, but for the structural defects, to have continued to occupy the Centre until 2003.

CBC concedes that the loss to be allowed on that basis is $1,298,230.00. The subsequent fitout for computer facilities is conceded at cost, it having been only recently installed. As I have indicated, that fitout was not likely to be greatly affected after 10 years so that concession by CBC seems appropriate.

Fitouts in temporary premises

CBC concedes liability for the removal to and fitout of temporary accommodation for the Silverton departments. However, it challenges some individual items on the grounds that the expenses are not properly recoverable. I will deal with those issues in examining submissions relating to the Scott Schedule.

Fitouts in permanent premises

CBC opposes this claim, primarily on the ground that, having been compensated for the loss of the value of the fitout rendered worthless, it would give double compensation if the additional cost of the new and permanent fitout was to be added. Further, the new fitout, if paid for by the Commonwealth, would have an equivalent value over a similar life-span. If new premises did not require fitout to be paid for by the Commonwealth, as in Centenary House, the rental value of that fitout would go to reduce the overall cost of the premises.

It seems to me that CBC's argument is correct. By way of analogy, if a chattel is destroyed and a party is entitled to be placed in the same position as it would have been but for the relevant breach of contract, that party is not entitled both to the value of the chattel lost and to the additional cost of replacing it. It follows that it is not, in my view, correct to allow the cost of a new fitout less the value remaining after depreciation of the existing fitout. The correct measure of loss is the value of the fitout rendered useless as at the date of the breach less the value of salvage.

In some cases, of course, reinstatement cost may be an appropriate measure of loss. In Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613, for instance, the question as to whether reinstatement cost or loss of value was the more appropriate measure of damages was considered by the High Court.

A builder had badly erected a building so that its foundations were unstable. The owner claimed to be entitled to the cost of demolition and reconstruction. The builder contended that he was liable only for the difference in value between the building as erected and the building as promised. It was accepted that the building fault could not be rectified by repair falling short of rebuilding.

Dixon CJ, Webb and Taylor JJ upheld the owner's claim. They did so in the following terms, 617,

It is true that a difference in the values indicated may, in one sense, represent the respondent's [owner's] financial loss. But it is not in any real sense so represented. In assessing damages in cases which are concerned with the sale of goods the measure, prima facie, to be applied where defective goods have been tendered and accepted, is the difference between the value of the goods at the time of delivery and the value they would have had if they had conformed to the contract. But in such cases the plaintiff sues for damages for a breach of warranty with respect to marketable commodities and this is in no real sense the position in cases such as the present. In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.

That rule was, their Honours declared, subject to a qualification, that being, 618,

...not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.

An example given was of a builder using new bricks rather than second-hand for a cement rendered wall. It would not be reasonable to require demolition and rebuilding in such a case. However, the appellant builder had created a fault which it was reasonable to correct and the respondent owner was entitled to the cost of that correction. It was no answer to that entitlement, nor was it to be reduced, because the owner might in fact choose to leave the building in its existing state. In that sense, she would have ended up both with the house and the cost of re-erecting it. That prospect, the High Court considered, was "immaterial" (620).

It will be noted, of course, that in this case the Commonwealth is not seeking damages for the loss of a building on its land. It seeks damages for loss of a right to occupation of a building and, for present purposes, loss of the value of a fitout.

Even so, where demolition and rebuilding is the measure of loss, any "betterment" should be disallowed, see Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513. It is only that loss which would have been sustained had the contract been performed that is recoverable.

Where there is nothing special about that which was lost, cost of repairs may be the prima facie measure of loss unless it is unreasonably expensive so to carry out such repairs. The case of Murphy v Brown [1985] 1 NSWLR 131 is, perhaps, closer to the present than Bellgrove v Eldridge (supra). That case concerned a damaged vehicle which could be repaired. Had the vehicle been damaged beyond economic repair, however, the correct measure of loss would have been the value of the vehicle destroyed.

To seek reinstatement rather than loss of value as the proper measure of damages, it must appear that the damaged commodity is not readily replaceable on an accessible market. If it is, then the cost of reinstatement would be viewed as too remote. The duty to mitigate damage is also relevant, see Grosvenor Hotel Co v Hamilton [1894] 2 QB 836. If a replacement commodity is available at the same or lesser cost, then reinstatement of the original commodity would not be reasonable.

There was, in this case, nothing unique about either the accommodation or its fitout. Thus, if the Commonwealth could replace the term and fitout lost at no greater cost than to have continued at the Centre then, removal and set-up costs aside, no further loss can be claimed as having been incurred. Consistently with Auburn Municipal Council v ARC Engineering Pty Ltd (supra), if the replacement otherwise than unavoidably delivers a greater benefit than that lost, the cost or value of that greater benefit should be disallowed, see also Bushells Pty Ltd v The Commonwealth [1948] St R Qd 79. The Commonwealth accepts that principle but denies that any "betterment" has been obtained.

An example of unavoidable betterment is where, being entitled to cost of demolition and rebuilding, a plaintiff necessarily receives a new building in place of one which, had it been built properly, would then have been older and of less value, see Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 and British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673.

The latter case involved a new turbine for an old turbine. However, in each case the reasonableness of replacement was supported by the need to avoid loss of profit which otherwise would have been part of the damages to be paid by the defendant.

There is no issue raised of "betterment" in relation to alternative accommodation save for Centenary House.

The leasing of Centenary House

The ANAO was temporarily relocated to Medibank House. Originally the Commonwealth had intended to accommodate the Department of Aboriginal Affairs there. It had a lease from HIC, a statutory corporation created under Commonwealth legislation. Originally, only six months occupation was envisaged.

The fitout was not as good as the Centre's. The computer facilities, though adequate, were shared with the then Department of Education Employment and Training (DEET). Mr Taylor, Auditor-General, had some concerns about security of ANAO computer information. However, he acknowledged that there had not been any breach of security. Further, it seems to me from inspection of the building that, had the computer area been divided, ANAO could easily have had a separate secure area.

Secure parking was less available but could be accommodated with nearby Commonwealth controlled facilities. There was, of course, a need for extra work to be done to re-establish operations at Medibank House.

Mr Taylor did not like Medibank House. It was geographically further from Parliament House, though the distance was not significantly greater in my view. Its position near the Bus Interchange was not as prestigious as the Centre. The computer facilities were shared with DEET. Internally, it was less functional because of its narrower, rectangular floor plate. Further, Medibank House was, generally, in a run-down state.

Nevertheless, ANAO remained there until 12 June 1993.

In 1990 HIC, the owner of Medibank House, agreed to carry out a major upgrade of the building.

That upgrade was to be progressive. I have seen the building as refurbished and it is consistent with my observations and Mr Sichlau's evidence to conclude that it, as at 1993, would have provided a standard of accommodation generally equivalent to that available at the Centre.

The refurbishment would have warranted a rental increase, Mr Collins believed, of $10/m<=. However, that merely reflected the market at that time. The evidence does not suggest that rents in the Woden area were significantly different from rents in Civic for equivalent accommodation.

The renovation of Medibank House, if ANAO was to remain, required "staging space" to enable refurbishment to proceed. However, if the Centre had, as Mr Sichlau and Mr Collins agreed, required refurbishment of the top four floors after 10 years, some staging space would also have then been required to enable that exercise to be carried out, assuming ANAO was to remain at the Centre.

There was an alternative. APG had already undertaken the task of examining and addressing ANAO's accommodation needs.

Whilst leading HIC to believe that ANAO would occupy a refurbished Medibank House, APG was negotiating with the owners of the Sir Keith Campbell Building which was nearby. That building was also to be refurbished.

APG also identified certain properties in the Barton area which could be suitable for ANAO.

To move to a new or newly refurbished building would clearly cause less disruption to ANAO. Further, Mr Taylor considered greater proximity to Parliament House an advantage.

Centenary House was one option identified. It was then in contemplation as a development for the Australian Labor Party near the National Press Club in Barton.

APG, in consultation with ANAO, ultimately agreed with the owners of Centenary House that ANAO would occupy the available space.

It should be noted, of course, that, as with the Centre, ANAO is not the tenant of Centenary House. The Commonwealth is the tenant. The need to accommodate ANAO could have been met by any one of the various alternatives identified by APG. In fact, whilst ANAO was consulted and its wishes met, there was no requirement for that to occur.

It is acknowledged that Centenary House, first occupied by ANAO in June 1993, is ideally suited for ANAO. The design was adapted for its purposes. CBC, however, contends that the rent escalator clause (minimum 9% per annum) is unreasonable. It further contends that there is an element of betterment enjoyed by ANAO, and, hence, the Commonwealth, as a result of ANAO's placement at Centenary House.

Mr Collins acknowledged that, as events have transpired, the rental payable at Centenary House is currently ahead of the market. However, he and Mr Taylor appear confident that by the end of the 20 year term, that rental will be at or below market levels. Further, they point to the obligation on the owner to carry out a refurbishment after ten years at the owner's expense.

It seems to me that whatever the market situation either at the time of entry into the Centenary House lease or by the end of the sublease of the Centre, if there is any nett additional expenditure it is caused by the decision to lease Centenary House rather than to adopt alternatives such as leasing the newly refurbished Sir Keith Campbell Building or taking a longer term lease of a refurbished Medibank House.

I am not concerned, as Mr Morling QC was in his enquiry, to adjudicate on whether the Commonwealth, through APG and ANAO, acted prudently in a commercial sense in leasing Centenary House.

Insofar as it is more expensive than other available options, it is not because there was no choice.

It therefore seems to me that, in general terms, the Commonwealth is not entitled to damages on account of any extra ongoing cost of leasing Centenary House.

DASETT Relocations

There was, ultimately, permanent relocation of all the branches of DASETT at the Centre. One branch scheduled to move there did not do so and needed to be accommodated elsewhere. It was accommodated at a building near Civic known as Matrix II. That building is of a similar general standard to the Centre though much smaller. It is not possible to conclude that on and from 16 December 1989, Matrix II was more expensive than the Centre would then have been or that, if it was, there was no equivalent alternative.

There can be no claim for the "non-relocation" of Territories Branch.

At first, the relocated Branches were squeezed into Tobruk House, a building near the Centre. That resulted in no additional rental cost. Indeed, there was a net saving, though that is not a credit to be allowed to CBC.

From January 1989 until 30 September 1990, the Bureau of Tourism Research (BTR) was accommodated at Canberra House, as also was Tourism Branch (TSM) and Sport and Recreation Branch (S & R ).

From September 1990 to September 1992 BTR was located at Matrix I, a similar building to and adjacent to Matrix II. From October 1991 to September 1992, TSM was located at National Capital Centre, another Civic building. So also was S & R but it has remained there.

Inevitably, in my view, the need of ANAO for more space would have conflicted with the continued occupation of the Centre by DASETT. There was, and still is, it appears, a need for APG to obtain and manage commercial space sufficient for Commonwealth needs at the best price the market allows. I am satisfied that, had such a conflict arisen, APG would have resolved it in accordance with that objective.

I am not satisfied that, save for removal and set-up caused by the emergency closure of the Centre, the relocation of DASETT branches caused any loss to the Commonwealth. Nor were the relocations, save those which were temporary, caused by that closure so as to render the ongoing cost of accommodation recoverable from CBC.

Relocation of DSS

DSS was first relocated to Monaro House. That created expense which is, in principle, recoverable.

The temporary accommodation at Monaro House, though it was endured until 31 March 1996, was clearly unsuitable for the long term needs of DSS and clearly inferior to the Centre. DSS now occupies 13-15 Lonsdale Street, Braddon. Those premises were designed for DSS and no claim is made that, as from that date, there is any ongoing loss attributable to the occupation of that building.

The extra relocation in March 1996, was causally related to the closure of the Centre. It is offset by the potential cost of relocation at the end of the sublease of the Centre or earlier had DSS been relocated by the Commonwealth so as to accommodate ANAO's increased demand for space. That offset is, of course, to be discounted because of its uncertainty. It is not certain which of the three agencies would be relocated before the sublease of the Centre determined, after the option periods, in 2003.

Claim for Interest

Subsection 69(1) of the Supreme Court Act 1933 (ACT) requires the Court, "unless good cause is shown to the contrary", to award interest on amounts falling due prior to judgment whether for the whole or part of that period. The sum need not be precisely calculated, a lump sum may be ordered, see s69(1)(b). However, interest may not be awarded on a sum due for interest, see s69(2)(a).

There is a Practice Direction, No. 1 of 1993. It provides,

When computing interest for the purposes of s69 of the Australian Capital Territory Supreme Court Act 1933, subject to any evidence adduced, it may be taken that the following yearly rates of interest are appropriate to guide the Court...

Various rates of interest between 1 January 1974 and July 1993 are then set out. Reductions in market rates after 1993 have not been reflected in this Practice Direction.

An award of pre-judgment interest is intended to be compensatory. It applies to an actual expense paid or receipt foregone. To the general rule that an award should be at the commercial rates referred to in the Practice Direction, there are some apparent exceptions, see, for example, MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657 (past general damages for personal injury), Marsland v Andjelic (No. 2) (1993) 32 NSWLR 649 (damages for past services awarded pursuant to Van Gervan v Fenton [1992] HCA 54; (1992) 175 CLR 327). I refer to those exceptions as "apparent" only because their justification is that the right to receive the sums in question has previously vested. The actual sum due is not ascertained until judgment but the gap between vesting and receipt is compensated for by an award of interest. If the loss is merely theoretical, for example, on economic loss before tax and after allowance for tax payable, no interest is to be awarded, see Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1. That decision was, in part, disapproved in MBP (SA) Pty Ltd v Gogic (supra). Nevertheless, the underlying principle requiring that only net losses be taken into account for the purposes of an award of interest was not disturbed, see Protonotarios v Zapasnik (1992) 106 FLR 243.

Whether the rate of interest should be a commercial rate or the discounted rate adopted in MBP (SA) Pty Ltd v Gogic is a different question.

The discounted rate was adopted for cases where the sum awarded reflects the current value of the loss or damage rather than the sum which would have been awarded as at the date on which the damage was sustained. Accordingly, the loss of value of the money sum awarded is, in such cases, not a factor for which compensation is required.

Where a sum has been awarded for a loss in terms of the monetary value of it when it was suffered, such as is the case with past expenses paid at the time they were incurred, or net wages foregone or other sums paid or payable actually or notionally for past care at historic rates, it is reasonable to pay interest at the full commercial rate as from the time of that loss, see also Hallett v Schoevers (1992) 106 FLR 233.

It should also be remembered that the interest awarded on past losses or expenses is treated as assessable income. However, there is no reduction in the sum to be awarded because the party to be compensated may enjoy tax exempt status, see Whitaker v Federal Commissioner of Taxation (1996) 140 ALR 257. Of course, as Hill J points out in Whitaker (supra), if the interest is regarded as assessable income, the proportion of the litigation costs attributable to obtaining the award would be tax deductible. However, the case of Commissioner of Taxation v Northumberland Development Co Pty Ltd (1995) 59 FCR 103, 138 ALR 89 indicates that some part of an increment designed to update the value of money might not be characterised as "interest" for tax purposes.

In this case, where actual expense or loss has occurred and been assessed in terms of the monetary value of the loss or expense when incurred, the rate of interest to be awarded should reflect the inflationary loss as well as the nett earnings loss. Thus, the rates should reflect the actual earnings foregone by the Commonwealth as a result of the loss or expense actually incurred, see Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60.

The full commercial rates set out in the Practice Direction seem to me to reflect neither the earnings foregone nor the cost of borrowing to the Commonwealth. It reflects interest foregone or cost of borrowing by a private litigant with no more than usual capacity to borrow. As already noted, an award of interest is compensatory. It is not punitive. Given the plaintiff's status as a public sector borrower it seems reasonable to assume that, if it had borrowed to fund the expense caused by the Centre's closure it would have done so at public sector rates. Conversely, if it diverted funds otherwise available to be lent out at interest that loss would also have been at public sector rates. Of course, it is possible the Commonwealth might have chosen to behave as if it was an ordinary investor or borrower, but I do not think that assumption is valid for present purposes, nor is it reasonable so to assume against CBC.

It seems to me, therefore, that the average interest rates based on Treasury figures are the best guide. Average interest rates for each financial year is the preferable index but the long term bond rates seem to be the next best guide.

So far as prospective losses are concerned, assuming any to be identified, the usual approach is to discount the total loss by reference to the future period over which it would accrue. In personal injuries cases, damages for, say, future loss of earnings, are to be discounted at 3%, see Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402.

The discount rate chosen in Todorovic v Waller (supra) was, to some extent, arbitrary. It took account not only of interest and inflation rates but also the impact of taxation on interest earned. That the taxation impact is relevant must be taken to be implied by the decision in Cullen v Trappell (supra). That decision was, as I have noted, disapproved in part by MBP (SA) Pty Ltd v Gogic. The interest rate adopted in the latter case, given the award was in current money terms, was intended to reflect the difference between prevailing long term interest rates and the prevailing long-term inflation rate. Cullen v Trappell was disapproved insofar as it applied commercial interest rates to past non-economic loss. It was not disapproved insofar as the nett loss after taxation was that to which the relevant interest or discount rate is to be applied.

Nevertheless, there is no decision which has suggested that it is appropriate to increase or decrease an award of interest because it will or may be itself subject to income tax.

The approach in Todorovic v Waller was not confined to awards for loss of future earning capacity. It extended also to monetary compensation for the future need for goods and services. It is not a method of calculation confined to personal injury awards.

In Todorovic v Waller, at 421-2, Gibbs CJ and Wilson J considered the role of the notional levy of income tax on the assumed fund available to a plaintiff. Their Honours said,

The notional income will be derived at six per cent, if, as in Cullen v Trappell, the six per cent tables were taken. It is that notional income that is assumed to be subject to tax. It is perfectly true that it is highly likely, or even certain, that the plaintiff will not invest his damages in the manner which the calculation postulates, but the Court is not concerned with what the plaintiff would or might do with his damages. The need to take tax into account is a logical consequence of the method adopted, which assumes that the fund is invested at the discount rate.

At 423, their Honours warned against an attempt to calculate the effect of notional tax,

No assumption can safely be made as to what the tax scales will be in the near future, still less a decade hence. For these reasons, notional tax can be taken into account only in the broadest way, by making an adjustment to the discount rate, and it is impossible to make even a pretense of accuracy in doing so.

Their Honours then found that if the discount rate, apart from the effect of notional tax rates, was 5%, it should be adjusted to 4% by reason of that consideration but as that choice was, even at best, arbitrary, their Honours concurred with the adoption of a 3% rate being a compromise rate acceptable to the majority.

Mason J at 449, concluded that,

To allow for the impact of taxation my preference would be to apply a discount rate of two per cent.

Nevertheless, his Honour, in the interests of certainty, also agreed to the adoption of a 3% discount rate.

Aickin J noted that the assumed margin of return over inflation was then 5% approximately. However, his Honour also concurred with Gibbs CJ and Wilson J that a 3% rate should be applied, due to the erratic nature of fluctuations between the prevailing rates of interest and of inflation.

Brennan J took the view at 477-8 that, but for two factors, a yield of 2% above the bond rate would have been appropriate. The first was income tax.

All that can be said is that the incidence of tax is likely to bear more heavily on increases in earnings than on the yield of an invested sum upon which a plaintiff may draw, and as the object of the discount rate is to equalize the net amount which can be drawn out of the fund year by year with the net amount which the plaintiff would have earned, the tax advantage enjoyed by yield in comparison with earnings must be taken into account by reducing the capital sum which is available for investment. In other words, a positive discount rate must be adopted. ...

The second factor is the real but unquantifiable advantages which present possession of a discounted stream of net future earnings confers upon a person whose earnings would otherwise have been received over a period...

In the result, there is no calculable figure which presents itself as the appropriate discount rate.

Generally, therefore, his Honour considered that a discount rate of 3% was appropriate. In relation to goods and services to be provided, whilst perceiving a logical difference from earning capacity lost by reason of the impact of taxation, his Honour was of the view that the same discount rate should be applied.

Stephen and Murphy JJ were of the view that no discount needed to be made.

The majority view was clearly a compromise. The 3% rate was the first choice of no member of the High Court. It did contain an element of discount for the future impact of taxation upon the fund available to the plaintiff.

Some expenses, including rent paid by the Commonwealth to a private sector landlord, are impacted upon by the need to make provision for income tax payable by the recipient. That same rental level would apply to a public sector landlord competing in the same market. However, the fund given to the Commonwealth to compensate it for the adverse difference (if any) between rental and expenses payable at the Centre compared with elsewhere is not subject to income tax in the hands of the Commonwealth. It seems to me, therefore, that to apply 3% as a discount factor is to misapply the underlying logic of Todorovic v Waller. It is true that no precise figure can be calculated. Nor is it relevant to know the use to which the fund given is likely to be put. It is, however, inappropriate simply to apply the marginal tax rate for companies or individuals.

As a matter of judgment rather than of precise calculation, I would allow a discount rate of 4%. In so doing, I appreciate that, in Todorovic v Waller, Brennan J could be interpreted as reasoning that to assume no need for a tax allowance on the fund awarded should reduce rather than increase the discount rate to be applied. However, I do not believe that result would correctly reflect the true import of his Honour's reasons. His Honour seems to have been comparing a greater reduction on wage or salary income if received over time as a result of taxation than on income derived from an invested fund where the nett income being replaced also assumes reduction of the capital of the fund over the period for which compensation is being assessed. In any event, the other members of the majority clearly regarded the incidence of tax on the fund's earnings as reducing the discount rate otherwise appropriate, at least where the loss to be compensated for was the nett loss after tax payable.

Inter-Governmental Payments

This issue, raised by CBC, exposes a question as to whether a payment by one Crown agency to another can be said to be a "cost" or "expense" incurred by the Crown and thus recoverable from a party who has wrongfully caused the need to provide the goods or services so referred to.

In some cases, and, in particular, in relation to HIC, the payment in question was made by the Commonwealth to a statutory corporation not directly to consolidated revenue although, as with HIC, the property and funds of HIC are, in truth, the property and funds of the Commonwealth. Payments between departments, though having internal budgetary consequences, do not alter the nett state of the consolidated revenue. The "bottom line" remains the same.

To some extent that is true of sums paid to Crown employees for work done to remedy damage suffered. However, insofar as actual payment is concerned, the Commonwealth receives back only the sum retained for income tax. That liability is, however, between the Commonwealth, represented by the Commissioner of Taxation, and the Crown employee in question. It is no different to the case of a private employer paying an employee for remedial work and retaining tax instalments. It seems to me, therefore, that additional income, such as overtime, paid to Crown employees to deal with relocation expenses and make up for productive time wasted does have a nett negative effect on consolidated revenue equal to the payment so made or credited to that employee.

An issue was also raised as to the utilisation by the Commonwealth of otherwise idle resources, such as stores or vacant office space. It seems to me that, whilst the Commonwealth may have merely diverted otherwise idle resources to deal with the situation created by CBC's breach, it is entitled to be compensated for the value of those resources. To use idle resources is real economic activity in the form of the provision of goods and services even if no additional appropriation from consolidated revenue is required. As a result of that activity, the stock of resources available to the Commonwealth for other purposes is diminished.

For the purposes of government policy, departments have been made "accountable" by the adoption of private sector costing and management techniques. Whether the resources devoted to the shifting of budgetary allocations between departments are thereby usefully engaged by this circular exercise is not to the point. In this case, for example, there is in evidence an agreement between two departmental secretaries as to the residual value to be paid for the fitout left by one department for use by another upon one vacating and the other taking up the vacated space. In fact, of course, the fitout belonged to and remained the property of the Commonwealth. There was also a formal agreement, as if made between separate commercial entities, between ANAO and Department of Finance, limiting the rental allowance which would be included in future funding of ANAO as the basis on which ANAO was to be permitted to occupy Centenary House.

Mr Taylor made it clear that he did not expect the "agreement" to be enforced if, as he acknowledged was likely, the ANAO would, as a result of it, be under-funded to the point of notional insolvency.

These examples indicate that, whilst in principle it is clear that even idle resources employed have a value, the utilisation of which can be compensated for by an award of damages, there is a real difficulty in assessing that value in dollar terms. The agreement between the two departmental secretaries concerning fitout referred to above illustrates that point. Of itself, it affords no evidence of the value of the fitout on the commercial market.

However, to reject one of counsel for CBC's more florid analogies, it is not a case of requiring a legally enforceable arrangement between departments. Nor is it analogous to the mere transfer of a sum of money from one "pocket" to another of the same individual. Nevertheless, the fact that the Commonwealth has control to a greater or lesser degree of its various agencies and employees does have some implications in relation to causation. If, for example, ANAO had argued that the presence of DEET at Medibank House made its continued occupation thereof impracticable, but it was the most reasonable option to mitigate loss that it do so, it would, I agree, have been open to the Commonwealth to direct DEET to move elsewhere, although the additional cost, if any, of doing so might well be recoverable if it was the cheaper alternative to ANAO moving and, otherwise, could be seen as causally related to the Centre's closure.

The position of HIC

The HIC, as lessor of Medibank House, was, at the relevant time, in a similar relationship to the Commonwealth as CBC. Notwithstanding that it also is an agency of the Commonwealth Crown, it is a separate juristic person, see Health Insurance Commission Act 1973 (Cth), s9.

It was, therefore, open to the HIC to have sued the Commonwealth for rent under the sublease if it was unpaid. That rent was, whether legally recoverable or not, in my view, an expense which, insofar as it resulted from the loss of the sublease of the Centre, is properly to be taken into account in assessing the loss, if any, suffered by the Commonwealth.

Further, the rent and outgoings in fact charged to the Commonwealth by HIC seem, on their face, to be calculated on a reasonable commercial basis.

CBC further argues, however, that because the transaction was "in-house", the profit element ultimately belonged to the Commonwealth. Thus, it submits, even if the expense incurred would generally be taken into account fully in the case of a private landlord, the profit component should be disregarded as it becomes itself payable to the Commonwealth or, at least, inures for its benefit.

I accept that in truth, the profit earned by the HIC inures to the benefit of consolidated revenue either by a direct return from the HIC or by a reduction in its need to call on consolidated revenue. Like CBC it is, or then was, subject to Ministerial control, so far as that may be relevant.

Section 64 of the Judiciary Act equates the entitlements of the Crown in this suit to those of a subject. That does not, by itself, answer CBC's objection but it does indicate that, if an individual would be entitled to recover a profit element upon remedial work self-performed, so should the Commonwealth if it performs such work by its employees or other agencies, regardless of the extent to which the rights and duties of HIC viz a viz the Commonwealth should be equated to that of an individual.

In Price v Commissioner of Highways [1968] SASR 329, an owner of a motor vehicle, damaged by the negligence of the defendant, carried out repairs himself with the aid of an employee. Bray CJ held he was entitled to be compensated for that time and labour. The rate to be paid was a reasonable one for work of that kind. Such a rate would have included an element of profit. That conclusion was accepted despite the fact that the vehicle was a commercial one and loss of profit for its time off the road was also allowed. That did not, his Honour held, amount to a "double-dipping".

Commonwealth Railways Commissioner v Hodsdon (1970) 16 FLR 437 is a similar case. The Commissioner's business included repairing motor vehicles. He used his own resources to repair one of his vehicles negligently damaged by the defendant. The defendant objected to charges representing overheads being allowed in addition to the direct costs of the repairs.

Blackburn J rejected the objection stating, at 438,

It seems to me that in principle a plaintiff who himself repairs a damaged chattel, being engaged in a business of that kind, is entitled to such damages as fairly represent the expense which his entire undertaking has sustained by reason of the damage, including the proper proportion of his overhead expenses.

Another case, Commissioner of Railways v Luya, Julias Ltd [1977] Qd R 395, added a further element. In that case, the damaged chattel was a railway engine. The railway engine in question had been put out of operation for about eight months. There was no evidence of any loss to the revenue by reason of its absence. Lucas J held that an amount equal to 7% per annum calculated upon the capital value of the chattel should be assessed as damages for loss of use of the chattel.

Where a plaintiff, having had the lease of a chattel which was damaged and rendered of no use for a time, purchased and resold a replacement vehicle at a nett cost of $198.00, it was held the proper measure of loss was the $198.00 paid, not the hire cost of the damaged vehicle, see Zappulla v Perkins [1978] Qd R 92. Whether replacement cost or reinstatement cost is appropriate may, therefore, be seen as subject to the controlling concept of reasonableness.

In the present case, the Commonwealth has been relieved of the need to pay rent for the Centre. It has utilised alternative space it already rented or rented additional space available at equivalent cost. Insofar as that cost was necessarily greater, the difference does represent a recoverable loss. However, the rent payable for the Centre was assessed at market rates. The rent payable for alternative accommodation was also payable at market rates. In general, therefore, once there had been permanent accommodation obtained, the ongoing loss had ceased. Again, that approach is subject to the ongoing requirement of reasonableness. Linked to that is, of course, the duty on a plaintiff to mitigate loss. Nevertheless, given that the accommodation substituted for the Centre was no better in quality than that promised at the Centre, unavoidable added expense is recoverable.

Rent under existing leases

It follows from the above that the Commonwealth is not precluded from bringing to account rent under existing leases utilised to accommodate the Silverton departments.

However, it is only the excess of such rent and outgoings over that which would have been incurred at the Centre, after reasonable offsets, that is recoverable.

Decision to lease Centenary House - ANAO - Medibank House

It is clear that Mr Collins was anxious to cause the HIC to become a more acceptable landlord. It is clear that he somewhat exaggerated the disadvantage to ANAO of remaining at Medibank House. Nevertheless, by the time the decision to lease Centenary House was made, there were realistic options for ANAO to remain at a refurbished Medibank House or to move to a recently refurbished SirKeith Campbell Building.

The choice of one option rather than another was not, in my view, causally related to the loss of the sublease of the Centre. Centenary House was more attractive to ANAO than a building in Woden but the Commonwealth had not lost the right to occupy Medibank House. It should be noted that ANAO, after it moved out and Medibank House was refurbished, was replaced by other Commonwealth departments.

The Commonwealth's decision to lease Centenary House for use by ANAO was not based on any necessity to replace the lease lost by the closure of the Centre. It follows that it is not appropriate to allow the extra costs, if any, of leasing Centenary House as part of recoverable damages insofar as those costs exceed those applicable to a refurbished Medibank House or Sir Keith Campbell Building, including, of course, off-site costs such as equivalent secure parking.

In any event, the terms of the Centenary House lease were freely negotiated by APG property managers with the owner of Centenary House. Mr Collins then believed that the 9% escalator clause relating to rent was reasonable. Mr Taylor agrees. The Centenary House sublease includes a refurbishment after ten years at landlord's expense. However, whether or not that is more or as reasonable as other options, there is no evidence that there was no reasonable alternative at equivalent cost to the Centre, other benefits considered. Indeed, I am positively persuaded to the contrary.

Mr Collins' view that Centenary House was comparatively a good deal may prove right or it may not. That is, however, not a consequence for which CBC can be held responsible.

What loss was foreseeable?

It would certainly have been contemplated that if the Centre became uninhabitable, the Commonwealth would lose the value of its fitout, less salvage.

Further, it was clearly foreseeable at the time the sublease was executed, that the departments and agencies occupying the Centre would waste time and money relocating themselves to other accommodation of up to equivalent standard. Their productivity would suffer and it would not be outside contemplation that expense would be incurred in leasing additional space, either temporarily or for longer term.

It could, in my view, be foreseen that, by 1989, as opposed to the position in 1983, the property market for office accommodation in Canberra might have become less favourable to tenants. The opposite was also foreseeable. However, any change in market circumstances would have been expected to have found its expression in an equivalent increase in rent for the Centre. The opposite result was equally foreseeable but the only consequence of that would have been that the Commonwealth would, so long as it remained at the Centre, have been precluded from taking advantage of any fall in the rental market.

The extent of movement would not be a matter requiring foresight, see Wroth v Tyler [1974] Ch 30.

The Staging Space

There is no doubt that, as at 1989, and, until vacated by ANAO, Medibank House was in need of refurbishment. However, by 1993, save in all likelihood for the computer room and associated facilities, the Centre would also have needed refurbishment.

During 1990, APG desired to deceive the HIC into believing that, if it upgraded Medibank House, it would have ANAO as a long term occupant although, in truth, APG was actively pursuing other options which it was recommending in preference to Medibank House. There was, of course, the possibility that those other options might not have been successfully negotiated. It was thus deemed necessary by APG not to lose the possibility of housing ANAO at Medibank House even though other options were seen as preferable. Further, Mr Collins was anxious to get the best deal possible out of HIC and use the availability of Medibank House to gain better terms from other possible landlords. No doubt the result benefited subsequent Commonwealth occupants.

Part of the process of creating the impression that ANAO would stay with Medibank necessitated the availability of "staging space". If ANAO had proposed to stay at Medibank House, that would have been a reasonable cost to incur and, no doubt, would be part of the reasonable overall cost of upgrading the accommodation.

APG needed to decide, if its strategy was to succeed, whether it was reasonable to incur expense which might be wasted. It did so. That decision, however, was not caused by the closure of the Centre. It had to do with policy objectives within APG to lift standards to which landlords should adhere. That was, in my view, a proper policy objective. It may, also, be noted that Department of Finance was pursuing a contradictory policy designed to ensure that as little as possible was spent by agencies on accommodation. Hence the agreement between Finance and ANAO limiting the budgetary allocation for rent increases to "market increases" only. Nevertheless, insofar as this process of bureaucratic infighting may have resulted in increased costs, they are not recoverable from CBC.

Social Security - move to 15 Lonsdale Street, Braddon

DSS was temporarily located to Monaro House, Lonsdale Street, Braddon. In early 1996, it moved into premises at 15 Lonsdale Street, Braddon, a short distance away. That building was erected and fitted out with a view to DSS moving into it on a long-term lease.

There is no doubt Monaro House was unsuitable for DSS. It could not be readily made more suitable.

However, damages are not claimed or payable for loss of amenity, inconvenience or even difficulty in carrying on DSS functions. It is not contended that, after the initial arrangements were made, the DSS regional office functioned inadequately or at greater cost.

It is not disputed that, by 1995 at least, the rental value of 15 Lonsdale Street was equivalent to that which, by then, would probably have been current for the Centre.

It is unnecessary to determine whether, in 1995, DSS would have decided, in any event, to abandon the Centre in favour of the building at 15 Lonsdale Street. It is true that there had been ongoing complaints by its occupants about the Centre but, as I have already noted, I do not consider that those complaints would have, but for the serious structural defects, led to a decision by the Commonwealth to abandon the lease of the Centre. Had DSS moved out, in those circumstances, another Commonwealth agency would have moved in. ANAO had other units it desired to co-locate. It had plans to expand its functions. That is but one available option which might well have taken up any space vacated by DSS.

It is apparent that closure of the Centre did not result in any ongoing loss on account of the Commonwealth's need to accommodate the DSS after the initial relocation.

The Scott Schedule

Most of the issues of principle raised in connection with the Scott Schedule have been dealt with above.

However, I will summarise the effect of my findings which will, I anticipate, enable the parties to calculate the sum due in respect of the particular items there detailed.

Fitout

The plaintiff is not entitled to the replacement cost of the fitout destroyed. It is entitled only to the sum of,

- the residual value of the fitout as at 17 January 1989; and

- cost of temporary fitout used and abandoned at temporary premises.

Associated costs

The plaintiff is entitled to the cost of moving to and from temporary premises insofar as they exceed the cost of moving from the Centre to other premises at the end of the lease, including the option periods, discounted for the chance that such removal costs would be earlier incurred.

Making Good

As the plaintiff has no claim for the ongoing cost of replacement permanent accommodation, the notional cost of "making good" on leaving the Centre is largely irrelevant. However, I note that the obligation assumed at Centenary House would have been less as the landlord was obliged to refurbish.

Allowance for refurbishment

For reasons given, the cost of refurbishment of the Centre is relevant to the conclusion that fitout should be amortised over ten years rather than 20. It is not, however, valid to assume, as the Commonwealth submitted, that the cost of refurbishment of DASETT and ANAO areas of the Centre can be offset by the need for refurbishment of the National Capital Centre (NCC) and Centenary House after ten years and before 31 December 2003.

The terms for refurbishment of NCC are not disclosed, but Centenary House will be refurbished, as already noted, at landlord's expense.

Betterment

This is not relevant as the costs of permanent accommodation are not such as materially to add to or detract from the measure of damages. Nevertheless, insofar as CBC alleges that the standard of replacement accommodation exceeds that offered by the Centre, had it been sound, I reject that contention. All the accommodation offered as permanent accommodation, including Centenary House, was no better than the Centre should have been if structurally sound and properly maintained.

Refurbishment

Insofar as it is relevant, I would make the following findings,

- The plaintiff contends that cl 35 of the Centenary House lease would require the tenant's fitout to be refurbished at the tenant's expense. Given that the fitout Agreement (Schedule 7 to the sublease) vests ownership of the fitout in the Commonwealth, it is likely that the refurbishment referred to in cl 35 of the sublease would not include alterations thereto, though it does require re-carpeting.

- If it was relevant to consider the point, that consideration would offset the value of the refurbishment provided for by cl 35. The cost thereof to the Commonwealth estimated at $181,232.00 seems reasonable for this purpose. The original estimate for fitout was of the order of $3m for the fitout at Centenary House.

Car spaces

There is no doubt that car spaces are more generously provided for at Centenary House than at the Centre. However, the allowance by the plaintiff seems reasonably to equate the two premises (that is, reduction proportionately).

Leasing of greater space at Medibank House

The extra space cost no more than was being paid at the Centre overall. However, the Commonwealth was relieved of the need to pay rent at the Centre. Thus there is no nett loss to the Commonwealth irrespective of the greater space occupied.

In any event, the greater space was not a real advantage. The difference in floor plates of the two buildings meant that the Medibank House space could not be as effectively used as the Centre's space had been and the Centenary House space now is.

Award limited to removal to temporary premises

Had permanent premises been immediately available at no comparative additional ongoing expense, the Commonwealth would have been entitled to recover only,

- removal costs; and

- set-up costs in new premises.

ANAO, effectively, moved into premises which, if refurbished, would have been suited for permanent accommodation. The Commonwealth can recover therefore,

- removal costs; and

- set-up cost at Medibank House; and

- staging costs of remaining at Medibank, including removal and replacement of relevant chattels; or

- removal cost to new and permanent premises (whichever is less).

DASETT moved to temporary premises at Canberra House, then to permanent accommodation. For those branches so affected, the Commonwealth is entitled to costs of,

- removal to and set-up of temporary premises; and

- removal to and set-up in permanent premises.

DSS moved to Monaro House and then to 15 Lonsdale Street, Braddon. The Commonwealth is similarly entitled to costs of,

- removal to and set-up in Monaro House; and

- removal to and set-up in 15 Lonsdale Street.

Calculation of expenses - intra-Governmental payments

CBC objects that the Commonwealth cannot make a profit out of itself. Therefore, it submits, only the basic cost of services provided by it to or between its agencies can sound in damages. No break-up of such charges has been offered in the evidence. Only the service and charge, for the most part, is tendered. Hence I am invited, by applying Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, to reject any claim for such charges, insofar as they are additional to expenses inevitably to be incurred sooner or later.

I have already noted that there is no reason in principle why an owner of an idle resource, forced to deploy that resource by a wrong-doer, should not recover an element of "loss of profit".

The Hebridean Coast [1961] AC 545, cited by the Commonwealth's counsel, seems to me to be in point.

In the absence of any suggestion that the charges levied by the plaintiff as "removal" and "set-up" costs are unreasonable, I would accept the invoices submitted by the Commonwealth as a proper measure of its loss. Prima facie, the charges made and invoiced seem reasonable.

I now refer to particular items by reference number.

ANAO, relocation

(3) Damage to safe

There is no evidence as to how the safe was damaged. There may be a claim against a third party. It may have been done accidentally. It was not something which has been shown to have been caused by the need to vacate the Centre. I would not allow it.

(5) Storage Charges

The need for 30 weeks storage has not been addressed. It is not apparent why it was necessary. I would not allow it.

(6) Sun control window film

It is true this is not a relocation cost. However, it is part of the "fitout" rendered useless by the closure of the Centre. It should be relocated to "fitout" and discounted accordingly on the same basis as the other fitout costs.

(11) Cabling

Similar observations apply.

(18) (a) and (b) Overtime and meals

There was a need for overtime to be worked to make up for inevitable disruption. The expenses as claimed are apparently reasonable and, as such, are allowable.

(19) Consultants

The need for such consultants was explained by Mr Taylor. It seems prima facie to be related to the aftermath of the Centre's closure. In the absence of contrary evidence, I consider those expenses to be allowable.

(24) (g) Staging space

I agree that it was premature for the Commonwealth to lease staging space before the need for it had been decided upon. It was a requirement only if the Commonwealth had decided to lease Medibank House from HIC to accommodate the ANAO. Any other agency would have simply remained put till the space was ready.

However, it is not the costs of the staging space itself which is here claimed. It is the cost, or part of it, of evaluating a more suitable option than the unrefurbished Medibank House. That, it seems to me, was a reasonable expense, the need for which arose only because the Centre had closed.

(26) (a), (b) and (c) Computer installation

These seem to relate to relocation of ANAO's computers. On the basis that such work resulted from the relocation to Medibank House, it seems allowable. However, I agree that it was premature actually to proceed to fitout Colbee Court. As such, that expense should not be allowed.

(27) Advertising

It was not unreasonable for the APG to advertise for space to which ANAO could be relocated. It was part of the expense arising from the need either to upgrade Medibank House or to find some other alternative for ANAO. It was reasonable to seek to identify and evaluate all available options. This claim is allowable.

(28) Carpentry at Medibank House

(a) Some alteration to fitout was inevitable. The sum claimed is prima facie reasonable.

(b) The Colbee Court "making good" expense does not have any prima facie validity. I would not allow it on the basis that the expense was incurred prematurely.

(29) Fitout and alterations - Medibank House

This is an apparently necessary expense. I would allow it.

(30) Electrical

Apparently reasonably required. I would allow it.

(31) Telecom

Apparently reasonably required. I would allow it.

(33) Electrical and cabling

Apparently reasonably required. Also allowed.

(35) Survey of accommodation

Apparently reasonably required. Allowed.

(36) Storage 29 October 1989 - 30 May 1993

The need for storage does not appear from the evidence. I would not allow this claim.

(37) Transport and removal

The plaintiff is entitled to the cost of removal from Medibank House to Centenary House. However, there is a chance that, even if the Commonwealth had continued its lease of the Centre until 2003, it might then either have negotiated a renewal or the individual agencies might have moved out and others moved in before that date. In each case, no doubt there would be a cost/benefit analysis of the proposal. Thus, though removal expenses at equivalent real cost before the end of the sublease were likely, offsetting benefits were also likely.

The closure of the Centre rendered inevitable and earlier the relocation which might otherwise have happened. Given the expanding need of ANAO for space, it is not an unrealistic scenario that, at least, either of DASETT or ANAO or, indeed, DSS would have relocated before the end of the sublease or before either or both of the available option periods.

As a matter of judgment, I would allow a discount of one-third to reflect that chance.

(38) Photocopier removal to Centenary House

Same as for (37).

(39) Carpet Cleaning at Medibank House

It is not clear why this was necessitated by the closure of the Centre. The Commonwealth had intended to use vacant space at Medibank for its agencies. ANAO's urgent need led to it being given priority over other agencies. It may be that the cleaning in question would not have been required if ANAO had not been the proposed occupier. However, that proposition is not supported by the evidence. I am not satisfied that this expense has been causally related to the closure of the Centre.

(40) Relocate and test handsets

This relates to the second move to Centenary House. As for (37), it should be allowed subject to discount.

(41) Relocate PABX to Centenary House

Same as for (37).

(42) Trashpack Services - Centenary House move

This is necessarily incidental to such a move. It is allowable as for (37).

(43) Additional Overtime - Centenary House move

This is also necessarily incidental to any such move. Allow as for (37).

(44) Computer relocation - Centenary House move

See above, as for (37).

DSS - relocation to alternative premises

A similar approach as for ANAO is required. The second move in the case of DSS occurred later than for ANAO. However, because of the chance that at or before 2003, DSS could have moved for reasons other than closure of the Centre, the cost of that second move should be discounted to reflect that chance.

It is impossible to assess that chance with any precision. However, it seems to me the same discount as for ANAO's second move is appropriate as a matter of judgment.

I now proceed to deal with the disputed items in respect of that relocation as follows.

(9) Bus Service - provided by DAS

There is no doubt that a bus service was provided. ACTION did not, however, raise an invoice against DSS. A legal claim would now be statute-barred.

The quantum is, however, assessed on what, prima facie, is a reasonable estimate of the commercial value of the service provided.

The objection is curious in one sense. The defendant's case is that there could be no enforceable debt between DAS and DSS in any event. The invoice, if raised, would only have put a value on the service rendered. It would not create a dollar debt to be sued for or to be barred by effluxion of time. In any event, the expiry of the time bar merely bars the remedy not the right. The debt, if otherwise it would have been legally enforceable but for the bar, remains legally valid though unenforceable by action or set-off.

The Commonwealth is entitled to recompense for the commercial value, including profit margin, for the service so required. There being no objection that the service given was not caused by the vacation of the Centre, the sum claimed is allowable.

(25) Overtime 17 January 1989 - 30 June 1989

These expenses purport to relate to overtime, identified as additional to normal requirements, related to the closure of the Centre and the setting up in temporary premises.

On that basis the sum claimed is allowable. It is true that the process involves a degree of opinion evidence to postulate the necessary causal connection. However, it seems to me that the primary facts are proved by reference to s69 Evidence Act 1995 (Cth) (business records) and the opinion implicit in allocating the overtime to the stated purpose is admissible either under s78 (lay opinion) or, insofar as accounting, administrative or managerial expertise is the basis for the opinion, s79 (specialised knowledge).

(27) D & N Floor Coverings - supply and lay carpets at Monaro House

Such an expense would be a necessary part of the fitout of Monaro House to accommodate DSS. However, the absence of an invoice or payment, as alleged, is surprising. However, it is hardly likely that D & N Floor Coverings made a donation of $35,176.00 to the Commonwealth.

I reserve to the Commonwealth leave to re-examine the documentary evidence and extract or identify any particular documentation relevant to this question.

(33) DAS - transport of furniture

The service was given and was, prima facie, reasonably required. The value of the service is not diminished because it was intra-governmental.

I would allow this item.

(35) Atlas Air - Computer Room airconditioning unit

I refer to (27) above. The same comment applies and I similarly reserve leave to the Commonwealth to address this item.

(45) Estimated cost of moving 60 persons from Monaro House to 15 Lonsdale Street

The defendant objects to the assessment of $120,000.00.

It is not clear to me what this sum represents. The new fitout at 15 Lonsdale Street, subject to a suitable discount, that is one-third, would be allowable as is the move by ANAO to Centenary House. Similarly, incidental relocation expenses are allowable. Without searching the records tendered, I have not been directed to any specification of or justification for this claim but I reserve leave to the Commonwealth to address this item as for (27).

(49) Curtains - first floor

It is not entirely clear whether this relates to Monaro House or the permanent premises. Insofar as this relates to Monaro House, it is allowable in full. It is reasonable to accept that the curtains would have no appreciable value on departure to the new premises.

If the expense is part of the fitout of 15 Lonsdale Street, it requires one-third discount. Such an expense is apparently allowable.

I give leave to the Commonwealth to address this question.

(50) Removal to 15 Lonsdale Street

These items are allowable subject to discount of one-third.

Relocation of DASETT

DASETT was variously relocated. A branch due to move extended its stay elsewhere. That latter circumstance does not seem to have produced any loss.

There was, nevertheless, a relocation rendered worthless by the need to further relocate. Thus, the move to Canberra House, insofar as it cost more than remaining at the Centre is, in principle, allowable.

So far as the further relocation is concerned, the same observations as to the chance of relocation before or at 2003 may be made. As a matter of judgment, I think one-third is the appropriate discount for the chance of DASETT relocating.

I turn to individual objections.

(2) Computer Cabling at Canberra House

It is no objection that the Commonwealth used existing stock, even if no replacement stock was purchased. It, nevertheless, had value as previously noted.

It is not necessary for this item to be the subject of an invoice. It is true that the basis for the estimate of cost or value is not express. It involves an opinion of the value of the cabling in question. However, the admissibility of that opinion seems to me to emerge sufficiently from the records relied upon.

This item is allowable.

(11) PABX link for Matrix I and Matrix II

This is an apparently reasonable relocation expense. However, it should be discounted by one-third to reflect the chance that it or a like expense would have been later required in any event.

(12) Telecom - Megalink - PABX link to Tobruk House

Assuming that link already existed at the Centre, it is not clear why the hire of it could not be transferred to Matrix I and II or, if a new service, it would not also have been required at the Centre. If the latter situation is the case, it is further unclear whether the expense is greater because of the separated location of Matrix I and II as opposed to Floors 2 and 3 at the Centre.

(13) Installation of Megalink to Matrix Buildings

This is, prima facie, part of a reasonable fitout for occupation.

However, the DASETT branches at the Centre did not move to Matrix II. It is not clear to me how the non-availability of the Centre caused additional fitout costs at Matrix II for Territories Branch. If that Branch had moved to the Centre, it is not apparent that no additional fitout would be required. However, although the quantum of the difference is unclear, it cannot be said that there is none. Nor can it be said that the non-availability of space at the Centre is wholly unrelated to the move to Matrix II.

Nevertheless, it is a permanent relocation which might have been required for other reasons, for example, ANAO expansion.

It should be allowed subject to substantial discount both for inevitable expense and the chance of relocation otherwise. This particular prospect is of a different order than for Branches required to relocate from the Centre by reason of changed Commonwealth requirements. Fifty per cent is appropriate.

(14) Relocation of Optic Fibre to Matrix Buildings

This is in a similar position to (13). It should be allowed subject to similar discount.

(16) Clean and rehang curtains at Canberra House

It is not clear, if the Commonwealth was the ongoing tenant, why this expense was not required in any event. Even if the Commonwealth would otherwise have vacated this space it would, presumably, have needed to clean the premises, including curtains, before doing so.

I am not persuaded that this was an additional expense to the Commonwealth caused by closure of the Centre.

Australian Property Group (APG)

(1) Costs of evacuation of Silverton Centre (the Centre)

The observations made in relation to intra-governmental payments apply to the objections raised by the defendant to item (1).

(2) Cost of assessment of residual value of fixtures at the Centre

An additional objection is made to (2). It is suggested that it was a litigation cost. That objection seems prima facie valid. The assessment of value could only have been relevant to assessment of damages. I disallow this item.

Rent

This claim has already been addressed. I am not satisfied that any valid claim for additional rental cost causally related to the closure of the Centre, has been made out.

I would also observe that, it is no answer that the HIC was part of the executive government. Nor is it an answer that the Commonwealth utilised existing leased space, which it would have had to pay for in any event.

The rejection is based on the reasons already set out previously that such rental, being for comparable space reflected the same or no greater market value and cost as the space vacated by the Commonwealth at the Centre.

That rental cost, even for Centenary House, was subject to a number of offsets, for example, rent-free periods, landlord's obligation to refurbish and the like, which further reduces the extent to which the rental available for space outside the Centre could validly have been regarded as more expensive.

Provision of Cleaning Services

A. Temporary Premises

In general, the defendant accepts the claim. The claim is valid insofar as it relates to equivalent space and is additional to the cost which would have been incurred at the Centre.

However, I have to say that it is not clear to me why the pro rata cost of cleaning at alternative premises should exceed that at the Centre, save for the set-up period. Ongoing costs are, presumably, negotiated by the Commonwealth with cleaning contractors. The rates will change over time as contracts expire and are renewed or replaced. To claim that increased cleaning costs related to the Centre's closure seems unsustainable.

Further, it would seem reasonable that rent savings, if any, should be offset against increased operating costs in considering the comparative costs of alternative space.

Nevertheless, I accept and act upon CBC's admissions in the Scott Schedule. The amounts so admitted are allowed accordingly.

B. Permanent Premises

Whilst I do not accept that the Commonwealth's claim would automatically terminate on 31 December 1993 because the initial term of the Centre's lease would then expire, it does seem to me that by then, particularly in relation to permanent premises, the causal connection between the Centre's closure, and additional cleaning charges, would have ceased.

This claim is also accepted to the extent of the CBC's admissions.

C. Cost of cleaning at the Centre

This is the offset to A and B above. For present purposes it is appropriate that the same be accepted so as to offset the expenses admitted and, thereby, enable the excess costs to be calculated.

Electricity Consumption

The same principle as for cleaning costs applies.

The ongoing operating costs of alternative accommodation forms part of the cost thereof compared with that lost. If a tenant chooses a more expensive option than that foregone then the difference between them, if reasonably avoidable, is not recoverable.

Thus, if it appeared that Medibank House was the only reasonable option open to the Commonwealth, as at January 1989, to accommodate ANAO then any reasonably necessary additional expense is recoverable.

If, as I accept, it was reasonable to seek an alternative to the unrefurbished Medibank House, it is the least expensive available option then open which is the benchmark for recovery of damages.

It was, in my view, reasonable for ANAO to have been accommodated either at a refurbished Medibank House or a refurbished Sir Keith Campbell Building. As I have concluded, insofar as Centenary House was more expensive than, say, Sir Keith Campbell, the difference is not causally linked to vacation of the Centre. Indeed, it seems more related to the desire of ANAO to improve its location, even at the risk of incurring higher ongoing expenditure. It is not for me to comment on the decision made to take the Centenary House lease for ANAO but I do accept that ANAO saw advantages which warrant the risk of higher rental costs than at alternative sites. There were also offsetting costs savings.

It seems to me that the plaintiff is entitled to be compensated for these expenses to the extent conceded by CBC and no further. Otherwise, no causal relationship, having regard to the duty to mitigate, is established. I reiterate, however, that this finding is not based on any assumption that the options to occupy the Centre till 2003 would not have been exercised.

Similarly, the offset for the Centre's electricity costs conceded by the Commonwealth and accepted by CBC is to be allowed to that extent.

Provision of Security Services

The same considerations apply. Again, the claim and offsets are, for the same reasons as above, allowed to the extent conceded and accepted by CBC.

Payment of Statutory Outgoings

The same considerations apply. The claim should be allowed to the extent conceded and accepted by CBC. In particular, however, it should be noted,

- "staging space" was prematurely leased;

- "pre-existing lease" is not a valid objection.

Fees for Rental Valuation Services

The same considerations apply. The claim is allowed to the extent conceded by CBC, subject to the following,

- that an expense is intra-governmental is not a valid objection;

- "pre-existing lease" is not a valid objection.

It follows, of course, that to the extent that rent review expenses are allowable, the cost conceded by the Commonwealth as an offset should also be accepted.

Payment of Legal Fees

The legal fees for temporary relocation are allowable in full. The final relocation is allowed in part. However, such fees were going to some extent to be necessary for renewal of leases or for exercise of options. To the extent that the expenses actually incurred, less a discount for new leases for permanent accommodation, exceed that figure, they are allowable.

"Make Good" Expenses

To some extent, CBC's objection is valid. It can arise only insofar as the expense was incurred earlier than otherwise. It attached to both existing and new leases. The assumption that the options would not be exercised is as I have noted, not accepted.

This item, after adjustment, is allowable.

Gas Consumption

The net claim is not allowable. Extra expenses, if any, attributable to the decision to lease Centenary House are not causally linked to the vacation of the Centre.

Superintendent's Costs re fitout of Centenary House

The claim is not allowable for the reasons already stated concerning any additional expense of Centenary House over other options.

Advertising for Submissions for DSS Regional Office Permanent Accommodation

There was a need for the Commonwealth to examine options to move DSS from Monaro House. Advertising was reasonable and the objection based on likely non-exercise of options for the Centre is, as I have noted, not accepted. However, there was a serious chance that DSS would have relocated, albeit in a planned manner, at or before 2003. A discount of one-third should be allowed against the claim to reflect that chance.

Naming Rights Expenses

This was for Matrix II. It is neither, in my view, a necessary expense nor one which it was reasonable to incur.

Pre-commitment Lease fees

Whilst part relates to Centenary House, some portion would have been incurred in any event, created by the need to find alternative accommodation for some of, if not all, the Silverton departments before the expiry of the rights available under the sublease at the end of 2003.

I would give leave to the parties to give further consideration to whether the $88,106.00 claimed for negotiating the Centenary House contract is inflated by the special nature of that project or whether it or some similar sum would have been incurred in any event, if either of the two Woden options had been pursued to completion.

In any event, a one-third discount should apply for the reasons already noted.

Calculation of Interest - prejudgment

This item will need re-calculation to reflect adjustments to the principal sum and my finding that the rates reflected in the practice direction need discounting to reflect lower cost of funds to the Commonwealth and, on the earnings side, its need to recover less given its non-liability to taxation.

Projected rent expenditure

Whilst, in theory, added cost over the alternative leases, compared with the Centre, is recoverable, by the time one or more rent reviews against market rates had occurred, there would be no relative difference in the rents for the Centre as opposed to elsewhere.

Indeed, save for Centenary House, with its minimum fixed rate escalator clause, those rents could well be lower. The Centre's rent would not fall below market rates but could remain above that rate in a falling market. Thus, escalator clauses aside, the chances are that after the first rent review at the Centre, its rents would, at times, exceed market rates. However, as I have noted, I do not consider that to have been a long term factor.

Any such claim, given the capacity and duty of the Commonwealth to mitigate its loss is too remote to be regarded as caused by the closure of the Centre.

That comment is applicable whether or not the options for the Commonwealth to occupy the Centre until end 2003 were exercised.

Projected Cost of General Refurbishment at the Centre

The cost is conceded by the Bracher Report to be $1,052,382.00 ($135.00 m<=). There is no basis for the Commonwealth to infer that it would be less. Further, it was the Commonwealth's estimate, per Mr Collins, that such refurbishment would be required each ten years.

I have no doubt that in the lead-up to the expiry of the first term at the end of 1993, the APG would have negotiated for such a refurbishment and, possibly, other advantages, as a condition of an agreement by the Commonwealth to exercise the first option. Given the then state of the market as Mr Collins understood it to be, it is likely that negotiation would have succeeded, at least to some extent.

In any event, refurbishment costs would be reflected in increased market rents if done at the expense of the landlord.

Present dollar value of total projected costs

I have already noted that the 3% discount figure assumes the negative impact of taxation on interest income. Given the Commonwealth is not subject to such imposts, I note that I have concluded that 4% is an appropriate discount rate in this case.

Generally

The parties are to have liberty further to address or give effect to the consequences of these reasons.