Damages

Question 1

What is the compensation principle?

Answer 1

“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed” - Robinson v Harman

Question 2

Expectation damages?

Answer 2

• Puts the wronged party in the position they would have been in had the contract been properly performed)
  
  • Might involve ordering the cost of rectification or repair
  • Where a speculative contract is involved, ‘loss of chance’ damages (a variety of expectation damages) may be awarded.

Question 3

Reliance Damages

Answer 3

• Sometimes granted where it’s difficult to work out how much benefit the wronged party would have gotten from a contract – court may assume that they would have at least covered their costs. Can be seen as an approximation of expectation damages.
• Amount that the aggrieved party has spent in reliance on the contract being properly performed
• Minimum approximation of expectation loss

Question 4

What damages are awarded for breach?

Answer 4

Expectation: Difference between what they’ve done and what they were obliged to do

Question 5

What damages are awarded for termination?

Answer 5

Expectation
○ The price promised under the contract (‘loss of bargain damages’), or
○ The cost of obtaining replacement performance
○ Net profit: the damages won’t put you into a better position than you would’ve been

Question 6

Bellgrove v Eldridge (1954) CLR principle

Answer 6

Damages may be granted for rectification where it is reasonable and necessary

Question 7

Bellgrove v Eldridge (1954) CLR facts

Answer 7

• Builder didn’t follow specifications
• House wasn’t safe to live in
• Dispute of damages
○ Builder argued for diminution of value
○ The owner argued to demolish the house, and rebuild it

Question 8

Bellgrove v Eldridge (1954) CLR decision

Answer 8

Where there has been faulty building work, the starting point is that the wronged party will be entitled to rectification of the work
• However, court may refuse to grant rectification (and grant remedies instead) where rectification would be “unreasonable” in all the circumstances. Must be reasonable and necessary.
• Damages can also be granted for the loss of having to live somewhere else etc. because of having to wait

Question 9

Tabcorp Holdings Ltd v Bowen Investments (2009) CLR principle

Answer 9

If it is reasonable rectification damages will be awarded rather than diminution of value.
The ‘same situation’ isn’t limited to financial situation

Question 10

Tabcorp Holdings Ltd v Bowen Investments (2009) CLR facts

Answer 10

Tenant promised not to make any substantial alterations without permission
Tenant decided to renovate the lobby (which had recently been renovated carefully by the landlord)
Landlord said it couldn’t agree until it had been discussed at meeting
Discovered tenant had began renovations, and refused to stop

Issue: What damages are reasonable? Rectification or diminution in value?

Question 11

Tabcorp Holdings Ltd v Bowen Investments (2009) CLR decision

Answer 11

Trial:
• Awarded damages due to diminution ($34,820)
Full Court
• Rectification ($1,380,000)
High Court:
• Rectification
• Put the party in the position they would have been in
• The same situation isn’t limited to financial situation
• Nothing to show that it was unreasonable

Question 12

Ruxley Electronics and Construction Ltd v Forsyth [1996] principle

Answer 12

• Rectification damages will be granted if it is reasonable
• If it is not reasonable diminution of value damages will be granted
• If there is no diminution of value nominal damages will be awarded

Question 13

Ruxley Electronics and Construction Ltd v Forsyth [1996] facts

Answer 13

• Swimming pool was constructed shallower than the contract specified
  
  • Pool was suitable for all activities, and not worth any less than it would have been if it complied with the specifications
  • Builders agreed to a discount because the pool had to be built twice because a subcontractor didn’t do it properly
  • Pool wasn’t as deep as specified
  • The cost of rectification (demolishing and replacing the pool) would be some £30,000 - the owner had no intention of replacing the pool if those damages were granted

Question 14

Ruxley Electronics and Construction Ltd v Forsyth [1996] decision

Answer 14

○ Reasonableness must be taken into account
○ Foresight’s loss was less than rectification: shown by fact he had no interest in rectifying
○ Rectification damages would put him in a better position
○ If the pool had been for diving - the loss could only be rectified through replacing the pool
○ If there is no reasonableness then diminution damages should be granted and if there is no diminution only nominal damages will be granted

Question 15

Reliance damages

Answer 15

If reliance damages can’t be calculated reliance damages will be awarded to compensate for the costs spent in reliance on the contract.
Put in the position as if they had never entered the contract.

Question 16

McRae v Commonwealth Disposals Commission (1951) CLR principle

Answer 16

• If expectation loss can’t be proven reliance damages can be awarded
• There is a presumption that a party won’t enter a loss making contract

Question 17

McRae v Commonwealth Disposals Commission (1951) facts

Answer 17

• Contract for the salvage of a lost oil tanker
• The oil tanker didn’t actual exist
• The tenderers purchased an oil tanker including contents and were given latitude and longitude of the tanker.
• They discovered that the tanker didn’t exist

Question 18

McRae v Commonwealth Disposals Commission (1951) decision

Answer 18

• Plaintiff’s couldn’t prove loss since the tanker didn’t exist
• Where a wronged party needs to claim for wasted expenditure due to a breach of the other party there is a presumption that it would have at least covered its reasonable expenses (that they didn’t enter into a loss making contract)
  • The onus is on the defendant to show that is nonetheless would’ve made a loss
  • Court awarded reliance costs - costs spent assuming the tanker existed

Question 19

Commonwealth v Amann Aviation 1991 CLR principle

Answer 19

If expectation damages cannot be proved reliance damages can be awarded.
Cannot get more damages than properly performed

Question 20

Commonwealth v Amann Aviation 1991 CLR facts

Answer 20

• Amann entered contract to provide coastal surveillance flights for 3 years
• Commenced flights on 12 December 1987 but wasn’t in compliance with the contract
○ Aircraft didn’t fit specifications etc.
• Government terminated
• But didn’t follow termination clause in the contract
• Amann claimed that Commonwealth had repudiated by wrongful termination
• Amann wouldn’t have made profit in 3 years because of costs of aircrafts but it would have a prospect of renewing the contract
ISSUE: Expectation or reliance damages?

Question 21

Commonwealth v Amann Aviation 1991 CLR decision

Answer 21

It isn’t always possible to predict the position a party would be in if the contract had been performed. There was no way to determine if they would have been given a renewal. Principle from McRae - allow plaintiff to recover expenditure it reasonable incurred on reliance on the promise. The law assumes the plaintiff would have at least recovered it’s expenditure if it had been performed.
® Even where it’s possible to determine expectation damages it might not be the most appropriate
® Assumed Amann Aviation would have recovered - Commonwealth given onus to prove they would have made a loss overall. Cth claimed it was irrelevant because they had no legal obligation to renew the contract. Mason/Dawson claimed the renewal was in the contemplation of the parties at the time of the contract (wasn’t too remote).

Question 22

What are loss of chance damages?

Answer 22

If a contract itself was highly speculative, a court may be willing to grant loss of chance damages to a plaintiff who can show that they lost a chance of a benefit

Question 23

Chaplin v Hicks [1911] principle

Answer 23

• A speculative contract doesn’t mean it can be breached without consequence
  
  • They’re calculated with reference to the probability of the plaintiff actually attaining that benefit.
  • Can only be used where the contract is for a chance of a thing rather than the thing itself

Question 24

Chaplin v Hicks [1911] facts

Answer 24

• A famous actor ran a competition to choose women as actresses
  
  • Women sent details to newspaper who made a shortlist
  • Photographs of the shortlisted candidates were published and people wrote in
  • Top 50 met the managers who chose 12
  • First 5 get contract for 5 pounds per week
  • Next 4 get 4 pounds per week etc.
  • Plaintiff made top 50 got sent letter to meet manager but she didn’t get it until the day of the meeting
  • She wasn’t allowed a meeting
  • She didn’t get a job
  • No certainty she wouldn’t have got the job.

Question 25

Chaplin v Hicks [1911] decision

Answer 25

• Court decided nominal damages were not enough: she lost the chance to be one of 50 people competing for 12 prizes
  
  • She was awarded £100 of damages

Question 26

What is the causation requirement for damages?

Answer 26

• Plaintiff must demonstrate a causal connection between the breach and the loss in order to recover damages for the loss

Question 27

What is the test for causation?

Answer 27

• Simple:
○ But for test: But for the breach, the loss would not have occurred
• More complex:
○ A number of factors leading to the loss: breach is only one factor
○ Common sense approach to determine if loss is caused by breach (Alexander v Cambridge Credit Corporation)

Question 28

Alexander v Cambridge Credit Corp Ltd (1987) principle

Answer 28

Common sense approach to causation

Question 29

Alexander v Cambridge Credit Corp Ltd (1987) facts

Answer 29

• Defendants auditors - ensure financials were in
  
  • Mistake - overstatement of Cambridge Credit Corporations situation
  • Without - they wold have been put into receivership
  • At time: Cambridge Credit would not have been able to meet all debts
  • Because of mistake it continued trading and eventually went into receivership
  • Additional loss of $145 million

Question 30

Alexander v Cambridge Credit Corp Ltd (1987) decision

Answer 30

• Auditors not liable for larger amount
  
  • No causal connection between the breach and the loss
  • Real cause was that land prices had slumped between the inaccurate audit and when they came into receivership
  • Other events which overtook breach
  • Actions couldn’t constitute causation
  • Mahony agreed - didn’t think the but for test was useful because it can lead to overstretched outcomes
  • Common sense approach to causation

Question 31

March v E & MH Stramare Pty Ltd (1991) principle

Answer 31

The ‘but for’ test is not, and should not be, a definitive test of causation. Common sense, logic and policy should be considered.

Question 32

March v E & MH Stramare Pty Ltd (1991)

Answer 32

Negligence case - causation

Question 33

What does remoteness mean in relation to damages?

Answer 33

You cannot recover for losses which are too remote

Question 34

When will loss be too remote?

Answer 34

When the loss is not ordinary and it is not within the contemplation of the parties: Hadley v Baxendale

Question 35

Hadley v Baxendale 1854 principle

Answer 35

Damages are available for loss which:

• naturally arises from the breach according the usual course of things; or
• is within the reasonable contemplation of the parties at the time of contracting as the probable result of a breach (this may be, for example, because special circumstances have been communicated at the time of contracting and therefore can be said to be within their reasonable contemplation)
• These are referred to as the two limbs of Hadley v Baxendale.

Question 36

Hadley v Baxendale 1854 facts

Answer 36

• Plaintiffs worked the mills with a steam-engine.
• The crank shaft of the engine was broken and needed to be taken to be fixed
• plaintiffs hired defendants to take crank to be fixed
• Defendants were meant to deliver the crank in 2 days but it took 7
• The delay prevented the plaintiffs working their steam-mills for the five days comprising the delay, which in turn prevented them meeting supply of customers from their own mills, depriving them of the profits they would otherwise have received.
  Issue: Are the lost profits too remote?

Question 37

Hadley v Baxendale 1854 decision

Answer 37

Lost profits were not ordinary and were not in the reasonable consideration of the party. Therefore too remote.

Question 38

Test for remoteness

Answer 38

Damages are available for loss which:

• naturally arises from the breach according the usual course of things; or
• is within the reasonable contemplation of the parties at the time of contracting as the probable result of a breach (this may be, for example, because special circumstances have been communicated at the time of contracting and therefore can be said to be within their reasonable contemplation)
• These are referred to as the two limbs of Hadley v Baxendale.

Question 39

Victorian Laundry (Windsor) Ltd v Newman Industries Ltd [1949] principle

Answer 39

The compensating party must have knowledge of the circumstances giving rise to the loss for them to be able to contemplate the loss.

Question 40

Victorian Laundry (Windsor) Ltd v Newman Industries Ltd [1949] facts

Answer 40

Contract for purchase of boiler for laundry
Defendant supposed to deliver by a certain date - but it was 20 weeks late
They knew they needed it for immediate use but didn’t know the precise use
Laundry claimed
- Profit it lost from day-to-day business ($16 pound per week)
- Lost the possibility of a lucrative government contract ($260 pounds per week)

Issue: Was the second loss too remote?

Question 41

Victorian Laundry (Windsor) Ltd v Newman Industries Ltd [1949] decision

Answer 41

First loss: arising naturally - not too remote
Second loss: Extraordinary loss - not usually expected to suffer
- Laundry hadn’t let defendant know of the possibility of this loss at the time of making the contract
- Defendant hadn’t considered the loss as a possibility at the time

Question 42

Remoteness Alexander v Cambridge Credit Corp 1987 principle

Answer 42

the crucial question is whether on the information available to the defendant when the contract was made that he should or the reasonable man in his position would have realised that the loss was sufficiently likely to result from breach of contract so as to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind could have been within his contemplation”

	○ Defendant doesn't need to contemplate the degree of the loss suffered or the actions/events which give rise to loss but must contemplate this 'kind' of loss

Question 43

Remoteness Alexander v Cambridge Credit Corp 1987 facts

Answer 43

• Defendants auditors - ensure financials were in
• Mistake - overstatement of Cambridge Credit Corporations situation
• Without - they wold have been put into receivership
• At time: Cambridge Credit would not have been able to meet all debts
• Because of mistake it continued trading and eventually went into receivership
• Additional loss of $145 million

Question 44

Remoteness Alexander v Cambridge Credit Corp 1987 decision

Answer 44

Too remote because a reasonable person in is position would not have contemplated that type of loss

Question 45

Rule relating to mitigation of loss?

Answer 45

A person cannot recover for losses which were avoidable. Ons on defendant to show that reasonable steps to mitigate haven’t been taken.
You cannot recover if you have fully mitigated your loss.

Question 46

Burns v MAN Automotive 1986 CLR principle

Answer 46

Damages will not be awarded if the loss was avoidable

An impecunious plaintiff can still be required to mitigate

Question 47

Burns v MAN Automotive 1986 CLR facts

Answer 47

• Burns had bought a prime mover on hire purchase to use in his business.
  
  • Should have been apparent that he wasn’t very well off
  • There had been a representation that the engine had been fully conditioned but it hadn’t - it was in very poor condition and the truck kept
  • Machinery seller refused to fix it and Mr Burns couldn’t afford to fix it
  • Mr Burns only used it on smaller jobs (not interstate routes) and ended up making a loss and the truck was repossessed
  • Burns sued the truck dealer
  • Clear breach

Question 48

Burns v MAN Automotive 1986 CLR decision

Answer 48

• Loss was too remote
  
  • Once he found out about how bad the engine was he should have got a new engine or given the truck back to the finance company
  • Losses were ‘avoidable’

Question 49

Burns v MAN Automotive 1986 CLR dissent Brennan

Answer 49

○ He had a few options available
§ Try and enforce contractual warranty (which he did - but seller refused to fix)
§ Go back to finance company and terminate - but he would have had to terminate leaving him with a debt: open not to choose to do that
§ Have the engine fixed ($7000-8000) but he just didn’t have that money
○ In all circumstance the only option was do the limited repairs he could afford and use it only within the state and try to make enough to pay out liability to finance company
○ He did this and made a loss - it put him in a worse position
○ Brennan didn’t think this was an unreasonable step

Question 50

Burns v MAN Automotive 1986 CLR dissent Gibbs

Answer 50

○ Within reasonable contemplation at the time the contract was made that if the warranty was broken Mr Burns might lose those profits which he would otherwise have made with interstate haulage
○ Mitigation: not required to do what was unreasonable. Unjust to prevent him recovering full damages simple because he lacked ability to fix. Especially because the inability largely resulted from the fact that the engine was already damaged and they refused to fix it.
○ Would have awarded damages for lost profits but not to cover losses caused by continuing to use the prime mover once it became evident he was operating at a loss

Question 51

Simonius Vischer & Co v Holt Thompson principle

Answer 51

A plaintiff can recover damages for additional loss incurred in the course of attempts to mitigate the initial loss

‘Where the sufferer from a breach of contract, finds himself in consequence of that breach placed in a position of embarrassment, the measure which he may be driven to adopt, in order to extricate himself, ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who themselves have created the emergency.

Question 52

Simonius Vischer & Co v Holt Thompson facts

Answer 52

• Firm of wool brokers in Switzerland
• Sydney office was run by cowboys? who exceeding scope of authority
• Participated in sceptical transactions
• Swiss had auditors in place who should have picked up on this but failed to do so
• Wool brokers sued auditors in contract and tort
• The defendants ordered plaintiffs had failed to act reasonably to mitigate damages: by the time they realised the errors there were many speculative contracts and they thought the market was going to drop and so the best thing to do would be to hold onto the contracts. However, the market rose which increased their losses. Auditors argued it was their duties to close the contracts when they had ascertained their position

Question 53

Simonius Vischer & Co v Holt Thompson decision

Answer 53

• Court said they hadn’t proved the conduct was unreasonable. The mere fact that it didn’t have the desired effect didn’t mean it was unreasonable in the circumstances.
  
  • 1932 HoL ‘Where the sufferer from a breach of contract, finds himself in consequence of that breach placed in a position of embarrassment, the measure which he may be driven to adopt, in order to extricate himself, ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who themselves have created the emergency.

Question 54

Baltic Shipping Co v Dillon 1991 NSWLR principle

Answer 54

If the purpose of the contract was to obtain leisure from the experience - like on a cruise - then it is possible to claim damages for non pecuniary loss

Question 55

Baltic Shipping Co v Dillon 1991 NSWLR facts

Answer 55

• OCT 1985: Dillon sees an advertisement for a cruise, contacts a travel agent, selects cabin and is given a booking acknowledgement
  
  • 9 NOV 1985: Dillon receives a booking form which states that a contract of carriage is only made at the time of issuing tickets and is subject to conditions printed on the tickets. These conditions available at Cruise offices.
  • DEC 1985: Dillon pays balance for cruise
  • JAN 1986: Dillon issued with ticket containing term limiting liability for damages
  • FEB 1986: Dillon boards ship, during cruise ship sinks
  • Dillon sues for damages

Question 56

Baltic Shipping Co v Dillon 1991 NSWLR decision

Answer 56

The purpose of the cruise was for enjoyment. Therefore damages can be claimed. Exception to the general rule that damages can’t be claimed for disappointment.

Question 57

Can you claim damages for disappointment, distress, loss of reputation?

Answer 57

Generally: No 
Exceptions:
- Contract is for enjoyment
- Personal injury
- Physical inconvenience

Question 58

Shevill v Builders Licensing Board 1982 CLR principle

Answer 58

Loss of bargain damages are not available unless there is a right to terminate under the common law (i.e. breach or repudiation)

Question 59

Shevill v Builders Licensing Board 1982 CLR facts

Answer 59

• Shevill were the guarantors of due performance by the lessee of the terms of a lease by the respondent of land for a term of three years
• Lease was to be paid in advance in equal monthly instalments
• Clause 9 provided that if the rent remained unpaid for 14 days
• Lessee paid rent late constantly and cheques were dishonoured

Question 60

Shevill v Builders Licensing Board 1982 CLR decision

Answer 60

• The conduct did not amount to repudiation or breach of condition or sufficiently serious breach of an intermediate term
  
  • No right to terminate under common law
    Right to damages for recovery of lost rent but no right to loss of bargain damages unless there is a right to terminate under common law

Question 61

Gumland Property Holdings Ltd v Duffy Bros Ltd (2008) principle

Answer 61

A contract including an express right to termination (and there is no right under the common law) may give rise to loss of bargain damages if it is expressed in the intention of the parties.