Topic 2: Contract Common Law Damages

Question 0

What other types of contract damages can fall within the scope of the Robinson v Harman rule?

Answer 0

1. Reliance Damages - Commonwealth v Amann Aviation
2. Loss of Bargain Damages - Shevill v Builders Licensing board and Tabali’s Case
3. Disappointment and Distress damages

Question 1

What is the normal measure of damages for contracts and what case does it come from?

Answer 1

Robinson v Harman
The Plaintiff is, in so far as money can do it, to be placed in the position they would have been in had the contract been performed

Question 2

When would a Plaintiff seek reliance damages?

Answer 2

Commonwealth v Amann Aviation: When they can’t point to a loss suffered.

Question 3

What is the relevance and facts of Commonwealth v Amann Aviation?

Answer 3

Reliance damages

• AA had a contract with the government to provide coastal surveillance for 3 years.
• They spent a large amount of money buy planes and modifying it to meet specifications under Australian requirements
• When operations were due to commence, AA was still not ready to perform.
• Cth terminated claiming AA breached contract
• That termination was in fact invalid, so Cth gov was in breach instead of AA
• AA treated Cth’s breach as repudiation and sought damages

Court held:

• Evidence showed AA unlikely to make profit in the first 3 years, but AA assumed contract would renew after 3 years, at which point it would become profitable.
• Therefore AA couldn’t point to any loss because the new contract hadn’t been entered into.
• HC held: presumption is a party would not enter into a contract that at least their costs were recovered.
• Therefore, this is in line with Robinson v Harman because if the contract was performed, the Plaintiff would have been placed in at least that position.
• Cth did not disprove that presumption, therefore had to pay reliance damages

Question 4

When should the calculation of reliance damages in Commonwealth v AA be used?

Answer 4

Only when it is impossible or very difficult to calculate any real loss.

Question 5

When are loss of bargain damages available?

Answer 5

1. When there is termination permissible AT COMMON LAW; and

2. The party suffering has sought to mitigate losses by obtaining a higher priced contract : Tabali’s case

Question 6

How do bargain damages fit in with the rule in Robinson v Harman?

Answer 6

Robinson’s case was to place the P in the position they would have been in had contract been performed i.e. they would not have incurred the additional cost of having to mitigate.

Question 7

What is termination permissible at common law for loss of bargain damages and what case?

Answer 7

Tabali’s case: This is where the contract can be terminated where there has been a breach of an essential term or condition

Question 8

What is the difference between Shevill’s Case and Tabali’s case?

Answer 8

Shevill’s Case:

• Termination would not have been available at CL because it was not a breach of a condition.
• The innocent party could only have breached because of a contractual provision allowing termination
• Courts held no loss of bargain damages because they make the decision to terminate even where a condition is not breached therefore they make the decision to incur loss.

Tabali’s case:

• Termination would have been available at CL even though it was terminated based on an express provision
• Loss of bargain damages granted because it was at that point they suffered a loss of bargain and advantages of that particular contract because the breach was of a condition (serious breach if you like)

Question 9

When can a Plaintiff claim disappointment and distress damages?

Answer 9

Baltic Shipping v Dillon: Where the specific type of the contract is to provide one party with enjoyment pleasure of relaxation

Question 10

What are the facts of Baltic Shipping v Dillon?

Answer 10

• The Plaintiff went on a cruise ship
• Ship sank
• She lost all her luggage and also didn’t get the experience she paid for

Court held:

• Contract was supposed to provide the P with a relaxing and enjoyable experience
• Damages awarded to compensate for P not being put in that position.

Question 11

What is the remoteness rule and which case does it come from for contracts?

Answer 11

Hadley v Baxendale, the remoteness rule is to limit how much the plaintiff can recover.

Question 12

What are the two circumstances in which damages can be recovered that won’t be too remote?

Answer 12

Hadley v Baxendale:

1. Where it arises in the usual course of things; or
2. It may reasonably be supposed to have been in the contemplation of both parties at the time of making contract

Question 13

What are the facts of Hadley v Baxendale?

Answer 13

• The shaft of tank had been damaged and P entered into contract with D to transport the crank shaft so they could use it as a model to make a new one
• Carrier delayed transportation and hence breached contract.
• As a result, the mill was not in operation for an extended period of time
• they incurred loss of profit in that time.

Court held:

• Was not loss in the usual course of things, because they would normally have a spare.
• Not having the spare was unusual factor.
• It was not in contemplation of D because they were not aware there was no spare shaft and P had not told D mill would have to close
• Damage too remote to recover.

Question 14

What are the other cases to be used for remoteness of loss?

Answer 14

1. Koufos’ Case
2. Victoria Laundry case
3. Hungerfords v Walker
4. The Achilleas

Question 15

What are the facts of Koufos’ case?

Answer 15

• D was carried and delivered cargo late, so was breach of contract
• By the time sugar arrived, market price had fallen significantly.
• D knew cargo was sugar and that it was being transported for sale on the market

Court held:

• D knew or should have known price of commodities such as sugar fluctuate on a daily basis
• Should have been aware that delay would result in loss of profit for P
• Court held: loss reasonably in contemplation of parties, so recoverable

Question 16

What are the facts of the Victoria Laundry case?

Answer 16

• P was launderer, and tendered contract with government
• It was a particularly big contract and very lucrative

Court held:

• They could claim loss in the usual course of things for providing laundry services
• However loss suffered by Victoria Laundry was not in the contemplation of gov at time of contracting, so can’t be held responsible

Question 17

What are the facts of Hungerfords v Walker?

Answer 17

• Accountant made an error in preparing tax return for business client.
• Business client ended up paying too much tax

Court held:

• When assessing damages, include an amount representing the interest that the client would have earned had it invested the sum of money.
• That would be the loss arising in the usual course of things for a BUSINESS PERSON. If it was personal client, have to show they would have invested the money, otherwise can’t fall under first or second limb.

Question 18

What are the facts of The Achilleas?

Answer 18

• Ship had been chartered. D in the case had chartered the ship to transport cargo.
• The ship was due on 2nd May.
• In the meantime, in April, the P had entered into a follow up charter, who would pay 39,500 per day for the ship. This was common practice
• The term was if ship was not available by 8th May, the P could cancel.
• Ship was delayed delivery by D, and it was clear on the 5th May that it would not be delivered by the 8th.
• P had to renegotiate but could only get 31,500 at that time because market had fallen.
• D had breached contract by not returning in time.
• P sought damages, difference between original price of Charter B and renegotiated price x 191 (the follow up charter was for 191 days), claiming if D had not failed in their breach, they would not have had to renegotiate

Question 19

What was the decision in The Achilleas?

Answer 19

• At first instance, full amount granted.
• On appeal to the HC, D argued: where it was delayed, the amount payable was only on the overrun period i.e. from when the boat was supposed to be delivered to when the boat was actually redelivered
• HC said it’s what the parties’ understanding of what they had contemplated at the time of creating contractual relationship that needs to be examined.
• In this case, that was their contemplation so damages significantly reduced.

Question 20

What do we need to examine when assessing what the parties contemplated at time of contracting and what authority?

Answer 20

The Achilleas:
It is:
1. What the parties understood as the general practice at the time of contracting; AND
2. What were those industry practices?

Question 21

What is the duty to mitigate loss and what authority?

Answer 21

Burns v MAN Automotive: The Plaintiff must take reasonable steps to minimise the loss it has sustained as a result of breach of contract.

Question 22

What are the facts of Burns v MAN Automotive?

Answer 22

• P was Burns and he had a business, he wanted to buy a truck for it.
• Seller sells vehicle to finance company who would then hire truck to consumer.
• The defendant had sold the truck to the finance company, who subsequently hired it to P.
• D warranted truck what been fully reconditioned. It hadn’t been.
• This was a breach of contract.
• D knew of the purpose of the truck, and also know P was not in good financial position.
• P used truck and experienced difficulties within first yea rand broke down completely.
• P discovered it hadn’t been reconditioned and repairing it would cost him over 7,000.
• P didn’t have money to make repairs so he changed nature of business which was less profitable.
• P claimed damages or loss of profit in the amount if he had continued to operate the business in it’s original state

Question 23

What was the courts decision in Burns v MAN Automotive?

Answer 23

• First instance, granted 4 years of profit (amount of years the truck should have worked for in it’s reconditioned state).
• ON appeal limited to period between date truck delivered to him and date he discovered breach of contract.
• P had a duty to mitigate at breach of contract.
• HCA had their reasoning more on remoteness though.
• They said, he could have terminated contract but he didn’t, so it was his choice to change the way he operated his business. Therefore too remote to claim the full amount since it was his choice to continue with contract.
• Dissenting: he had taken reasonable steps to mitigate. Although he could have terminated, he still would be in significant debt, so wasn’t able to terminate without financial consequence.