LWZ118 Lecture 10: Contracts-Lecture-10-notes
Lecture 10
Contracts
REMEDIES
With damages also discuss mitigation and remoteness
DAMAGES FOR BREACH OF CONTRACT - Nature of Damages
Where a party fails to fulfil a primary obligation that party incurs a secondary obligation to pay monetary
compensation to the innocent party for loss suffered (Photo Production Ltd v Securicor Transport Ltd
[1980] AC 827)
Generally speaking, an innocent party can only recover damages for losses that he or she has personally
suffered (The Albazero [1977] AC 774)
Once a breach is established, the innocent party is automatically conferred with a right to seek damages
(Agricultural Rural Finance Pty Ltd v Gardiner (2008) 251 ALR 322)
Nominal and Substantial Damages
The innocent party bears the onus of proving the extent of their loss (The Commonwealth of Australia v
Amann Aviation Pty Ltd (1991) 174 CLR 64)
If an innocent party fails to prove their loss, he or she will be entitled only to ‘nominal’ damages (Owners
of SS ‘Mediana’ v Owners of SS ‘Comet’[1900] AC 113). In Beaumont v Greathead (1846) 2 CB 494, [444]
Maule J. explained ‘Nominal damages’ as a sum of money that may be spoken of, but that has no existence
in point of quantity. E.g. $1 or $2.
Where the innocent party establishes a real and quantifiable loss, he or she may be entitled to substantial
damages
The Compensatory Nature of Damages
In Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, Lord Blackburn explained, “The purpose of
compensatory damages in tort law is to place a plaintiff as far as possible in the position in which they
would have been, had the wrong not occurred.”
Where a party sustains loss by breach of a contract, he is, so far as money can do it, to be placed in the
same position, with respect to damages, as if the contract had been performed. (Robinson v Harman
(1848) 154 ER 363)
Once and For All Lump Sum Rule
An award of damages is made by way of a lump sum order for payment, once and for all Johnson v Perez
(1988) 166 CLR 351. This means that a lump sum is awarded to the plaintiff to cover all past and future
losses and that damages cannot be awarded in the form of periodical payments. The justifications for this
rule are, first, that an award finalises litigation and, second, that it would be unfair to have a defendant
subjected to a series of claims arising out of the same breach of contract.
Taxation of Damages
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Unless it is clear that an award of damages will not be taxable, the court does not take into account any tax
the innocent party may have to pay on the award (Federal Commission of Taxation v Wade (1951) 84 CLR
105)
Date for Assessment of Damages
With the exception of contracts by deed, in the Northern Territory a claim for damages for breach of
contract must be filed with the court within 3 years of the events giving rise to the breach (Limitation Act
1981 (NT), section 12(1)(a))
In the case of contracts set out in a deed, the time limit is 12 years in the NT ( Limitation Act 1981 (NT),
section 14)
Generally, the date for assessment of damages is the date of the breach. However, the time fixed at which
damages are assessed must be so fixed as to give effect to the governing principle of compensation (see
Johnson v Perez (1988) 166 CLR 351). Accordingly, the court is free to set a different date for assessment of
damages (Smith New Court Securities Limited v Citibank NA [1997] AC 254)
Expectation Interests - Reflects compensation for the loss of expectation, or profit, that the innocent party
was entitled to receive under the contract.
An innocent party must be entitled to terminate the contract, and must do so. In Progressive Mailing
House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, a lessee under a five year (unregistered) lease fell behind
in rental payments for four months and committed several breaches of the covenant to repair, ignoring
notices to make good the default. The lease contained the usual terms which gave the lessor a right of re-
entry after 14 days of non-payment of rent or breach of covenant not remedied for 30 days 'but without
prejudice to any claim the lessor might have against the lessee in respect of any breach of the covenants
and provisions in the lease to be observed or performed. The lessor commenced an action against the
lessee in which it sought an order for possession and damages. The Court at first instance granted an order
for possession and awarded damages, including damages for loss of the benefit of the covenant to pay
rent. In holding that the ordinary principles of contract law, including those applying to termination of
contract for repudiation or fundamental breach, applied to leases, the High Court affirmed the decision
below and held that the lessor was entitled to recover damages for its loss of the benefit of the covenant
to pay rent.
If the innocent party has no right to terminate, it cannot recover expectation damages. In Shevill v Builders
Licensing Board (1982) 149 CLR 620, During the entire period the respondent lessor was owner of the land,
the lessee was consistently late with rent which were so accepted and sometimes only in part. During a
five month period preceding recovery action by the lessor, the lessees' account was chronically in debit
and three rental cheques were dishonoured. The inference from the lessees' conduct was that while they
were financially unable to meet the rental payments as they fell due they were not generally unwilling to
comply with their obligations to do so. It was merely a matter of consistent late payment of rent. The
question for determination in the appeal was whether the lessee was liable for the damages for loss of
bargain at all. The High Court held that the conduct of the lessee had not evinced an intention not to be
bound by the lease, and the failure to pay rent, in itself, was not such a breach of a term going to the root
of the contract to make further performance impossible.
Expectation Interests - Damages of Loss of Chance
A party may seek expectation damages for loss of a chance where:
The purpose of the contract was to provide them with a chance of obtaining a benefit; or
A term of the contract, express or implied, promises such a benefit; or
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Lecture 10
Contracts
Where an opportunity is lost as a consequence of the breach by the other party.
In Chaplin v Hicks [1911] 2 KB 786, the claimant, an actress, entered a beauty contest organised by Hicks.
Hicks was a famous actor and theatre manager and advertised the contest in a newspaper. The readers of
the newspaper were to vote and the top 50 would be invited to an interview where 12 would be selected
for employment. The claimant got through to final 50 but did not receive her invitation for interview until it
was too late to attend. She brought an action based on her loss of a chance of gaining employment. She
was awarded £100 assessed by the jury. Hicks appealed contending that the damages were speculative in
nature and incapable of assessment.
The Court dismissed the appeal. The claimant was entitled to recover damages for her loss of a chance of
gaining employment. She did not have to demonstrate that she would have been successful at interview.
Vaughan Williams LJ held, “the fact that damages cannot be assessed with certainty does not relieve the
wrongdoer of the necessity of paying damages for his breach of contract."
The innocent party must show that the breach actually ‘caused the loss of a commercial opportunity which
had some value (not being negligible value)’ In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332) the
Plaintiffs sued under the Trade Practices Act for damages. They came to a draft agreement with ‘Pagini’,
but were then induced by ‘Poseidon’, to enter into an agreement with them.
Poseidon later repudiated the agreement. The Plaintiffs accepted the repudiation and entered into
fresh negotiations with Pagini, but concluded on less favourable terms than originally they would have
achieved. They sued Poseidon for the loss of opportunity of completing the original agreement with Pagini.
The Plaintiffs were successful under the Trade Practices Act, and in so finding, the majority of the
High Court acknowledged there was no reason for confining the approach taken in Malec v Hutton Pty Ltd
(1990) 169CLR638 and in breach of contract cases (Commonwealth v Amann Aviation Pty Ltd (1991) 74 CLR
64) in determining whether a Plaintiff had suffered loss or damage under Section 82 of the Trade Practices
Act. Unlike in contract, it was acknowledged that loss or damage is the ‘gist’ of the action for contravention
of Section 52 and in negligence.
The Plaintiffs convinced the Court that the opportunity to conclude the agreement with Pagini and to
acquire the benefits of the original Pagini contract, was a valuable opportunity. It was held that the loss of
the opportunity itself was sufficient to constitute damage being the final element enabling completion of
the tort. The measure of that damage was then to be ascertained by reference to the degree of
probabilities or indeed, possibilities.
Damages for Non-Economic Loss
Damages for physical inconvenience - In Boncristiano v Lohmann [1998] 4 VR 82, there was a claim for
damages by building owners for inconvenience and distress caused by defective workmanship. The Court
held that “.........”awards of general damages can be made to building owners who have suffered physical
inconvenience, anxiety and distress as a result of the builders' breach of contract......”
Damages for physical / psychological injury - In Grant v Australian Knitting Mills Ltd [1936] AC 85 the
manufacturers failed to remove a chemical irritant from their woollen underwear. Grant upon wearing the
undies contracted dermatitis. He then sued AKM for damages. The Court used Donoghue as a persuasive
precedent and expanded the legal principles established to include all manufacturers They also stated that
for an action in negligence to be successful it must be shown that:
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Document Summary
Damages for breach of contract - nature of damages. Where a party fails to fulfil a primary obligation that party incurs a secondary obligation to pay monetary compensation to the innocent party for loss suffered (photo production ltd v securicor transport ltd. Generally speaking, an innocent party can only recover damages for losses that he or she has personally suffered (the albazero [1977] ac 774) Once a breach is established, the innocent party is automatically conferred with a right to seek damages (agricultural rural finance pty ltd v gardiner (2008) 251 alr 322) The innocent party bears the onus of proving the extent of their loss (the commonwealth of australia v. Amann aviation pty ltd (1991) 174 clr 64) If an innocent party fails to prove their loss, he or she will be entitled only to nominal" damages ( owners of ss mediana" v owners of ss comet"[1900] ac 113). In beaumont v greathead (1846) 2 cb 494, [444]
