Common Law Damages for Breach of Contract
Claim for Damages plaintiff must:
- establish defendant has breached contract
- show their willingness to be bound to perform contractual obligations
Nominal and Substantial Damages
‘Standard Of Proof’ – According to The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) - ‘A plaintiff must prove on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather then being mere expectation’
Nominal Damages – Where there is no loss, nominal damages will be awarded. If the winner in a case is the plaintiff he is entitled to have legal costs covered by the defendant.
Substantial Damages - Where there is a loss, substantial damages will be awarded.
Luna Park (NSW) Ltd v Tramsway Advertising Pty Ltd (1936)
The Compensatory Nature of Damages
Acc. To Robinson v Harman (1848) Baron Parker said:
Where a party sustains loss by breach of a contract, he is, as far as money can do it to be placed in the same position, with respect to damages, as if the contract had been performed.
- The plaintiff is entitled to recover damages upon proof of breach of contract.
- A plaintiff isn’t entitled to be better off as a result of a damages award. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991)
Disgorgement Damages
- Formerly known as ‘restitutionary damages’
- The defendant is to account to the plaintiff for profits the defendant has made by the breach.
- Attorney General v Blake [2001]
- In special circumstances disgorgement damages can be recovered for breach of contract.
Exemplary Damages
- Exemplary damages are not recoverable for breach of contract Butler v Fairclough (1917)
- They punish the defendant for wrong in which they have done.
- Acc. To the England and Wales Law Commission’s 1997 report “Aggravated, Exemplary and Restitutionary Damages” they recommended that exemplary damages should not be available for breach of contract for reasons such as that they have never been awarded for breach of contract.
- No need for exemplary damages to fill any hole in the range of compensatory damages in the contract field.
The Once and For All Lump Sum Rule
- An award of damages for a breach of contract is made on a once and for all lump sum basis
- Johnson v Perez (1988)
- You take your case to court and the court awards you a sum of money and that’s the end of the case
- It is largely educated guesswork – it precludes the plaintiff ever returning to court
Taxation of Damages Awards
- In determining the amount of the lump sum to be awarded the court must take into account the effect of taxation on the award
- Federal Commissioner of Taxation v Wade (1951) – “…must be brought into calculation of taxable income, if at all, because the relevant legislation so requires.”
Date for Assessment of Damages
- Claims for damages for breach of a simple contract must be made with the court within six years of the date of breach (Limitation Act 1969 (NSW), s 14(1)). This is because it may be that not all the loss is immediately apparent.
- If the contract is set out in a deed the limitation period is 12 years (Limitation Act 1969 (NSW), s 16).
- When the claim is brought to court, the date of the breach is the date by which the measure of damages is assessed.
- E.g. X and Y form a contract for sale and delivery of a desk costing $500 on the 1 March, and the contract states that delivery is on the 1 May. X breaches the contract by not delivering on the 1 May, so Y terminates and sues X for damages. Date of Breach is 1 May
- Johnson v Perez
Interests Reflected in A Damages Award
- The following four interests may be reflected in an award of damages for breach of Contract.
- They are ‘simple manifestations of the central principle’ seen in Robinson v Harman
- This interest is most commonly reflected in an order for damages.
- Referred to as loss of profit damages and reflect compensation for the loss of the expectation, or profit, that the plaintiff was entitled to under the contract.
Expectation Damages and Termination of Contracts
- In order to gain compensation for such a loss, the contract must first be terminated by the plaintiff: Progressive Mailing House v Tabali (1985)
- A Contract may contain a right to terminate it for specified breaches of the contract if not the plaintiff has no right to claim expectation damages.
Damages for Loss of a Chance
- Presents difficulties for courts to assess.
- This arises in situations where:
(i) The contract’s principal purpose is to provide a party with the chance of obtaining a benefit.
(ii) A term, express or implied, of the contract promises such a benfit
(iii) Where an opportunity is lost as a consequence of the breach by the other party.
Chaplin v Hicks [1911]
Damages for Non-Economic Loss
- Non-economic losses are generally not recoverable in an action for damages for breach of contract.
- There are however exceptions Boncristiano v Lohmann [1998] 4 VR at 94 “injury to heath” and “physical inconvenience and distress” were awarded.
- Damages cannot be recovered for “disappointment of mind”: Hamlin v Great Northern Railway Company (1856)
- This reflects compensation granted to a plaintiff in relation to expenditure reasonably incurred in reliance on the defendants promise and which is wasted because of the latter’s breach.
- Also known as ‘wasted expenditure damages’
- The two principle cases are: McRae v Commonwealth Disposals Commission (The oil tanker case) and Commonwealth v Amann Aviation (Aerial Surveillance Case)
- In order to recover reliance loss, you cannot if you wouldn’t have made a profit on the contract anyway.
- If the breach has made it impossible to assess the loss of profits, then the onus of proof is on the defendant to show that a profit would not have been made (oil tanker case)
- The restitution interest refers to the value of any benefits that the plaintiff has conferred on the defendant as a result of the performance, in whole or part, of the contract
- Before you can recover your restitution you must establish that these has been a total failure of consideration, this means that the plaintiff has not received any benefit at all for the consideration they provided.
BALTIC SHIPPING CO v DILLON
J Mason: “It is preferable to adopt the rule that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation”.
- Refers to losses, usually, but not always in the form of expenditure of money, incurred by a plaintiff as a result of the defendant’s breach.
- In cases where the defendant breaches a promise to build or to do repair work the courts generally award the cost of remedying any defects in the work done.
- In cases concerning contracts to build or to do repair work, breaches by the person contracted to the building or repair work, will usually mean that the plaintiff will be able to recover the costs incurred in remedying the defective work done
Bellgrove v Eldridge- A builder sued to recover 400 pounds alleged due under a building contract by which he undertook to build for the defendant a two story villa for 3500 pounds, the defendant was dissatisfied with the work after 3100 pounds. She brought a cross-action for damages. O’Brien J found substantial departures from the contract in the composition of the concrete in the foundations of the building and in the mortar used to cement the brick walls and awarded £4950 on the cross-action.
- Also known as ‘reinstatement costs’ or ‘cost of restoration’
Causation
The recovery of damages for breach of contract requires a casual connection between the breach and the loss suffered. Rather than looking at all the factors that lead to a breach of contract, the focus is on whether the breach contributed to the loss suffered.
- It is a 2 stage process –
The ‘but for’ Test
- Whether the damages would not have been suffered but for the defendants breach.
- Difficulties in causation may arise where the plaintiffs loss or damage occurs partly as a result of the defendants breach and partly as a result of some other factor.
- Account must therefore be taken of the possibility that:
- Multiple causes contributed to the loss
- The chain of causation may be broken
Alexander v Cambridge Credit Corp (1987)
Facts: The auditors of Cambridge Credit (Alexander) breached a contractual duty to qualify their reports on the company’s 1971 accounts by noting serious deficiencies in the provisions for bad debts.
Issue: Whether the damages were caused but for the breach?
Held: Appeal allowed (by majority) “to establish a causal connection between a breach of contract and the damage suffered, a plaintiff needs only to show that the breach was a cause of the loss.
Intervening Events
- Even if there is a casual connection between the breach of contract and loss suffered by the plaintiff, a subsequent intervening event, which contributes to the loss, may break the casual link.
- An intervening event is referred to, as a ‘novus actus interveniens’ could be an act of the plaintiff, an extraneous event, or an act of a third party.
Lexmead (Basingstoke) Ltd v Lewis
The purchaser of a coupling claimed damages from the suppliers and relied on the fact that the coupling – used to join his land rover to a trailer- had a design defect. The trailer became detached and a serious accident resulted, but the House of Lords found that the cause of the accident was really the purchaser’s negligence in continuing to use the coupling for a considerable period after he had noticed that the handle, which operated the locking mechanism, was broken.
Contributory Negligence
Refers to some carelessness on the part of the plaintiff that contributes to the loss for which he or she seeks compensation in the form of damages.
- It can impact on a plaintiff in 2 ways:
* Plaintiff’s negligence can constitute an intervening act that breaks the chain of causation between the defendant’s breach and plaintiff’s loss.
* Reducing the quantum of damages by an amount that is proportionate to the extent to which the plaintiff’s negligence contributed to the loss he or she suffered.
The requirement that a plaintiff prove that its loss or damage was caused by the defendants breach of contract necessarily means that if the plaintiff’s own carelessness breaks the chain of causation between the breach and the loss or damage the plaintiff will fail.
- Until the decision of the HC in Astley v Austrust Ltd there was considerable doubt whether that legislation, as originally enacted, applied to claims in contract. However, in Astley the HC held that the legislation does not apply to claims in contract.
Astley v Austrust Ltd (1999) - High Court of Australia
Facts: Austrust asked its solicitors to advise on a deed of trust and other documentation before it accepted appointment as trustee of a piggery business.
Issue: Whether contributory negligence on the part of Austrust would be a defence against damages?
Held: The HC held that although Austrust was guilty of contributory negligence, it was entitled to recover from the solicitors for the whole of the damage it suffered.
Remoteness
The principle of remoteness is one that placers limits on the losses for which a plaintiff is able to recover damages, even though the losses are caused by the defendants breach of contract.
Not all losses suffered by the plaintiff will not be compensated because the loss is too remote from the breach (i.e. something is too remote if the loss is unexpected regarding the breach.)
- Two matters are in relation to the rule in Hadley v Baxendale, namely, the degree of knowledge of the parties that is required, and, the degree of likelihood of loss resulting from the breach.
Hadley v Baxendale (1854) - English Court of Appeal
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to be receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, OR such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
Degree of Knowledge
* The First Limb of Hadley v Baxendale
- The contract breaker is only expected to compensate for those losses, which were reasonably within his or her contemplation as likely to result from failure to perform.
- The first limb is concerned with those damages ‘arising naturally’, ie, according to the usual course of things from such breach of contract itself.
* The Second Limb of Hadley v Baxendale
- A plaintiff who claims loss not arising in the usual course of things must come within the second limb for the loss to be recovered.
- Under the first limb, it is implied that the defendant is a reasonable with knowledge of the ordinary course of things. In contrast, liability under the second part of the rule arises from the actual knowledge of the defendant.
- The defendant may have to compensate the plaintiff for extraordinary losses, which arose from the breach.
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] - (English Court of Appeal)
Facts: Newman Ind sold a boiler to Victoria Laundry, during negotiations they informed Newman that it was their intention to “put it into use in the shortest possible space of time”. The boiler was delivered 20 weeks late, and Victoria Laundry claimed as damages their lost of profits.
Issue: Whether the plaintiff is entitled to recover the Expectation interest (loss of profits)?
Held: Appeal allowed. The appeal should be allowed and the issue referred to an official referee as to what damage, if any, is recoverable in addition to the 110 pounds awarded.
“In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach”
Likelihood of Loss Occuring
- If the loss is not one that arises ‘naturally’ or ‘according to the usual course of things’ as a result of the breach, it will not be compensated for by an order of damages.
- Victoria Laundry (Windsor) Ltd v Newman Industries Ltd at 539-40
The Extent of the Loss to be Contemplated
- For damages to be recovered the defendant does not have to have contemplated the precise extent of the loss.
- It is enough if he or she contemplated the general type of loss that would arise ‘naturally’ or ‘according to the usual course of things’
Mitigation
The concept of mitigation is used in connection with:
- Steps which the plaintiff has taken which do, in fact, operate to minimize loss.
- Steps which the plaintiff ought – acting reasonably – to have taken so as to minimize loss or at least so as not to increase it.
The principle is set out in the following 3 rules:
1. A plaintiff cannot recover damages for loss that was avoidable
2. A plaintiff cannot recover damages for loss that was avoided
3. A plaintiff can recover money spent in avoiding or attempting to avoid the loss
British Westinghouse and Manufacturing Co v Underground Electric Railways [1912] - (House of Lords)
Facts: British Westinghouse (appellants before the House of Lords) agreed to provide generators to the Underground Electric. The machines were erected between 1904 and 1906, but proved to be defective in design and efficiency.
Issue: Whether the plaintiff is entitled to recover as damages the price and installation of the new machines?
Held: Appeal allowed. Award remitted to arbitrator.
“The fundamental principle is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed (…) but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps”
Mitigation and Damages for Anticipatory Breach
- An anticipatory breach of contract does not of itself give rise to a right on the part of the innocent party to damages for breach of contract.
- The right to sue for damages only arises if the innocent party accepts the breach and terminates the contract.
- No question of mitigation can arise until termination of the contract has taken place.
Ogle v Comboyuro Investments Pty Ltd (1976)
Alternative Methods of Assesment
- Contracts can be performed in a number of ways.
- Damages are generally awarded to the least burdensome means of performing the contract.
- E.g. – Contract to deliver 10 tons of rice +/- 1% then in the award for damages it will be the lesser amount awarded to the individual
Withers v General Theatre Corporation [1933]
Loss Of Discretionary Bonuses
- A contract may stipulate that certain benefits may be conferred upon the promise at the discretion of the promisor.
Cantor Fitzgerald International v Horkulak [2004]
Concurrent Liability In Contract and Tort
The defendant is potentially liable in alternate claims based upon the tort of negligence or for breach of contract. In this sense, the plaintiff is concurrently liable to the plaintiff.
Most of the key decisions have involved liability of professionals, such as lawyers, medical practitioners and accountants, to their clients.
Hedley Byrne & Co Ltd v Heller & Partners [1964]
- Prior to Hedley liability of professionals was in contract only.
- You can sue in either contracts or torts but cannot sue for damages in both.
The Concurrent Liability Issue
The principal reason for the debate over concurrent liability is rooted in the fact that the measure of damages awarded to a plaintiff will not necessarily be the same irrespective of whether the claim is pursued in the tort of negligence or for breach of contract.