Published on 20/05/2007

Equitable Damages

In NSW s68 of the Supreme Court Act 1970 give authority and jurisdiction for the Supreme Court to award equitable damages.

Wentworth v Woollahra Municipal Council (1982) - supports the view that the existence of a discretionary defence does not bar a claim for equitable damages.

Johnson v Agnew (1980) - illustrates the courts understanding that legislation didn’t provide a new basis for assessing damages. Advantage of this is that damages could be awarded in circumstances where they couldn’t otherwise e.g. breach of restrictive contract to which the plaintiff wasn’t a party.

Actions for a Fixed Sum

Concerned with 2 categories: Liquidated damages & Actions for debt

Liquidated damages, fixed sum which parties have agreed upon as being the amount due to the plaintiff upon breach. Clauses can be set out to make such sums unenforceable. Unenforceable amounts are referred to as penalties.

Right to recover fixed sum will be restricted to a claim for damages because defendant has prevented occurrence of event on which the obligation to pay depends. Authority to this - Alpha Trading Ltd v DunnshawPatten Ltd

An action to recover a contractual debt due is not a claim for breach of contract; therefore, claim is not subject to judicial discretion based on equitable consideration.

Advantages of this type of clause come from Boucat Pay Co Ltd v The Commonwealth (1927). Case states an agreed damage clause serves its function by being an “admitted pre-assessment”. Unless the defendant denies that the contract has been breached the clauses fixes the amount recoverable by plaintiff without litigation. This is subject to statute and also if the sum is not a genuine assessment of the loss suffered by the plaintiff then it is unenforceable.

O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) - explains that clauses stipulating payment of a specific sum upon breach must be examined to see whether they are liquidated damages or a penalty.

Distinction Between Damages and Penalty

The feature that separates damages from penalties comes from Dunlop Pneumatic Tyre v New Garage & Motor (1915). The clause will be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that might occur from the breach.

-   Factors considerable in determining damages clause or penalty are Time and Basis classification, Description by the parties, Effect of termination, Magnitude of Payment, Nature of defendants obligation (must consider whether the damages clause comes into operation on the failure to pay a sum of money) and circumstances in which sum is payable.

Penalty must be payable on breach for the sum to be classified under the distinction, however, it need not be payable exclusively on breach. Bridge v Campbell Discount Co Ltd (1962) gives authority.

-   These factors ensure that the onus of proof is on the defendant.
-   Enforceable liquidated damages clause entitles plaintiff to recover the sum stipulated without need to prove any loss, Pigram v Attorney General for the State of NSW (1975) gives authority.

Effect of Penalty Clause

When damages are claimed under the general law, is the amount fixed by the penalty is relevant to the assessment of the claim in showing the intention of the parties?

AMEV-UDC Finance Ltd v Austin (1986), explains that the minor nature of the breach meant that there was no causal connection between the breach and the loss suffered and the fact that a substantial sum would be payable had to be ignored.

Actions for Debt

-   Actions for Debts, contract imposes obligation to pay sum of money and the right to payment of that money has accrued the plaintiff.
-   Plaintiff can bring action for debt in conjunction with, or as an alternative to, a claim for damages, but can’t recover the sum twice.
-   Onus of proof for damages is on plaintiff.
-   Young v Queensland Trustees Ltd (1954) 99 CLR 560 at 567, sets out the distinction between action to recover debt and action for damages for breach of contract. High Court explained that the rules dealing with mitigation of loss are not relevant where the plaintiff is seeking to recover a debt due under the contract, whereas they are frequently relevant in actions for damages.

Requirements for an Action for Debt

Contract must contain an obligation to pay a certain or ascertainable sum of money and the performance to which the payment relates has occurred. McDonald v Dennys Lascelles Ltd (1933) gives authority.

-   Requirement of Performance, before sum is recoverable as debt plaintiff must have performed the obligation to which the money relates. Crucial point that differentiates action for damages for breach of contract and action for debt.

-   Failure to pay doesn’t give rise to a debt. Requires plaintiff to have earned right to recover the debt by performance.

In land contracts Farrant v Leburn (1970) - explains that, with reference to deposits, vendor can keep deposit on the basis that the deposit acts as a guarantee from the purchaser for the commitment to enter into the transaction. Purchaser exposes themselves to the risk.

* Conveyancing Act 1919 (NSW) s 55(2A), statutory provisions for deposits. Allow courts to grant orders in certain circumstances to return deposits.

Termination of Contract and Debt

At common law termination of contract for breach/frustration doesn’t affect the right to recover a debt which has accrued before termination/frustration.

-   With reference to frustration common law position is subject to legislation in relevant jurisdictions.

Automatic Fire Sprinklers v Watson (1946) - (Employment contract), wrongful dismissal leading to unpaid salary, court held that Watson was entitled to recover the sum as a debt.
-   Payment of money is subject to performance.

Lucy v The Commonwealth (1923) - exemplifies the way in which a claim for damages can be made for unpaid salary that falls within a period of time not contractually specified.

Mitigation and Action for Debt

If one party repudiates contract the other has the right to terminate the contract. However there is no obligation to do so.

-   When party sues contract breaker for debt generally principles of mitigation do not apply.

White and Carter (Councils) Ltd v McGregor (1962) - clause of the contract stated that if no payment is made or contract breached/repudiated the full contract price must be paid. House of Lords held no case of mitigation, therefore, entitled to full contractual price owed.

Qualification for Mitigation

Contracts that can’t be completed without cooperation from both parties

-   Public policy grounds, why innocent party will be precluded form recovery. Plaintiff needs legitimate interest for recovery. Stocznia Gdanska SA v Latvian Shipping Co (1996) gives authority.

Ministry of Sound (Ireland) Ltd v World online Ltd (2003) - explained that if certain parts of the contract could be performed but others not then damages could only be awarded for those that can’t and debt for those that can.

Conceptual problems exist through the question of reasonableness and irrelevance. Interest must be determined by reasonablessness.