Unliquidated Damages for Breach

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When damages are awarded for a breach, they are often called unliquidated damages. When awarding such damages, the court follows the following rules:

  • The compensation principle - compensate in order to put the aggrieved party in the same position it would be in as if no breach occurred.[1] This is done according to the following ways:
    1. Expectation damages - the court attempts to include the benefit the aggrieved party was meant to receive.
      • Note: a party is entitled to receive exactly what it contracted for (not just similar financial value of it). [2] This means that it is awarded not just the difference in the value of the performance rendered to that expected, but the cost of restoring it completely.
    2. Reliance damages - where expected damages are impossible to assess, the court assesses damages according to the costs suffered by the aggrieved party.[3] The court may also award damages based on:
    3. Loss of chance - compensation for how much the 'chance' was worth.[4]
      • This can be done even if the chance was dependent on contingent conditions, and even if it is hard to assess.[5]

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 623 [26.05-26.10]; 645-6 [26.120-26.122];.

Tabcorp Holdings v Bowen Investments (available on Blackboard)

More from the Casebook: 761-2, 765-7 [31.35] (facts only plus discussion of damages from 1st para. p765 to end of extract); 624 [26.15]; 636-9 [26.60-26.80]; 648-50 [26.135-26.145]

Textbook: 390-2[26.100-26.115]

More from the Casebook: 658-60 [26.185-26.190]; 661-72 [27.07-27.90]

Introduction

[6] Whenever a party breaches a contract, the other party will be entitled to damages.

The compensation principle

[7] The broad idea when awarding damages is that the Aggrieved party is to be compensated for its losses - namely, the damages awarded to it should put it in the same position as if the contract has not been breached. This idea was stated in Robinson v Harman:

  • “Where a party sustains a loss by reason of breach of 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.”[8]

In order to achieve compensation, the court usually awards what is called expectation damages, which compensate the Aggrieved party for the benefit that it would have gained had the contract been performed properly. The court may also award other types of damages:

  • Reliance damages - these are usually awarded when it is hard to assess the expected benefit and thus hard to award expectation benefits.
    • At the least, reliance damages compensate the Aggrieved party for the loss it suffered in preparation of the contract.
    • However, judges have said in Commonwealth v Amann Aviation Pty Ltd[9] that reliance damages are an approximation of expectation benefits.
  • Loss of chance damages - these are damages which are awarded when the performance of the contract would have given the Aggrieved party a chance to a benefit.

Expectation damages

Damages for breach of an obligation to build or repair

[10] In cases where the breach of conduct relates to defective work done by one party, a question arises whether about how the Aggrieved party should be compensated:

  • One view is that the Aggrieved party should be awarded the difference between the market value of the property and the value it would have had it the contract had been properly performed.
  • The other view is that it should be the compensated with the cost of remedying/repairing the defective work. Favoured approach[11]

The court favoured the latter approach in Bellgrove v Eldridge:

  • A party is entitled to receive exactly what it contracted for.
  • If it did not receive what it contracted for, it is entitled to receive damages to ensure that it is able to get what it contracted for (damages for repair not for difference in value).
  • This is obviously within reason (for example, if a house was built with much better quality bricks, the houseowner could not sue that the low quality bricks he contracted for weren't used).

This question was discussed in Tabcorp Holdings v Bowen Investments:

  • "the general rule for assessing damages for breach...is the cost of putting the premises into the state of repair required by the covenant[12]."
  • When the common law requires the damages to place the Aggrieved party in the same situation it would be in as the contract had not been performed, the 'same situation' does not mean the same financial situation.
  • "...here, the Landlord was contractually entitled to the reservation of the premises without alterations not consented to; its measure of damages is the loss sustained by the failure of the Tenant to perform that obligation; and that loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached[13]."

Reliance damages

[14] Reliance damages are awarded when it is impossible to assess the expectation loss. The Plaintiff is then compensated for all the expenses he incurred as a result of his reliance on the contract being performed properly. This issue was discussed in McRae v Commonwealth Disposals Commission:

  • Sometimes, it is impossible or difficult to assess expectation damages.
  • However, the "mere difficulty in estimating damages did not relieve a tribunal of fact from the responsibility of assessing them as best it could[15]."
  • Instead, we measure damages in reliance. This includes all expenditure which the Plaintiff incurred in reliance on the Defendant's promise.

Reliance damages were also considered in Commonwealth v Amann Aviation:

  • Where the proper expected benefit cannot be assessed, reliance damages will be used.
    • "In a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance by the defendant, considerations of justice dictate that the plaintiff may rely on a presumption that the value of those benefits would have been at least equal to the total detriment which has been or would have been sustained by the plaintiff in doing whatever was reasonably necessary to procure and perform the contract[16]."
  • This is because it is safe to assume that the expected benefit would, at the least, cover all of the expenses in preparation for the contract.

Loss of chance damages

[17] Damages for a loss of chance will be awarded when a breach of a contract has caused the Aggrieved party to miss out on an opportunity for further gain. This was already discussed above in Commonwealth v Amann Aviation, and also in Howe v Teefy:

  • A plaintiff will be compensated for being deprived of a chance to make money.
    • "if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty[18]."
  • Even if the chance if dependent on contingent conditions, he will still be compensated for the loss of his chance.
    • "The presence of contingencies...does not render the damages incapable of assessment though it may make the calculation of the pecuniary loss sustained incapable of being carried out with certainty or precision[19]."
  • Notice, the calculation "was not how much he would probably have made...but how much his chance of making that profit...was worth in money[20]."

Restitutionary damages

[21] Very often, a defendant makes a profit or receives a benefit from breaching a contract (which is usually why he does so). If the court decides to award damages amounting to the value of this profit, it is called restitutionary damages, because it gives back the unfair gain to the plaintiff.

Restitutionary damages are not used in Australian law. This is because the Australian courts rely on the 'expectation damages' method, which accounts the loss of the plaintiff rather than the benefit of the defendant. However, a plaintiff might be able to claim restitution based on the unjust enrichment of the defendant.

The act of relinquishing profits made through a breach of contract is also called disgorging profits and account of profit.

Date for assessing damages

[22] As a general rule, damages are assessed at the date of the breach. However, there will be exceptional cases where the courts may rule otherwise. This was discussed in Jonhson v Perez[23]:

  • "There is a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises. But this rule is not universal; it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered[24]."
  • Circumstances such as inflation may arise which make the date significant.
  • The Aggrieved party's intention is relevant.

Limitations on damages

Causation

Dedicated article: Causation (Contract)

Causation limits a plaintiff's ability to recover damages to only those which were actually caused by the defendant's breach. A plaintiff must establish that a defendant's breach caused the damages it seeks to recover.[25] Causation is determined as follows:

  • Traditionally, a 'but-for' test is used (causation is established if but for the breach, the loss would not have occurred).
  • However, the but-for test is just a guide, and the ultimate question is whether, as a matter of commonsense, the relevant act or omission was a cause.[26]

Remoteness of damage

Dedicated article: Remoteness (Contract)

Remoteness limits the ability of a plaintiff to recover damages to only those which are reasonably foreseeable to the parties.[27] A plaintiff can only recover damages if the loss suffered was not 'remote'. Damages will not be considered remote if the loss was:[28]

  1. A loss arising naturally, reasonably foreseeable to anyone.
  2. A unusual loss, which usually unforeseeable but the Defendant's knowledge allowed him to see.
    • Obviously if the defendant did not have knowledge, the unusual loss will be remote and unrecoverable.

Mitigation

Dedicated article: Mitigation (Contract)

Mitigation is a principle requiring a plaintiff to attempt to limit his own losses resulting from the breach of another party. Mitigation is a limitation on damages since it limits the ability of the plaintiff to recover for losses that it could have avoided. The principle of mitigation operates as follows:

  1. A Plaintiff must take all reasonable steps to mitigate his losses.[29] Losses which the plaintiff could have mitigated and didn't will not be recoverable.
    • The onus to prove that mitigation has not taken place rests with the defendant.
  2. A Plaintiff may recover for any additional loss incurred as a result of his reasonable attempts to mitigate.[30]
  3. A Plaintiff cannot recover for loss that has been successfully mitigated.

Non pecuniary losses

Dedicated article: Non pecuniary losses (Contract)

Non pecuniary losses include anxiety, distress, disappointment, loss of reputation and others. Such losses are generally not compensated by damages under contract law. However, they can be compensated if:[31]

  1. They result from physical inconvenience caused by the breach of contract.
  2. The entire purpose of the contract was to provide enjoyment, a freedom from distress etc (ie, cruises and holidays).

Contributory negligence

Dedicated article: Contributory negligence (Contract)

Contributory negligence is where some carelessness on the part of the plaintiff has also contributed to the loss he suffered as a result of the defendant's breach of contract. Legislation throughout Australia permits the court to reduce the awarded damages in such cases, to the extent that it is 'just and equitable'.[32]

Loss of bargain damage and termination under an express term

When a party terminates the contract under a termination clause, it cannot then attempt to recover future monies in breach of contract. This was discussed in Shevill v Builders Licensing Board:[33]

  • Facts: A lessee was constantly late in making payments on his rent. The lessor (respondent) terminated the contract under a termination clause and then sued the lessee's guarantor (appellant) for all money owed, as well as future money it was meant to receive.
  • Held: the lessor was obviously allowed to collect the money owed (since it was a debt) but cannot collect the future profits. This is because:
    • Evidence couldn't establish that there was a breach justifying termination of the contract (which would entitle the lessor to collect damages for future rent)
    • Even if there was, the fact the lessor terminated under the contract and not under a breach means that the lessor was himself responsible for the end of the contract and the loss of future money. He thus can't recover.

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Robinson v Harman (1848) 1 Ex 850, 855; 154 ER 363, 365
  2. Bellgrove v Eldridge (1954) 90 CLR 613, 617; Tabcorp Holdings v Bowen Investments [2009] HCA 8
  3. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, Commonwealth v Amann Aviation (1991) 174 CLR 64
  4. Howe v Teefy (1927) 27 SR (NSW) 301
  5. Howe v Teefy (1927) 27 SR (NSW) 301
  6. Casebook, p. 623 [26.05]
  7. Casebook, p. 623 [26.10]
  8. (1848) 1 Ex 850, 855; 154 ER 363, 365
  9. (1991) 174 CLR 64
  10. Casebook, p. 645 [26.122]
  11. Joyner v Week [1891] 2 QB 31; Bellgrove v Eldridge (1954) 90 CLR 613, 617
  12. [2009] HCA 8 [9]
  13. [2009] HCA 8 [15]
  14. Casebook, p. 648 [26.135]
  15. (1951) 84 CLR 377, 411
  16. (1991) 174 CLR 64, 126
  17. Casebook, p. 648 [26.140]
  18. (1927) 27 SR (NSW) 301, 306
  19. (1927) 27 SR (NSW) 301, 306
  20. (1927) 27 SR (NSW) 307, 306
  21. Textbook, p. 390 [26.100]
  22. Casebook, p. 658 [26.185]
  23. (1988) 166 CLR 351
  24. (1988) 166 CLR 351, 355-6
  25. Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310, 314
  26. Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310, 358
  27. Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310
  28. Hadley v Baxendale (1854) 9 Excg 341, 355; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
  29. Burns v MAN Automotive (Aust) (1986) 161 CLR 653, 658
  30. Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322, 355
  31. "[D]amages 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. In cases falling within the last-mentioned category, the damages flow directly from the breach of contract, the promise being to provide enjoyment, relaxation or freedom from molestation.":Baltic Shipping v Dillon (1993) 176 CLR 344, 359
  32. Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9 (1)
  33. (1982) 149 CLR 620
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