Damages, and there assessment.

However, such a claim is relatively rare under the Australian lawsince in most cases, the plaintiff often prefers to bring an action for restitution not for damages.

In addition to the pecuniary losses above, the non-pecuniary losses may be recoverable. Such losses may consist of  the loss of a chance,loss of reputation,the loss of enjoyment, distress or disappointment.

Particularly to the latter loss, the High Court of Australia in Baltic Shipping Co v Dillonadopted a proposition that:

Damages are recoverable where the distress or disappointment arises from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection, or where the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience.

Prior to that case, the court established a general rule that “as part of the common law of contract in Australia, resentment and disappointment are not proper elements of loss to be recovered in action for breach of contract”.

A question may arise whether the court automatically awards damages if  one of these types of losses is presumably suffered by the plaintiff.

It seems that the court may not directly do so, since the plaintiff must prove the relation between the loss and the breach of contract. Such a requirement is known as the doctrine of causation.This doctrine is regarded as the basic principle in awarding damages.

This doctrine is an issue of fact rather than law.It means that as a matter of ordinary common sense and experience, the loss of the plaintiff should be regarded as caused by the defendant’s breach of contract.

In order to apply this doctrine, the “but for “ test is used as the basic guide. The “but for” test provides a question, that is, “would this loss has occurred but for the defendant’s conduct ?”The answer for this particular question lies on the decision of the court to determine whether the loss would not have occurred “but for” the wrongful act of the defendant.

It seems that this test is effective in dealing with a single cause. A question may arise whether the “but for” test is still effective in the case where more than one act may have caused the loss. In other words, the question should be asked as to whether the “but for” test is applicable if the plaintiff’s loss occurs partly because of the defendant’s breach and partly as the result of the involvement of other factors.

In such a circumstance, undoubtedly, the “but for” test may not provide a satisfactory answer. The court also realized that the "but for" test is not capable of tackling such  circumstances. Hence, the court in March v E.M.H. Stramare Pty Ltd took the view that " ‘but for’ or ‘causa sine qua non’ test is not and should not be a definite test of causation".

In addition to the "but for" test, the court also adopted the formula of "decisive" or "dominant" cause. As the court held that " in cases where one factor has more relevance than others it is sufficient for the defendant's breach to be the decisive or dominant cause".

However, the formula above does not apply where the contribution of the breach to the loss is minimal. Such a proposition was adopted by the court in deciding the case of Alexander v Cambridge Credit Corp.  The court held that:

 There was no casual connection between the loss and the breach of contract on the grounds that the auditors of the plaintiff, who breached their contract with the plaintiff by performing their service negligently, were not responsible for the impact of economic condition which led to a substantial downturn in the property market.

The decision of this case suggests that even though the defendant's breach caused a loss, if the substantial loss was caused not by the breach but by an other factor, the defendant cannot be held liable for the loss.

The "decisive or dominant cause" formula is also not free from difficulty. In the case where two or more different factors contribute dominant causes to the loss, it may be difficult or even impossible to select a dominant cause. This problem might be solved if the "but for" test and the "dominant cause" were to be combined. This means to determine the relation between the breach and the loss, a "direct dominant cause" may be appropriate to impose. The advantage to apply this combination formula is that not only a single cause but also  multiple causes can be covered.

Nevertheless, The formulation which is now accepted simply stipulates that the causation is present if the breach is a cause of the loss. This proposition can be found in the case of Simonius Vischer & Co v Holt. It was pointed out in this case that damages consequent onimpecuniosity can be recovered where they were in the contemplation of the parties as likely flow from the breach.

In addition to the multiple causes, an event, the act of a third party  or  even the act of the plaintiff may intervene to break the chain of causation between the breach and the loss.

In such a circumstance, the defendant will not be liable for damages. This was pointed out by the House of Lords in Lexmead (Basingstoke) Ltd v Lewis.In that case, their Lordships stated that:

 The cause of the accident suffered by the plaintiff was really his negligence, since he continued to use the coupling sold by the defendant for a considerable period after he had noticed that the locking mechanism was broken.

Accordingly , to be entitled for damages, the loss must be precisely related to the alleged breach.

Nevertheless, even if the doctrine of causation is satisfied, the court may still not hold the defendant liable for the losses of the plaintiff since such losses are subject to the limitation principles.

The first limitation of awarding damages which is imposed by the law, is known as the remoteness concept. If this concept were not imposed, the defendant would be liable to all risks which he or she might fairly be regarded as having undertaken when entering into the contract. 

Consequently, the loss which can be casually related to the breach will not be subject to damages if it is "too remote". The remoteness concept is governed by the rule in the leading case of Hadley v Baxendale.

This case concerned  the crank shaft of a steam engine which was broken in the plaintiffs’ flour mill. The defendant carrier undertook to deliver the broken shaft from Gloucester to Greenwich, where it would  serve as a model for casting a replacement shaft. The delivery of the broken shaft was delayed by the defendant's negligence. In consequence, the plaintiffs did not receive the new shaft for several days after the due date. The mill was idle during this time and substantial loss of profits ensued. The defendant objected that such loss of profits was too remote from the breach of contract of carriage.

On the appeal, Alderson B speaking for the majority said that :

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such a 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 a 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.

The statement of Alderson B introduced the rule to measure the remoteness of the losses. This rule is generally treated as having two limbs.

A difficulty arises regarding the application of this rule because it gives no clue as to what requirements are needed to categorise or to measure the losses. Hence, the courts for over the years not only attempted to reformulate but also to restate the rule in Hadley v Baxendale. 

This rule was restated in Victoria  Laundry v Newman.In this case, the plaintiffs were launders and dryers. In April 1946, they agreed to purchase a boiler from the defendant company. The plaintiff stated that they required the boiler “in the shortest space of time”. On 1 June 1946, the boiler was damaged when being prepared for shipping to the plaintiffs. It was not repaired for five months. The plaintiffs sought recovery of profits lost in consequence of this period of delay, when, in addition to their normal business, they could have taken on a number of very lucrative dyeing contracts.

When examing that case, Asquith L.J.adopted two terms to describe the first limb in Hadley v Baxendale. First, the loss is recoverable if it is “reasonably foreseeable” to result from the breach. Second, if the loss is “liable to result” from the breach of contract in the ordinary course.

To determine whether the loss is “reasonably foreseeable” or “liable to result”, it depends on the degree of knowledge of the defendant. His Honour pointed out that the knowledge consist of two kinds, namely, the imputed knowledge and the actual knowledge. To apply the first limb of Hadley v Baxendale, the defendant is required to possess the imputed knowledge.

In Hadley v Baxendale, for instance, the first limb of the rule was not satisfied since the defendant did not possess the imputed knowledge. In that case, the defendant was merely a carrier who did not know that the mill would be stopped without the shaft. In the defendant’s knowledge, the plaintiff might, for example, have had a spare shaft. Hence, the plaintiff’s loss of profit was not something which the defendant could have contemplated as occurring in the usual course of things. In other words, the defendant was not liable because he could not foresee the consequence of his conduct. 

By contrast, the first limb of the rule was satisfied in the case of Koufos v C Czarnikow Ltd.The plaintiff in that case chartered the ship, the Heron II, from the defendant, to carry a cargo of sugar from Constanza to Basrah. The plaintiff intended to sell the sugar as soon as it reached Basrah. The defendant as the ship-owner did not know this, but he did know that there was a sugar market in Basrah. The defendant, in breach of contract deviated  on the voyage and docked in Basrah nine days later. During the nine days the market price for sugar at Basrah fell.

The House of Lords held that the defendant was liable for the profit loss of the plaintiff on the grounds that:

The loss occurred in the usual course of things because the defendant knew that the plaintiffs were sugar merchants and there was a market for sugar at Basrah. Accordingly, due to the knowledge of the defendants they should contemplated that failure to deliver on time could result in a decrease in value of goods and therefore, a loss of profit.

Unlike the first limb, the second limb of the rule requires the actual knowledge of the defendant. As Asquith L.J. remarked:

In a particular case knowledge which he (defendant) actually possesses, of special circumstances outside the ordinary course of things, of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the second rule so as to make additional loss also recoverable.

The application of the second limb can be found in the case of McRae v Commonwealth Disposal Commission. In this case, the Commission sold to the plaintiffs by tender, an oil tanker, which was supposedly lying on a reef north of Samarai in Papuan waters. The price was 285 pounds. The plaintiffs spent more than ten times that amount in fitting out a salvage expedition but their vessel sank on its way to Papua. It was subsequently found that the tanker sold to the plaintiff did not exist. The plaintiffs sought substantial damages for loss of profits they expected to recover from salvaging the vessel and its cargo.

The court took the view that the plaintiffs’ expenditure fell within the second limb on the basis that the defendants, having promised that a tanker existed, had actual knowledge of the need for salvage operations.

More recently, in Hungerfords v Walker, the High Court of Australia when dealing with an issue as to whether damages could be awarded to the “late payment of a debt”, acknowledged the rules of Hadley v Baxendale.

Prior to 1952, such a loss was not recoverable since it was regarded as too remote.In Trans Trust S.P.R.L. v Danubian Trading Co Ltd which was decided in 1952, the court pointed out that the late payment loss might be recovered since such a loss might constitute special damages within the contemplation of the parties under the second rule in Hadley v Baxendale.

In examing Hungerfords v Walker, the court took the view that the recovery of compensation for such a loss may be ascribed to the operation of the second limb in Hadley v Baxendale. However, the court preferred to put it on the footing that it is a foreseeable loss within the contemplation of the parties, which is directly related to the defendant’s breach of contract,and it is not too remote. Likewise, opportunity cost should not be considered as being too remote when money is paid or withheld.

Consequently, the decision in Hungerfords v Walker has removed the rule against the award of damages for the late payment of a debt. Such a decision has also extended the recoverable pecuniary losses.

In addition to the remoteness concept, the law also imposes a duty upon a person who claims damages to take reasonable steps to mitigate the loss caused by the breach of contract. As was stated by Viscount Haldane L.C. in the case of British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd:

The principle of compensation 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.

If the mitigation is a duty of the plaintiff, a question arises as to what standard of mitigation is required. Gibbs C.J. in Burns v MAN Automotive (Aust) Pty Ltdpointed out in this regard that:

A plaintiff’s duty to mitigate his damage does not require him to do what is unreasonable and it would seem unjust to prevent a plaintiff from recovering in full damages caused by a breach of contract simply because he lacked the means to avert the consequences of the breach.

Based on the statement of Gibbs C.J., it is obvious that the standard to mitigate the plaintiff’s loss is not high. Such a statement provides defences for the plaintiff since the plaintiff may argue that he/she did not mitigate the loss on the grounds that he/she could not afford it. The plaintiff may also argue that the requirement of mitigation has been satisfied by reason that a reasonable step to avoid the loss has been taken, even though in fact, the loss still exists.

The concept of a reasonable step may seem vague without a particular test  to apply in every case. In Driver v War Service Homes Commissioner, the court applied a test by asking “what would such a man do to avoid further loss to himself, supposing that, from insolvency of the other party, or from some other reason, he could not get any damages?”

The test above may give a satisfactory solution to the issue of what is a reasonable step. However, a further question arises as to whether the court may still award damages to the loss which has been mitigated.

In this regard, the court took the view that damages are not awarded to the avoided cases. However, it may be a case where the plaintiff has incurred some expenses to mitigate or attempt to mitigate the loss. In such particular circumstances, the expenses incurred in mitigation are recoverable even if such expenses increase the total damages payable.

Such a proposition can be found in the case of Lloyds and Scottish Finance Ltd v Modern Cars and Caravans (Kingston) Ltd. The court held in that case that the wasted legal cost incurred by the plaintiff from the attempt to mitigate were recovered from the defendant, even though such costs increased the total damages payable.

III. Conclusion

By virtue of the statement of Parker B in Robinson v Harman, the court awards damages to the plaintiffs in order to compensate their loss, not to penalise the defendants.

Generally, there are two main types of losses which are recoverable, namely, the pecuniary and the non-pecuniary losses. The pecuniary losses may consist of the expectation loss, the reliance loss, the restitution loss and, based on the decision in Hungerfords v Walker, the court may award damages for the late payment of a debt.

The non-pecuniary losses, on the other hand, consist of the loss of a chance, the loss of reputation, and the court even awards damages for the loss of enjoyment, distress or disappointment.

However, to be entitled to the award of damages, the plaintiff must prove before the court that there is a relation between the losses claimed and the breach of contract. This requirement is known as the doctrine of causation.

Nevertheless, the fulfillment of causation doctrine is not sufficient for the court to award damages to the plaintiff. There are other requirements to be satisfied, namely, the concepts of remoteness and mitigation.

The court will not award damages if the loss is too remote. This concept is governed by the rules laid down in Hadley v Baxendale which was subsequently restated in Victoria Laundry v Newman. In addition, the plaintiff is also obliged to take reasonable steps to mitigate the loss caused by the breach of contract.

In summary, it can be said that the courts award damages for a breach of contract only for losses, i.e. pecuniary or non-pecuniary losses, which casually arise from the breach of contract and those which have satisfied the requirements of remoteness and mitigation.

 

BIBLIOGRAPHY

Carter, J.W., Outline of Contract Law in Australia, Butterworths, 1990.

Carter, J.W., & Harland, D.J., Contract Law in Australia, Butterworths, 1996.

Cheshire, G.C., & Seddon, N.C., Cheshire and Fifoot’s Law of Contract, 7th.ed., Sydney, Butterworths, 1997.

Cusumano, S., Contracts, Sydney, Butterworths, 1996.

Finn, P.D., Essay on Damages, The Law Book Company, 1992.

Hocker, P.J., & Heffey, P.G., Contract Commentary and Materials, The Law Book Company,1994.

Kercher, B., & Noone, M., Remedies, 2nd.ed., The Law Book Company,1990.

McGregor, H., McGregor on Damages, London, Sweet & Maxwell Limited,1972.

Tilbury, M., & Noone, M., Remedies Commentary and Material, The Law Book Company, 1993.

   

 

     

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