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LAW OF CONTRACT

LEC – Winter 2016

Lecture 11• Remedies

– (1) Damages• Text: Radan & Gooley, Chapter 29

– (a) Common law damages

• Text: Radan & Gooley, Chapter 22

• *Johnson v Perez (1988) 166 CLR 351 (R&G(C) [29.3])

• *Howe v Teefy (1927) 27 SR (NSW) 301 (R&G(C) [29.4])

• Baltic Shipping Co v Dillon (1992) 176 CLR 344 (R&G(C) [29.5])

• The Commonwealth v Amann Aviation (1991) 174 CLR 64 (R&G(C) [29.6])

• Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 (R&G(C) [29.7])

• Victoria Laundry (Windsor) v Newman Industries [1949] 2 KB 528 (R&G(C) [29.8])

• *Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322

• Koufos v Czarnikow Ltd [1969] 1 AC 350

• Civil Liability Act 2002, (NSW), ss 5D, 11A, 16, 27-33

• *Insight Vacations Pty Ltd v Young (2010) 241 FLR 125; [2010] NSWCA 137 (See note at end of the extract for Flight Centre Ltd v Louw)

• *Flight Centre v Louw [2011] NSWSC 132

– (b) Equitable damages

• Text: Radan & Gooley, Chapter 33

• *Supreme Court Act 1970, s 68

• *Johnson v Agnew [1980] AC 367

Lecture 11Aims and Objectives

• Common law damages involve the innocent party accepting a breach of contract and being compensated for losses suffered as a result of such breach. Upon proof of a breach, an innocent party is entitled to an award of damages. The principles relating to common law damages are fundamentally concerned with assessment of the amount of compensation to be awarded to the innocent party. Equitable damages can also be awarded.

• At the end of this lecture students should have an understanding of the following:

– the compensation principle as the basis for the recovery of damages;

– the nature of interests protected in an award of damages;

– the requirement that the breach must cause the losses sought to be recovered;

– factors that affect the quantum of damages awarded;

– the principles governing the recovery of equitable damages.

REMEDIES• Common law damages

• Common law damages are a measure of compensation a party can recover for loss caused as a result of breach of contract.

• It represents a plaintiff’s right to compensation for the defendant’s failure to carry out his/her contractual obligations.

• The basic proposition is that as far as money can do it, a plaintiff is to be placed in the same position as if the contract had been performed.

• B“a plaintiff bears the onus of establishing the extent of his loss or injury on the balance of probabilities. To satisfy the requirements of that rule, a plaintiff must, if he is to recover more than a nominal amount in such an action, affirmatively establish assessable damage, that is to say, loss or injury which is capable of being measured in monetary terms”:

Commonwealth v Amann Aviation at CLR 118; ALR 38.


• In Gates v City Mutual Life Association Society Ltd (1986) 160 CLR 1 at 11-12 Mason, Wilson and Dawson JJ in joint reasons stated:

"(i)n contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed - he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss).”

• Damages are generally assessed at the date of breach.

• Four interests may be reflected in an award of damages:

– Expectation interest

– Reliance interest

– Restitution interest

– Indemnity interest

• These are not separate heads, but merely manifestations of the central compensation principle. See R&G Chapter 29


• The expectation interest is the interest most commonly reflected in an order for damages and which most clearly fits within the compensation principle. It is sometimes referred to as loss of profit damages, and reflects compensation for the loss of the expectation, or profit, that the plaintiff was entitled to under the contract but which he or she has been denied by the defendant’s breach of contract. Within the expectation interest are damages for the loss of a chance: Howe v Teefy (1927) 27 SR (NSW) 301.

• As a general rule, expectation damages do not include compensation for non-economic loss. However per Baltic Shipping Co v Dillon (1993) 176 CLR 344, in certain circumstances such losses may attract compensation under the so-called 'peace of mind‘ exception to the general rule.

• The reliance interest reflects compensation granted to a plaintiff in relation to expenditure reasonably incurred in reliance on the defendant's promise and which is wasted because of the latter’s breach. The term 'wasted expenditure damages‘ is also often used to describe this type of loss.


Lump sum rule

• An award for damages is made once and for all in a lump sum – this covers all past and future losses. Damages cannot be awarded in the form of periodical payments.

Taxation

• In determining the amount to award, the Court must take into account the effect of taxation on the award. However, most awards are taxable, because they reflect loss of profit. If they are not taxable, this should be taken into account when determining the appropriate amount.


Date for Assessment

• At common law a party does not have the right to recover exemplary (or punitive) damages, because this does not accord with the compensation principle: Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188

• If a claim for simple contract is brought in NSW, it must be brought within 6 years of the accrual of the cause of action (Limitation Act 1969 (NSW), s 14). The cause of action generally accrues at the time of breach (although there are some exceptions). If the contract is set out in an deed, the action must be brought within 12 years (Limitation Act 1969 (NSW), s 16).

• When the action is brought, the date at which damages are assessed, is also generally the date of breach. ButB

REMEDIESCommon law damages

*Johnson v Perez (1988) 166 CLR 351 (R&G(C) [29.3])

• Antonio Perez sustained injuries in 1968 and in 1973 during the course of his employment as a construction worker by three separate employers. He commenced proceedings to recover damages, instructing as his solicitors Johnson, Lo Monaco, MacDonald in respect of the 1968 accident and Creed and Associates in respect of the 1973 accident. Each action was later dismissed for want of prosecution due to the negligence of the respective solicitors.

• Perez brought an action in the Supreme Court of Queensland against each firm of solicitors claiming damages for negligence and breach of contract. He then alleged that he had further suffered a “psychological reaction to his injuries” aggravated by the delays in prosecuting his claim.



• Demack J. found that Perez had had a good cause of action against his various employers which his solicitors' negligence had prevented him from pursuing, and awarded damages according to the prevailing awards at the time of assessment.

• Before the Full Court on appeal the solicitors submitted that the assessment of damages should have reflected the amounts that would have been awarded at the time when the original actions would have come to trial if the solicitors had

not been negligent. The Full Court affirmed the decision of Demack J. The solicitors then appealed to the High Court.

• What was the appropriate date for calculation of damages?



• A majority held that the appropriate date was when Perez’s claim against his employers would have been heard:

– Damages recoverable from the solicitor are to be assessed by reference to the amount appropriately awarded when his action would ordinarily have been determined, but for the solicitor's negligence and not to the prevailing award at the time when his claim against the solicitor is determined.

• 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. The normal rule must give way in particular cases to solutions best adapted to giving an injured party the amount which will most fairly compensate for the wrong suffered.

• Damages in contract are made on a once and for all lump sum basis.


Damages for loss of chance

*Howe v Teefy (1927) 27 SR (NSW) 301 (R&G(C) [29.4])

• Howe leased his racehorse to Teefy (a horse trainer) for three years. A few months later, without justification, Howe took the horse back. Teefysued for damages. His claim included damages for a loss of opportunity to win prizes, to win bets placed on the horse and to make profits from supplying information to others.

• The Jury awarded £250 to Teefy. Howe appealed.

• Was Teefy entitled to be compensated for the claimed loss of opportunity?




• The presence of contingencies does not render damages incapable of being assessed (even if they involve the volition of a third person), although it may make the calculation incapable of carried out with precision.

• There may be cases where it would be impossible to say that an assessable loss had resulted from the breach, but short of that, just because damages cannot be assessed with certainty does not relieve the wrong doer from paying.

• The calculation to be made was no how much he probably would have made in the way of profit out of use of the horse, but how much his chance of making that profit, by having use of the horse, was worth in money.

• The fact that it is more likely than not that the chance would not have occurred does not preclude recovery of damages. But there has to be a ‘real’ or ‘substantial’




• The jury must do ‘the best they can, and it may be that the amount of their verdict will really be a matter of guess work.’

• The test is whether the plaintiff had something of monetary value and which she was deprived of by the defendant’s breach.


Recovery of non-economic loss

• Non-economic losses are generally not recoverable in an action for breach of contract.

• There are exceptions to this rule, including:

– Physical inconvenience or discomfort caused by the breach.

– Physical or psychiatric injury.

– Loss of reputation.

• However, generally damages are not allowed in contract for ‘disappointment of mind’ occasioned by the breach.

– An exception to this rule is the ‘peace of mind’ exception inB



Baltic Shipping Co v Dillon (1992) 176 CLR 344 (R&G(C) [29.5])

• Dillon contracted for a 14 day cruise. The cruise was cut short when the Mikhail Lermontov sank off the coast of NZ nine days into the voyage.

• Dillon suffered physical and emotional damages. She sued Baltic Shipping for breach of contract for loss of:

– the fare

– emotional injuries (non-economic loss)

• Was she entitled to recover the fare and damages for emotional injuries?




High Court

• Not entitled to recover the fare. If the contract breaker provides an incomplete performance, in general the innocent party cannot recover unless there has been a total failure of consideration. If the innocent party receives and retains any substantial part of the benefit expected under the contract, there will not be a total failure of consideration. Here she had the benefit of eight days of the trip, so there was no total failure of consideration and she cannot recover the fare (but what about part of it?)

• Was payment of the fare conditional on complete performance? This is a matter of construction and would not be reasonable here.




More relevant to this topicB

• Loss for anxiety, disappointment and injured feelings? Generally this is not a head of damages in contract. [360] citing Hamlin v Great Northern Railway Company.

• However, the Court said, The ‘general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract is, in any event, subject to exceptionsBThe scope of the exceptions has been expanded by judicial decision in recent years, so much so that the authority fo the general rule is now somewhat uncertain.’




• An exception is where the very object of the contract is to provide pleasure, relaxation or freedom from molestation.

• Here that was the purpose of the contract. See [363], [371].


Damages for reliance loss

The Commonwealth v Amann Aviation (1991) 174 CLR 64 (R&G(C) [29.6])

• Amann’s claim was mainly for the lost expenditure in preparing for the contractby buying planes e.t.c. And although there was no renewal clause, renewalwas likely.

• If the contract ran its term, profits would have been 1/6 the cost of buying theplanes.

• The primary Judge held that if the contract ran its full term Amann would havemade a profit of $820,000 but because there was a 50% chance of theCommonwealth terminating the contract, the damages had to be reduced byhalf. The primary Judge awarded Amann damages for loss of profitbut declined to award wasted expenditure, which represented the bulk of thedamages claim.




• On appeal the Full Court awarded Amann damages inclusive of wasted expenditure.

• In the High Court the issue was whether damages included all of the wasted expenditure, or should it be reduced to reflect the possibility of non-renewal of the contract.

• Referring to Robinson v Harman (1848) 1 Ex. 850, Mason CJ and Dawson J set out the principle for the recovery of expectation damages (which usually takes the form of loss of profit):




‘The general rule at common law, as stated by Parke B. in Robinson v Harman, is "that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed". This statement of principle has been accepted and applied in Australia. The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as "expectation damages".

The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained.’




‘That is to say, 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 than being mere expectation. In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.




• Just because there is no net profit or where profit cannot be demonstrated. The plaintiff can recoup expenditure justifiably incurred for the purpose of discharging contractual obligation.

• If performance of the contract would result in the plaintiff, whilst not making a profit, recovering costs in the course of performing the contract, then the plaintiff can recover those costs, as they would have been reco ered had the contract been performed.




• The High Court upheld Amann’s claim and awarded $6,600,207:

– $4,364,194 – for difference between the cost of the aircraft and their agreed resale value.

– $854,943 – pre-operational expenditure.

– $143,049 – termination payments to employees

– $113,000 – security deposit to government.

– $1,125,023 - interest


Damages for restitution loss

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 (R&G(C) [29.7])

• Tabcorp was a tenant, in breach of a covenant not to make alterations to the premises without the consent of the landlord. Tabcorp demolished the foyer of the commercial premises which it occupied in Melbourne under the lease.

• The foyer had been constructed with particular care and interest by Bowen Investments, however, Tabcorp took the view that the foyer required a total redesign in order to project its image as a progressive and technologically advanced business and did so, without the consent of Bowen Investments.

• Bowen Investments sought damages calculated as the cost of reinstatement of the foyer to its original condition plus loss of rental during the period of reinstatement.




• Tabcorp contended that diminution in value was the appropriate measure which it submitted would result in nominal damages being awarded.

• The trial judge found there was a breach of covenant but awarded damages in the sum of $34,820 being the difference between the value of the property with the old foyer and the value of the property with the new foyer as constructed by the tenant.

• On appeal the Full Federal Court increased the amount awarded to $1.38m, made up of $580,000 for the cost of restoring the foyer to its original condition and $800,000 for loss of rent while the restoration work was being undertaken.




• The High Court upheld the Full Court's decision. The High Court rejected "the doctrine of efficient breach" and the tenant's attempt to impose a form of economic rationalism on the unwilling landlord (at [13]).

• It applied the Robinson v Harman measure of damages for breach of contract as applied by Oliver J in Radford v De Froberville [1977] 1 WLR 1262 at 1273 and the previous High Court case of Bellgrove v Eldridge (1954) 90 CLR 613.


Remoteness of damage

Hadley v Baxendale [1854] EWHC Exch J70 Courts of Exchequer

• The crankshaft broke in the Claimant’s mill. He engaged the services of the Defendant to deliver the crankshaft to the place where it was to be repaired and to subsequently return it after it had been repaired. Due to neglect of the Defendant, the crankshaft was returned 7 days late. The Claimant was unable to use the mill during this time and claimed for loss of profit. The Defendant argued that he was unaware that the mill would have to be closed during the delay and therefore the loss of profit was too remote.

• Held: The damages available for breach of contract include:

1. Those which may fairly and reasonably be considered arising naturally from the breach of contract or

2. Such damages as may reasonably be supposed to have been in the contemplation of both the parties at the time the contract was made.



Hadley v Baxendale [1854] EWHC Exch J70 Courts of Exchequer

• If any special circumstances exists which were actually communicated to the Defendant, the Claimant may recover any damages which would ordinarily follow from a breach of contract under the special circumstances communicated.



Victoria Laundry (Windsor) v Newman Industries [1949] 2 KB 528 (R&G(C) [29.7])

• The claimant purchased a large boiler for use in their dying and laundry business. The defendant was aware that they wished to put it to immediate use and knew the nature of their business. The delivery of the boiler was 20 weeks delayed in breach of contract and the claimants brought an action for the loss of profit which the boiler would have made during the period in which the delivery was delayed.

• The claim contained a sum for a particularly lucrative contract with the Ministry of Supply, which they lost due to the absence of the boiler.

• Were the profits claimed too remote?




• Held: The Court did not regard ‘loss of profits from the laundry business’ as a single type of loss. They distinguished losses from ‘particularly lucrative dyeing contracts’ as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses.

• The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry. The court distinguished the approach to be taken in claims for damages under contract and tort.




• In cases of breach of contract, the aggrieved can only recover such loss actually resulting as was at the time of the contract reasonably foreseeable as likely to result from the breach. In tort, the question whether loss was reasonably foreseeable is addressed to the time when the tort was committed.

• In contract, the question is addressed to the time when the parties made their contract.




1. It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v Chicoutimi Pulp Company [1911] AC 301. This purpose, if relentlessly pursued, would provide him with a complete indemnity for loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognised as too harsh a rule : hence,

2. 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,




3. What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.’

4. For this purpose, knowledge possessed is of two kinds: imputed or actual Everyone is taken to know ‘the ordinary course of things’ and consequently what loss is liable to result from a breach of contract in the ordinary course. ‘But to this knowledge, which a contract breaker is assumed to possess whether he actually possesses it or not [under the first rule] there may have to be added in a particular case knowledge which he 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 recoverable’.




5. In order to make the contract breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. It suffices that, if he had considered the question, he would have concluded that the loss in question was liable to result.

6. Nor need it be proved on the basis of that knowledge, that the defendant could foresee that a breach must necessarily result in that loss. It is enough if he could foresee that it was likely to so result.



Koufos v Czarnikow Ltd [1969] 1 AC 350

• A contract for the carriage of a cargo of sugar to Basrah was delayed by 9 days. The market price of sugar dropped following this delay due to the arrival of another cargo of sugar. The charterers had intended to sell the cargo of sugar promptly upon arrival, and now claimed for the fall in the market price of the sugar during the period of delay. The defendant argued the damages were too remote since it was just as likely that the market price could increase.

• The owners did not know what the charterers intended to do with the sugar. But they did know that there was a market in sugar at Basrah and, if they had thought about it, must have realised that, at the least, it was ‘not unlikely’ that the sugar would be sold in the market at its market price on arrival.



Koufos v Czarnikow Ltd [1969] 1 AC 350

Held:

• Under the second limb in Hadley v Baxendale it was only necessary that the losses were in the reasonable contemplation of the parties as a possible result of the breach. There was no requirement as to the degree of probability of that loss arising. Since the defendant must have known that market prices fluctuate, the loss would have been in his contemplation as a possible result of the breach.

Lord Upjohn:

• ‘If parties enter into the contract with knowledge of some special circumstances, and it is reasonable to infer a particular loss as a result of those circumstances that is something which both must contemplate as a result of a breach. It is quite unnecessary that it should be a term of the contract’.


Civil Liability Act 2002 (NSW), ss 5D, 11A, 16, 27-33

• The CLA governs civil liability in relation to tort and to some degree contract.

• Part 3 deals with claims for damage of mental harm, resulting from a failure to exercise reasonable care and skill. This applies whether to contract or tort or otherwise.

• Therefore, if it is alleged that as a result of a breach of contract (say an implied term to exercise due skill and care) the plaintiff suffers mental harm, this Part will apply.


Civil Liability Act

5D General principles

(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm ("factual causation" ), and

(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused ("scope of liability" ).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.


Civil Liability Act

(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:

(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph, and

(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.


Civil Liability Act

11A Application of Part

(1) This Part applies to and in respect of an award of personal injury damages, except an award that is excluded from the operation of this Part by section 3B.

(2) This Part applies regardless of whether the claim for the damages is brought in tort, in contract, under statute or otherwise.

(3) A court cannot award damages, or interest on damages, contrary to this Part.

(4) In the case of an award of damages to which Part 2A (Special provisions for offenders in custody) applies, this Part applies subject to Part 2A.


Civil Liability Act

16 Determination of damages for non-economic loss

(1) No damages may be awarded for non-economic loss unless the severity of the non-economic loss is at least 15% of a most extreme case.

(2) The maximum amount of damages that may be awarded for non-economic loss is $350,000, but the maximum amount is to be awarded only in a most extreme case.

(3) If the severity of the non-economic loss is equal to or greater than 15% of a most extreme case, the damages for non-economic loss are to be determined in accordance with the following Table:


Severity of the non-economic loss (as a proportion of a most extreme case)

Damages for non-economic loss (as a proportion of the maximum amount that may be awarded for non-economic loss)

15% 1%

16% 1.5%

17% 2%

18% 2.5%

19% 3%

20% 3.5%

21% 4%

22% 4.5%

23% 5%

24% 5.5%

25% 6.5%

26% 8%

27% 10%

28% 14%

29% 18%

30% 23%

31% 26%

32% 30%

33% 33%

34%-100% 34%-100% respectively


(4) An amount determined in accordance with subsection (3) is to be rounded to the nearest $500 (with the amounts of $250 and $750 being rounded up).

The following are the steps required in the assessment of non-economic loss in accordance with this section:

Step 1: Determine the severity of the claimant’s non-economic loss as a proportion of a most extreme case. The proportion should be expressed as a percentage.

Step 2: Confirm the maximum amount that may be awarded under this section for non-economic loss in a most extreme case. This amount is indexed each year under section 17.

Step 3: Use the Table to determine the percentage of the maximum amount payable in respect of the claim. The amount payable under this section for non-economic loss is then determined by multiplying the maximum amount that may be awarded in a most extreme case by the percentage set out in the Table.

Where the proportion of a most extreme case is greater than 33%, the amount payable will be the same proportion of the maximum amount.


Civil Liability Act

11A Application of Part

(1) This Part applies to and in respect of an award of personal injury damages, except an award that is excluded from the operation of this Part by section 3B.

(2) This Part applies regardless of whether the claim for the damages is brought in tort, in contract, under statute or otherwise.

(3) A court cannot award damages, or interest on damages, contrary to this Part.

(4) In the case of an award of damages to which Part 2A (Special provisions for offenders in custody) applies, this Part applies subject to Part 2A.


Civil Liability Act

27 Definitions

In this Part:

"consequential mental harm" means mental harm that is a consequence of a personal injury of any other kind.

"mental harm" means impairment of a person’s mental condition.

"negligence" means failure to exercise reasonable care and skill.

"personal injury" includes:

(a) pre-natal injury, and

(b) impairment of a person’s physical or mental condition, and

(c) disease.

"pure mental harm" means mental harm other than consequential mental harm.


Civil Liability Act

28 Application of Part

(1) This Part (except section 29) applies to any claim for damages for mental harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise.

(2) Section 29 applies to a claim for damages in any civil proceedings.

(3) This Part does not apply to civil liability that is excluded from the operation of this Part by section 3B.


Civil Liability Act

29 Personal injury arising from mental or nervous shock

In any action for personal injury, the plaintiff is not prevented from recovering damages merely because the personal injury arose wholly or in part from mental or nervous shock.


Civil Liability Act

30 Limitation on recovery for pure mental harm arising from shock

(1) This section applies to the liability of a person ( "the defendant" ) for pure mental harm to a person ( "the plaintiff" ) arising wholly or partly from mental or nervous shock in connection with another person ("the victim" ) being killed, injured or put in peril by the act or omission of the defendant.

(2) The plaintiff is not entitled to recover damages for pure mental harm unless:

(a) the plaintiff witnessed, at the scene, the victim being killed, injured or put in peril, or

(b) the plaintiff is a close member of the family of the victim.


Civil Liability Act

(3) Any damages to be awarded to the plaintiff for pure mental harm are to be reduced in the same proportion as any reduction in the damages that may be recovered from the defendant by or through the victim on the basis of the contributory negligence of the victim.

(4) No damages are to be awarded to the plaintiff for pure mental harm if the recovery of damages from the defendant by or through the victim in respect of the act or omission would be prevented by any provision of this Act or any other written or unwritten law.

(5) In this section:

"close member of the family" of a victim means: (a) a parent of the victim or other person with parental responsibility for the victim, or (b) the spouse or partner of the victim, or(c) a child or stepchild of the victim or any other person for whom the victim has parental responsibility, or(d) a brother, sister, half-brother or half-sister, or stepbrother or stepsister of the victim.

"spouse or partner" means:(a) a husband or wife, or(b) a de facto partner, but where more than one person would so qualify as a spouse or partner, means only the last person to so qualify.


Civil Liability Act

31 Pure mental harm-liability only for recognised psychiatric illness

There is no liability to pay damages for pure mental harm resulting from negligence unless the harm consists of a recognised psychiatric illness.


Civil Liability Act

32 Mental harm-duty of care

(1) A person ("the defendant" ) does not owe a duty of care to another person ("the plaintiff" ) to take care not to cause the plaintiff mental harm unless the defendant ought to have foreseen that a person of normal fortitude might, in the circumstances of the case, suffer a recognised psychiatric illness if reasonable care were not taken.

(2) For the purposes of the application of this section in respect of pure mental harm, the circumstances of the case include the following:

(a) whether or not the mental harm was suffered as the result of a sudden shock,

(b) whether the plaintiff witnessed, at the scene, a person being killed, injured or put in peril,

(c) the nature of the relationship between the plaintiff and any person killed, injured or put in peril,


Civil Liability Act

(d) whether or not there was a pre-existing relationship between the plaintiff and the defendant.

(3) For the purposes of the application of this section in respect of consequential mental harm, the circumstances of the case include the personal injury suffered by the plaintiff.

(4) This section does not require the court to disregard what the defendant knew or ought to have known about the fortitude of the plaintiff.


Civil Liability Act

33 Liability for economic loss for consequential mental harm

A court cannot make an award of damages for economic loss for consequential mental harm resulting from negligence unless the harm consists of a recognised psychiatric illness.


*Insight Vacations Pty Ltd v Young [2010] NSWCA 137

• Young purchased a European package tour from Insight in February 2005. The tour commenced in October 2005. On 14 October 2005, while travelling on a motorcoach in Slovakia, Young stood up from her seat and was injured when the motorcoach broke suddenly.

• The Young brought proceedings in the District Court against Insight, alleging that it was liable for the negligence of the motorcoach driver. Young sought relief in contract and, alternatively, in tort.

• Rolfe DCJ found that Insight had breached the warranty of due care and skill implied by s 74(1) of the Trade Practices Act 1974. By reason of that finding, his Honour did not deal with the alternative claim in tort. Rolfe DCJ awarded Young $22,371 in damages, including $8,000 for “disappointment”. His Honour found that “disappointment” was not non-economic loss within the meaning of s 16 the Civil Liability Act 2002.

• Insight sought leave to appeal. At issue in this Court was the constitutional finding and the award of damages for disappointment.

.



• The Court of Appeal considered the characterisation of loss for “distress” and “disappointment”, and whether these were types of “personal injury damages” within the meaning of s 16 of the CLA (and thus limited pursuant to the table in s 16).

• The Court of Appeal held that there is no distinction between damages for “distress” and damages for “disappointment”.

• Further, damages for disappointment (flowing from the inability of Mrs Young to continue her trip due to being injured in a motor coach accident) constituted “damages that relate to the B injury of a person” within the definition of “personal injury damages” in s 11 of the CL Act.



• Importantly, damages for disappointment on their own (i.e. in the absence of any other injury) also constitute “non-economic loss” within the meaning of s 16(1) of the CLA. Section 11A(2) of the CL Act plainly contemplates that damages for “non-economic loss” (as defined in s 3) can be awarded as compensation for personal injury in a claim brought in contract. Damages for disappointment fall within the description of damages for loss of amenities, and is therefore compensation for loss of amenities of life. Therefore, damages for disappointment flowing solely from breach of a contract (and in the absence

of or unconnected to any other injury) fall within the caps of s 16 of the CLA

and is limited accordingly.

• Because s 16 of the CLA is valid (it being picked up and applied by s 74(2A) of the TP Act), damages within the meaning of s 16 which flow from a breach of s 74(1) of the TP Act are subject to the cap in s 16 of the CLA. Damages for “disappointment” are therefore subject to the cap in s 16 of the CLA.



• It was held by Spigelman CJ and Basten JA that grief, anxiety, distress and disappointment were elements of pain and suffering within the definition of non-economic loss in s 3 of the Act and that the primary judge erred in separating out those elements from other elements of non-economic loss. Therefore these elements fall within the statutory definition of non-economic loss contained in s 16 of the CLA and are not recoverable as a separate head of damage.

• Thus the plaintiff's damages were reduced to $11,500.


*Flight Centre v Louw [2011] NSWSC 132

• P was a travel agent. The Louws wanted to book a holiday to a tropical resort, so they went to the P and spoke to an employee. The employee recommended a hotel at Bora Bora, Tahiti. The Louws accepted the recommendation and booked.

• On most days during the holiday construction work was being carried out at the hotel, interrupting the Louws as they rested in their room. The workers distressed them with their noise and by staring at Ms Louw. 33% of the beach was rendered inaccessible by the presence of construction vehicles. The Louws weren’t told.

• The Louws sued in contract, for - loss, inconvenience and distress, disappointment as a result of the constructionB.



• The total cost of the accommodation and flights was $14,696 but they confined the claim to the Small Claims limit of $10,000.



• Did the CLA apply? The Assessor (below) said no - the Assessor considered Insight Vacations Pty Limited v Young [2010] NSWCA 137; (2010) 268 ALR 570 and concluded that it was not binding upon him because in that case the plaintiff suffered personal injuries, whereas in the case before the Assessor the plaintiff had suffered no personal injury. The Assessor concluded thus:

The Civil Liability Act 2002 was introduced to address a number of perceived increases in awards for damages, primarily arising from personal injury claims. The Act does not restrict all claims for damages. In respect to claims for distress and disappointment claims might only be restricted where they fall within the head of damages referred to as pain and suffering as a consequence of a personal injury claim. In the present case, there being no personal injury suffered, the issue as to whether damages for distress and disappointment can be recovered is determined under the principles outlined in the Baltic Shipping Co case.



• On appeal, Held: Quantum for damages for non-economic loss in breach of contract cases is subject to the limits set out in s 16 of the Civil Liability Act 2002(NSW).

• If the claim is for pure mental harm and there is negligence by the defendant, no damages at all are awarded for that harm as a result of s 31.

REMEDIES• Equitable damages

• Prior to the enactment of the Chancery Amendment Act 1858 (UK) (commonly known as the Lord Cairns Act), if a plaintiff sought equitable relief (such as specific performance or injunction) in a Court of Chancery (equity) but failed to obtain that relief, she would then have to recommence in the common law courts to obtain damages.

• After the enactment of the Lord Cairns Act , the courts of equity could award damages to parties in as well as, or in lieu of, other equitable remedies. These were called ‘equitable damages’. However, this could only take place where the court had jurisdiction to grant the original equitable relief.

• Therefore:

– If equitable relief is denied on the ground that common law damages is adequate remedy – then a Court of Chancery could not exercise power under Lord Cairns Act.


– If equitable relief is denied on a discretionary ground then a Court of Chancery could exercise power under Lord Cairns Act.

• This lost some significance with the later fusion of common law and equity by the Judicature Act 1873.

• However, this still has some use and the Lord Cairn’s Act has been adopted by most States.

• Given that ‘equity follows the law’ , the court will generally apply common law principles in assessing equitable damages.


In NSW:

• *Supreme Court Act 1970 (NSW), s 68:

68 - Damages in case for equitable relief

Where the Court has power:

(a) to grant an injunction against the breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or

(b) to order the specific performance of any covenant, contract or agreement,

the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance.

REMEDIES

• Equitable damages

• Before equitable damages can be ordered, the Court must have jurisdiction to order a decree of specific performance or an injunction. So if one of these remedies is refused on the basis that common law damages are adequate, then the court cannot order equitable damages.

• Equitable damages can be awarded in addition to the specific equitable relief or in lieu of it.


*Johnson v Agnew [1980] AC 367 (R&G(C) [33.2])

• The Johnsons were in arrears with repaying their mortgages and entered into a contract for sale to Agnew. On the same day, they contracted to purchase another property and arranged for a loan.

• Agnew failed to complete and the Johnsons sued for specific performance. In the meantime however, the mortgagee took possession and sold the property. Therefore specific performance was impossible (they could no longer give Agnew title). Johnson claimed damages.

• Court of appeal that the order for specific performance be dismissed and that an the Johnsons were entitled to Lord Cairns Act damages – so ordered an inquiry. Agnew appealed.



Held:

• So long as the specific performance order was vacated, they could get damages instead.

• Damages were assessed as at the date that the Johnsons’ right of specific performance was aborted – i.e. the first date on which the mortgagees (who took the property) contracted to sell the property to another.



• In relation to the appellant’s argument that the Johnsons had elected specific performance and therefore were bound by that election, Lord Wilberforce said:

‘In my opinion, the argument based on irrevocable election, strongly pressed by the appellant’s counsel in the present appeal is unsound. Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity. It is easy to see that a party who has put an end to a contract by accepting the other party’s repudiation cannot afterwards seek specific performance. This is simply because the contract has gone – what is dead is dead. But it is no more difficult to agree that a party who has chosen specific performance, may quite well thereafter, if specific performance fails to be realised say, ‘very well, then the contract should be regarded as terminated’.


• *Johnson v Agnew [1980] AC 367 (R&G(C) [33.2])

It is quite consistent with a decision provisionally to keep alive, to say, ‘Well this is no use – let us now end the contract’s life’. A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract – what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under the control of the court which control involves the power, in certain events, to terminate it.’ and ‘In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost.’


Ford-Hunt v Raghbir [1972] 2 All ER 700 (R&G(C) [33.3])

• Fords contracted to purchase a property from Singh. Singh failed to complete. The Ford-Hunts obtained an order for specific performance. Singh failed to transfer the property in accordance with the order. The Ford-Hunts obtained possession and then brought an action for damages. For the losses occasioned by the failure of Singh to complete in accordance with the order to specifically perform.

• Did the court have power to order damages, having already ordered specific performance?

• Yes. Here there was an exception to the rule that a court could not vary after it has been passed and entered. There were new facts and the court could make an order in relation to the damage that occurred due to the delay and which occurred after the order for specific performance.

REMEDIES• Damages

Mitigation

• A plaintiff has an obligation to undertake steps to mitigate or limit her losses, within reasonable limits.

– A plaintiff cannot recover damages for losses that were avoidable.

– A plaintiff cannot recover damages for losses that were avoided.

– A plaintiff can recover damages for expenses incurred in avoiding or attempting to avoid loss.

• Reasonableness here will depend upon the circumstances.

• Mitigation not required for actions in debt.

law of contract - the university of sydneysydney.edu.au/lec/subjects/contracts/winter 2016/lec -...

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