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Flashcards in Termination and Damages Deck (32)
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1

affirming contract consequences for innocent party

- Damages: can claim damages at time of breach or anticipatory breach (repudiation).
- Entitlement to contract price (if only obligation to pay).
› White and Carter (Councils) Ltd v McGregor [1962] 2 AC 413
› Contract remains on foot
§ Must be no waiver
§ Must be ‘ready, willing and able’

2

White and Carter (Councils) Ltd v McGregor [1962] 2 AC 413

§ D had advertised garage business with P for 3 years (lamppost signs). His employee extended contract for 3 years without authority. P told of this but affirmed.
§ Becomes an action in debt, no requirement to mitigate – D only had obligation to pay for advertising, no other obligation.

3

affirming contract consequences for breaching party

- Contract remains on foot – both parties still liable to perform.
› Bowes v Chaleyer (1923) 32 CLR 159
§ D was buyer of goods (tie silk), cancelled order (price issues) – repudiated
§ P affirmed but didn’t deliver as per contract stipulations.
§ D refused delivery.
§ D entitled to rely on P’s subsequent breach despite repudiation

4

affirming contract consequences for both parties

- Rights that survive termination.
- Restitution for unfinished work (quantum meruit claim, unjust enrichment).
- Damages for breach (or wrongful termination).

5

restrictions on right to terminate

restrictions may exist:
› May be at common law or equity or under statute (e.g. notice required).
› May be self-imposed – e.g. termination clauses (e.g. notice, warranty).

6

possible restriction on termination - ready, willing and able

› A common law pre-requisite rather than restriction – Foran v Wight
§ Vendor not ready to settle sale of land. Purchaser terminated but deemed not to have finance.
› Contractual right to terminate.
§ It may include notice of being ready, willing and able as pre-requisite action.
› Actual breach – must be ready, willing and able at the time of the actual breach.
› Anticipatory breach – ready, willing and able requirement means need to wait for an actual breach.
§ Foran v Wight

7

possible restriction on termination -election needed

party has a right to terminate if…’
› Requirements of election
§ Knowledge of breach
§ Conduct amounting to election.
§ Conduct must be unequivocal.
› Communication of election.

8

what are damages

- Monetary compensation for loss (compensatory).
- Available for breach of condition and breach of warranty.
- Right to damages is implied by law unless excluded.
- Remoteness – what loss is compensable?
- Quantum – how loss is quantified?

9

damage in tort

› Places the innocent party in position they would have been in ‘but for’ the tort.

10

damage in contract

› Places the innocent party in the position they would have been in had the contract been performed.

11

types of damages

actual
nominal
exemplary

12

nominal damages

› Where damages are minimal/there is no evidence of what the loss actually is.
§ Luna Park (NSW) v Tramways Advertising Pty Ltd
› Mindful of costs.

13

exemplary damages

› To punish, not usually applied for breach of contract.
§ “The motive or state of mind of a person who is guilty of a breach of contract is not relevant to the question of damages for the breach…A breach of contract…may be willful, and even malicious and committed with the express intention of injuring the other party. But the measure of damages is not affected by any such considerations.” – Butler v Fairclough.
› Ruxley Electronics ltd v Forsyth
§ “damages for breach of contract must reflect, as accurately as the circumstances allow, the loss which the claimant has sustained because he did not get what he bargained for. There is no question of punishing the contract breaker.”

14

damages - general rules

- Purpose of damages is to compensate not punish.
- Remoteness rule: The loss for which damages are sought must not be too remote.
- Quantum: The amount is to be calculated by the judge.
- Losses must be mitigated.
- Stress, disappointment or injured feelings generally cannot be compensated.
- Pre-agreed (liquidated damages): can be pre-agreed.

15

damages are compensatory

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.”
› Robinson v Harman, 855
› Harman leased property to Robinson for 21 years but could not as he dud not have title – title belonged to trustees of his fathers estate.
- Calculated as at the time of breach.

16

3 interests identified in robinson v harman

Identified 3 interests that may be protected by an award of damages:
› Expectation damages: lost profits.
§ Primary method for assessing damages.
§ Must be some justification from departing from the expectation basis.
› Reliance damages: expenses incurred in anticipation of performing (wasted expenditure).
§ Only available in special circumstances
› McRae v Commonwealth Disposals Commission
› CW of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64.
› Restitution damages: compensation for benefits conferred.

17

McRae v Cth disposals facts

› McRae bought a sunken tanker from CW for $285. CW said there was a tanker and that cargo had been oil. No tanker, never had been.
› M had spent a lot more than 285 preparing for salvage ($3285). CW only offered to give the $285 back. M wanted more based on the value of an average tanker and possibility of some oil cargo (wanted around $300 000).
§ M argued that they should get something for their lost profit (loss of chance) and that difficulty in assessing was not a bar to recovery.

18

McRae v Cth disposals court decision

› The court only awarded reliance costs – i.e. the $3285 that was spent in buying and preparing, nothing was given for lost profits.

19

McRae court considerations in damages award

§ Cth had said a tanker was there and M had relied on this to spend money
§ But Cth had not promised any salvage value nor any actual oil
§ It was therefore not possible to state what the expectation loss would have been
§ If this was a promise to deliver and failure to deliver an ACTUAL stranded tanker, we could possibly assess the value of it and award expectation
§ * it is hard to put a value on something that does not exist*
§ We cannot even say with any certainty that there would have been any value
§ So we use reliance loss instead and award the expenditure of 3285
§ One could say that the expectation loss was perhaps nominal…

20

Cth v Amann consideration for award of damages

§ If contract had run A would have had income of $17,107,462
§ Expenses would have been 16,288,363 so profit would have been only $820,000
§ A had spent $5,281,521 on aircraft but since custom job; resale only $917,329
§ No guarantee of renewal of contract but A would make big profit if it was renewed and would be in best position with fitted out aircraft – so chance of a further contract was high
§ Trial judge awarded $410,000 (half profit as Cth could later have validly terminated)
§ Full Federal Court assessed loss as reliance loss (expenditure)+ interest $6.6m
§ $5,281,521 + $820,000 = $6,101,521 + $498,479 interest (8%) = $6.6m
§ Cth appealed to HC on basis that expectation, not reliance should be used and IF reliance then a discount based on probability they would have validly terminated before expiry
§ Appeal dismissed

21

remoteness rule

- Damages is monetary compensation for loss caused by the breach.
- But damages for all of the losses caused by a breach can be problematic.
› Hadley v Baxendale
§ H ran mill, contracted B to deliver steam engine crankshaft to repairers. Delivered it late, cause H loss of profits. B had no knowledge of profit loss.

22

two limbs of remoteness

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 breach of contract should be such as may fairly and reasonably be considered either:
(1) arising naturally, that is, according to the usual course of things, from such breach of contract itself
or
(2) such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as a probable result of the breach of it.”

23

Koufos v Czarnikow - remoteness

› ‘The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such a loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation”

24

natural consequences damages

› ‘the usual course of things’ – the likely result (does not have to be strong possibility, but must be more than just ‘on the cards’ – Victoria Laundry ‘a serious possibility).
› What a reasonable person without any special knowledge of the circumstances, would expect.
§ Victoria laundry (Windsor) Ltd v Newman Industries Ltd
› Boiler delivered 5 months late found to give rise to loss of usual profits not loss of a lucrative deal which he had no knowledge of.
› Foreseeability does not relate to actual damage or extent of damage that occured, just the type of damage.
§ Koufos v Czarnikow Ltd [1969] 1 AC 350
› Sugar delivered late. D didn’t know sugar to be sold ASAP but still liable
§ H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791
› Poisoning of pigs foreseeable even if extent not.
- Remoteness in contract in relation to damages, is not the same as remoteness in tor

25

Koufos v Czarnikow - natural consequence

› Ship was to load sugar at Constanza and haste to Barash (where the buyers (P)would sell it)
› Late (9 days) - sugar price had dropped as another cargo had arrived in the meantime
› P wanted difference in profits it could have made if delivered and sold on time
› Held at first instance that they could
§ The ship owners (D) knew there was a sugar market at Barash and that it was not unlikely that the sugar would be sold
§ On the other hand ship did not know that P wanted to sell the sugar and not immediately anyway
› House of Lords agreed with the initial decision on appeal and allowed the lost profit
› Distinguishes between remoteness in torts v contracts and that the test is stricter (narrower) in contracts (‘not unlikely’ instead of ‘not far-fetched’)

26

Quantum - market rule

› Quantify the loss by reference to the market.
› For goods, also statutory force for non-acceptance by buyer or non-delivery for seller
§ S50(3) Sale of goods Act 1895 (WA).
Where there is an available market for the goods in question, the measure of damages is, prima facie, to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, then at the time of the refusal to deliver.

27

no market situations

> seller in default, the buyer may:
§ Get specific performance.
§ If buyer was to resell, then use the resale price (if market saturated).
› If buyer in default – depends on supply.
§ Sufficient supply (supply exceeds demand): loss of profit would have made.
§ Unique item (sold once or demand exceeds supply): difference in profits compared to subsequent sale or nominal if can easily sell for the same price.
]

28

quantifying damages

› P must prove that some loss has been suffered and how much
› For difficult areas or speculative / prospective situations, this can be difficult to show exactly
› Quantification problems are no bar to recovery
§ Reasonable certainty and particularity
› Chaplin v Hicks [1911] 2 KB 786- Missed out on a beauty contest? Damages proportionate to chances of winning (in this case, 12 contestants so 1/12 of the pot).
› Howe v Teefy (1927) 27 SR (NSW) 301 - No horse in the race? (Not delivered). Damages based on past wins.
§ But P must still meet evidentiary burden/standard

29

mitigation of damages

- Not really a duty to mitigate, the onus is on the D to prove that P failed to mitigate.
- Reasonable steps must be taken by innocent party to minimise their loss.
› i.e. airline flight cancelled, try to book another flight.
- All that is required is that you must act reasonably.
› Payzu ltd v Saunders.
§ P late to pay for goods. D refused to continue to deliver. P paid for goods from other supplier at higher price but could have got goods from D at same price if he paid cash on delivery. P found to be unreasonable.

30

damages for disappointment and stress

- Injured feelings, discomfort, stress, and disappointment.
› Too remote (Hadley v Baxendale).
› Not compensable generally (Addis v Gramophone Co Ltd).
› Not compensable – pursuant to fair work act for unfair dismissal.
› But if stress for example is not a reaction to the breach but is itself the damage caused by the breach then it is possible.
§ Where the object of the contract is enjoyment.
§ Jarvis v Swans Tours Ltd.
§ Baltic Shipping Co v Dillon
› must “proceed from physical inconvenience caused by breach or where the object of which is to provide enjoyment, relaxation or freedom from molestation”