#7295 - Reliance Damages General Principles Loss Of Chance Restitution Causation Remoteness - Contracts 2

Commonwealth v Amann Aviation Pty Ltd (1991) 176 CLR 64

Relevant Facts: On 31/3/87 the two parties entered into a contract under which A was to provide coastal surveillance services for C. On 12/9/87 A commenced flights but it was obvious that they didn’t have all the aircrafts required to perform their obligations nor that they complied with the specifications of the contract. On this date C terminated and 3 days later A treated this as repudiation, elected to terminate and sued for damages for breach. They were awarded 410k at trial but appealed to the FCA who increased it to 6.6m. C appealed to the High Court.

The questions on appeal were how to treat A’s prospect of having the contract renewed as well as the expenditures they incurred. These expenditures could not be easily recouped because the market value of the aircraft differed markedly from their cost due to being made for very specific use.

Ratio (Deane J):

The relevant principles (‘reliance damages’): Where a plaintiff has incurred expenditure but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance, considerations of justice demand that:

• A plaintiff may rely on the presumption that the value of benefits obtained under the contract would at least be equal to total detriment which has been sustained in doing whatever was reasonably necessary to perform the contract

• In cases where proof of value is impossible/difficult, it is presumed that the future net benefits which would have been derived from performance would be a value sufficient to recoup past next expenditure reasonably incurred in performance

• This presumption will be rebutted if it is established that the plaintiff would have derived no financial benefit from performance or that financial benefit would be insufficient to recoup past expenditure

• This presumption will not be rebutted by the fact that the benefit is may have included the chance of another remote benefit and it is speculation whether this would have been obtained OR if the perceived benefit is something of vaue only to the plaintiff (e.g. not in monetary terms)

• If it is established that there would be no benefit derived would not be able to recoup expenditure – recovery will be limited to the extent it has not been established that expenditure would not have been recouped (i.e. reliance damages can be recovered in respected of wasted expenditure if the past expenditure exceeds ultimate loss)

IF repudiation causes unforeseen detriments, these too are recoverable since they would not have been incurred

The appeal – The claim for reliance damages

• Amann would have had a very good chance of having the contract renewed (considering it would have an advantage over all other competitors and the capital required) BUT it is impossible to speculate about the value of the contract if renewed or the value of the equipment if the Commonwealth performed.

  • Hence Amann is entitled to the presumption that the value of benefits would at least be equal to the expenditure incurred in obtaining the contract and performance on its part.

  • The difficulty in assessing chances of contract or resale makes it impossible for C to demonstrate the value of benefits derived – that being so Amann is entitled to recover reliance damages equivalent to wasted expenditure

Amann’s loss of an 80% Chance

• There was a 20% chance of cancellation by the secretary, but this, unlike the chance of the future contract, has not been factored as a contingency into net benefits. It is a superimposed risk that does nto flow from performance but from their breach.

• In such a case the court must make an estimate as to what are the chances that a particular think...would have happened and reflect those changes

• Hence the amount awarded to Amann must be reduced by 20%

Order: Appeal dismissed

Howe v Teefy (1927) 27 SR (NSW) 301

Relevant Facts: H leased a racehorse to T for three years. After three months H removed the horse from the plaintiff without justification. T brought an action for breach of contract, claiming for loss of opportunity to win prizes and to win bets placed by himself on the horse and to make profits supplying information to others. The jury awarded 250, the plaintiff appealed.

Ratio (Street CJ):

• Damages for prospective winnings cannot be said to be too remote – they were within the reasonable contemplation of the parties since it was the sole object of the agreement to make money by racing the horse

• Chaplin v Hicks – everything depends on a contingency, this is no reason for not awarding damages; this would deprive a plaintiff of anything beyond nominal damages where damages couldn’t be assessed with mathematical accuracy

• The presence of contingencies – even when the volition of third parties – do not render damages incapable of assessment. Juries must do their best to make an estimate. An absolute measure is not required

• The question is: Whether the plaintiff was possessed of something which had monetary value, and of which he was deprived by the defendant’s breach of contract”

• In Chaplin what was of monetary value was the right to belong to a limited class of competitors (even though it was not transferrable, if it could have been, it can be valued)

  • Here the injury was deprivation of the right to train and race the horse and make whatever profit in doing so

  • This is not a right without monetary value – in Chaplin the right wasn’t even paid for, here it was

  • This calculation is not on the basis of how much profit he would have made from the horse but rather how much his chance of making profit, by having the use of the horse, was worth in money

Johnson v Perez; Creed v Perez (1988) 166 CLR 351

Relevant Facts: The respondent sued two firms of solicitors, (the appellants) for negligence in failure to prosecute two actions against two employers. The actions were dismissed because of being barred by statute. It was accepted that they would have succeeded.

Ratio (Mason CJ):

Principle:

• When a court assesses damages it converts the value of the injury into nominal terms – liquidating the value. This avoids the task of inquiring into the value of the goods over time and is necessary for the stability of economic-legal relationships

• The date of assessment determines which party bears the risk – if an earlier date is used in an inflationary economy the plaintiff’s position is eroded while if a later date is used the defendant’s is

• The general rule is that damages are assessed at the date of breach but this is not universal and must give way to solutions best adapted to giving the injured plaintiff damages that will most fairly compensate the wrong suffered.

  • E.g....