Assessment of Damages

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Assessment of Damages

The general rule is that where a party sustains a loss by reason of a breach of contract, the party is, so far as money can do it, to be placed in the same position as if the contract had been performed. Robinson v Harman.

There are 2 primary methods of assessing the damages suffered by the plaintiff:

  1. Expectation Loss

  2. Reliance Loss

Expectation Loss

Expectation loss is the value of the expectancy which the promise created. This can be compensated in a suit for specific performance or by making the guilty party pay the money value of the promise.

Loss of Profit or Value

The measure of loss for a breach of contract will be the difference between the contract price and the value of the subject matter of the contract at the date of breach.

Loss of an opportunity

Damages are recoverable for lost opportunity: Commonwealth v Amman Aviation Pty Ltd. A lost commercial advantage or opportunity was compensable loss, even though there if there is less than 50 per cent likelihood that the commercial advantage would have been realized: Commonwealth v Amman Aviation Pty Ltd.

Cost of Rectification of Defective Work (buildings)

There are two competing measures of damage: the cost of rectification of the defect and the loss in value of property.

In deciding which measure of damage to apply, the test is the reasonableness of the plaintiff’s desire to reinstate the property.
However, if the cost of remedying the defect was disproportionate to the end to be attained, the damages fall to be measured by the value of the building had it been built as required by the contract, less its value as it stands. Where the reinstatement presents no particular problem, the cost of reinstatement will be the obvious measure of damages, even where there is little or no difference in value or where the difference in value is hard to assess.
Adopted by the High Court in Bellgrove v Eldridge.
Delay in the payment of money

Damages are recoverable for delay in payment of money or where the breach of contract results in money being withheld from the plaintiff or the plaintiff paying away money: Hungerfords v Walker.

Recovery for mental distress

Generally speaking, damages are not recoverable for injured feelings: Addis v Gramophone. In Baltic Shipping v Dillon the High Court recognized three exceptions to this:

  1. Where the plaintiff ahs suffered personal injury: Godley v Perry, Burton & Sons;

  2. where the plaintiff has suffered actual physical discomfort and inconvenience: Hobbs v London & South Western Railway Co; or

  3. where an object of the contract is the provision of pleasure and enjoyment or freedom from mental distress: Jarvis v Swann Tours.

Reliance Loss

Reliance loss is where one party in reliance on the promise of another expends money. As a general rule damages may be recoverable on the basis of reliance loss where:

  1. there is no way of quantifying the expectation loss; or

  2. no profit will be made on the contract

Recovery of damages on the basis of reliance loss is not available if the defendant can prove the plaintiff had entered into a losing contract and would not have been able to recoup the expenditure even if the defendant had performed all his/her obligations.

No profit will be made

A plaintiff who did not expect to make a profit but was not going to make a loss will be able to recover wasted expenditure: The Commonwealth v Amann Aviation Pty Ltd. The amount of loss recoverable can only be reduced if it was proved that the plaintiff had entered a losing contract – the plaintiff should only recover the wasted expenditure they would have recovered, had the contract been performed.

The onus of proof is on the defendant – if the defendant fails to prove it was a loosing contract, all wasted expenditure will be recoverable: The commonwealth v Amann Aviation Pty Ltd.
No way to quantify

If there is no way to quantify expectation loss and reliance loss if the only means to determine suffered as a result of the breach, wasted expenditure will be recoverable: McRae v Commonwealth Disposals Commission.

Recovery of Expectation and Reliance Loss

It has been suggested that a plaintiff cannot claim both expectation and reliance loss as this would create a double recovery: Anglia TV v Reed. Reliance loss and expenditure loss are recoverable in the same action where the lost expenditure forms part of the profit expected to be made on the contract, eg where a contract is terminated when a building contractor has finished half a building for which the contract price is $200 000, expenditure is $60 000 and expected profit is $80 000, the contractor may recover:

  1. expenditure actually made in performing or preparing to perform ($60 000); and

  2. the profit which would have been made on the whole contract ($80 000).

Net Loss Only Recoverable

In awarding recovery of reliance or expectation losses, double compensation is to be avoided. As a result the court must take account of the following:

  • The value of any asset in the hands of the plaintiff must be accounted for, eg If X has contracted for a chattel worth $20 000 and receives a defective chattel account must be taken of the residual value of the chattel in the hands of X.

  • Where the plaintiff is to perform services under a contract account must be taken of the expenditure in the course of the contract, eg X contracts to construct a house for $100 000 and it will cost $80 000 to perform the contract. The profit is $20 000. If the contract is terminated prior to commencement of work, X is only entitled to $20 000 (difference between contract price and cost of performance) the net loss and not $100 000.

  • Where the plaintiff purchases a machine for the purposes of making profit and a warranty concerning performance of the machine is breached, it will be necessary to account for the residual value of the (if any) machine when calculating loss, eg X puchases a machine from Y for $10 000 and expects to make $20 000 net profit through use. If the machine is worthless, X will receive $20 000 in damages (TC Industrial Plant v Robert’s Queensland. If the machine has some residual value, this must be taken into account (Cullinane v British ‘Rema’ Manuffacturing Co).

  • If the plaintiff is claiming lost profit on a further sale future saved costs must also be accounted for eg X agrees to purchase land from Y and then sell the land to P. If Y fails to complete the sale, X must account for any costs of resale.

Date of Assessment

Generally, damages are assessed at the date of breach. However, they may be assessed at the date of judgment if it is necessary to give appropriate compensation: Johnson v Perez.

Generally, the court will assess the measure of damages in light of those events which have occurred to the date of breach, including the market values at the date and whether the loss is capable of mitigation. Generally, damages which occur after this date are irrelevant.
Loss occurring after the breach will be recoverable eg lost income acquired after breach caused by the breach: Wenham v Ella.
Anticipatory Breach

Applying the rule that damages will be assessed at the date of breach, in the case of anticipatory breach, there are two possible dates:

  1. the date of termination by the innocent party; or

  2. the date of performance in the normal course.

Generally, calculation will take place form the date of performance in the normal course.
In contracts for the sale of goods and land, the value of the goods or land is assessed at the date performance was due: Hoffman v Cali.

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