LLB170 Lecture 7: Week 7 – Damages and Limitations
Week 7 – Damages and Limitations
Remedies for Breach of Contract
• Damages
• Liquidated damages
• Equitable relief – specific performance/injunctions
Damages: Limiting Factors
The plaintiff will be entitled to full compensation (applying Robinson v Harmon) for loss
suffered subject to the following limitations:
1. Causation
- P cannot recover damages for losses that were not caused by D’s breach of
contract
- The traditional 'but for' test: There would not have been a loss but for the
defendant’s breach?
▪ NO = breach considered cause of loss
▪ YES = loss would have occurred anyway
- Burden of proof is on P who must show, on balance of probabilities, the loss
complained of would not have occurred but for D’s breach (Luna Park v
Tramways)
- the 'but for' test being supplemented by a 'common sense' approach (March v
Stramare, Alexander v CC): 'as a matter of ordinary common sense and
experience' was D’s breach a cause of P’s loss?
- Novus actus interveniens – where there is a break in the chain of causation
between the defendant’s breach and the plaintiff’s loss – defendant wont be
liable for the loss
- See Reg Glass v Rivers Licking Systems (1968) 120 CLR 516
Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310
Facts
Alexander was the auditor of Cambridge. Alexander overstated the value of the assets of Cambridge Credit in
breach of their contractual duty of care (was negligent). If Alexander has performed the duties correctly, the
trustee for debenture holders would have put the company into receivership. Instead the company continued
trade for another 3 years and had incurred a massive debt and a loss of $145 million more than what would have
been lost if they had closed 3 years before. Cambridge claimed damages for this amount.
Held
The “but for” test would have been met, however, the majority of the New South Wales Court of Appeal rejected
this claim. McHugh JA: as a matter of “common sense”, the existence of a company could not be the cause of
subsequent trading losses – external economic factors broke the chain of causation between the negligence and
the losses and the losses were too remote
2. Remoteness
- Even if losses are caused by D’s breach, P cannot recover damages for losses
considered too remote (unforeseen) from D’s breach (Alexander v CC; Burns v
MAN)
- Identify the limits to which a defendant will not be held liable for losses caused
- General rule in Hadley v Baxendale: “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, that is, to the usual course of
things, from such 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”
- P can only recover damages for losses that fall within the two limbs of Hadley v
Baxendale:
1. losses that would 'arise naturally',
2. losses that would have been within the contemplation of the parties, at the
time they made the contract, as a probable result of the breach of it
Depends on the degree of knowledge possessed by the defendant
• “Whether the reasonable man in his position would have realised that such a loss
was sufficiently likely to result from the breach of contract” – C Czarnikow Ltd v
Koufos
• Sufficient that the parties contemplated the kind or type of loss or damage suffered
and that the event that gave rise to the loss would have appeared to the defendant
“as not unlikely to occur” – H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd
3. Mitigation
- Upon D’s breach of contract, P should take reasonable action to avoid or
minimise the loss s/he would otherwise suffer as a result of D’s breach (the
‘duty’ to mitigate)
- 3 rules (McGregor on Damages (18th ed, 2009) [236])
1. P cannot recover damages for losses caused by D’s breach if P could have
avoided them by taking reasonable action ('avoidable losses')
▪ What if P can’t take ‘reasonable action’ to avoid losses because it
cannot afford to? See Burns v MAN
▪ Onus is on D to show P has 'failed to mitigate' (British Westinghouse v
Underground Electric Railway)
2. P can recover damages for additional loss incurred in taking reasonable steps
to avoid loss (Simonius Vischer v Holt & Thompson [1979] (principles 551)
3. If loss was avoided P cannot sue ('avoided losses') (British Westinghouse)
(principles 551)
Avoidable Loss: Mitigating Action that Should Have Been Taken
• May not recover damages for breach of contract for losses that might have been
avoided if the plaintiff had taken reasonable steps to minimise that loss
• Not expected to take steps if they were unaware of the breach
• Failure to take steps may reduce the amount of damages to be rewarded
• The fact that a plaintiff cannot afford to take steps to reduce loss may still result in a
reduction of damages, through the principle of remoteness or mitigation where the
plaintiff’s failure to mitigate is held to be “unreasonable” in the circumstances
Mitigation and the Sale of Goods
• Sale of Goods Act assumes that where a contract for the sale of goods is breached,
the plaintiff will go into markets to reduce his or her losses
• I.e. where a seller breaches the contract by failing to deliver goods, the buyer is
expected to mitigate his or her loss by purchasing substitute goods. The buyers
damages will then represent the cost of those substitute goods
• Built into the ordinary measure of damages
• See Clark v Macourt (principles 553)
Burns v MAN Automotive (Aust) (1986) 161 CLR 653
Facts
Concerned a contract entered into in 1977. The seller agreed to sell a diesel prime mover to a finance company,
which would then hire the prime mover to Burns. The seller warranted that the engine of the prime mover had
been fully reconditioned. They knew that Burns intended to use the prime mover in a business of interstate
haulage. It was also found the seller should have known that Burns was not in affluent circumstances. The engine
had not been reconditioned which caused Burns considerable difficulty in the conduct of his business. In 1978 the
vehicle broke down and Burns became aware of the fact the engine hadn’t been reconditioned. Burns couldn’t
afford to put the engine to its warranted condition and the seller refused to do so. Burns couldn’t use it interstate
so used it on shorter distances. In 1979 it broke down again and was repossessed by the finance company.
Burns sued the seller for breach of warranty and claimed damages for earnings over a four-year period that would
have been expected if the mover had been reconditioned
Held
Majority held that Burns wasn’t entitled to damages for loss of earnings after July 1978.
Wilson, Deane and Dawson JJ: by July 1978 it should have been obvious that the machine should be repaired or
return to the seller
Gibbs CJ: Burns hadn’t done what was reasonable: “he knew he was operating at a loss and should have known
that he had no prospect of making profit”
Document Summary
Remedies for breach of contract: damages, liquidated damages, equitable relief specific performance/injunctions. The plaintiff will be entitled to full compensation (applying robinson v harmon) for loss suffered subject to the following limitations: causation. P cannot recover damages for losses that were not caused by d"s breach of contract. The traditional "but for" test: there would not have been a loss but for the defendant"s breach: no = breach considered cause of loss, yes = loss would have occurred anyway. Burden of proof is on p who must show, on balance of probabilities, the loss complained of would not have occurred but for d"s breach (luna park v. Tramways) the "but for" test being supplemented by a "common sense" approach (march v. Novus actus interveniens where there is a break in the chain of causation between the defendant"s breach and the plaintiff"s loss defendant wont be liable for the loss. See reg glass v rivers licking systems (1968) 120 clr 516.
