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LAWS5006

Torts & Contracts II

Topic 1: Introduction

TORT AND CONTRACTUAL LIABILITIES AND REMEDIES IN VARIOUS CONTEXTS

Where there is concurrently an action for damages in contract and tort, damages will be

assessed on the more favourable test (Parsons v Ingham)

Tort

Tort = civil wrong

- Many different types; some with common features (e.g. relate to property, intention)

- Some torts actionable per se (i.e. trespass), for other torts damage is the gist of the action

(i.e. negligence)

Seek compensation for the invasion of a protected interest

- Focus of the law is to compensate someone for the injury suffered

Unliquidated claims

Conduct of party (intentional or negligent) important

Contract

Seek compensation when one’s interest in the performance of a K remains unsatisfied

- Focus of the law is to protect promises

- Damages available even when there is no loss

Generally specified sums of money claimed

- Single process for identifying damages:

Identify if there is a K (offer and acceptance, terms, parties, performance) – LAW OF

CONTRACT

If K not performed, remedy always awarded (in the form of damages)

Conduct of party irrelevant

Enforcing the contract/suing on the contract = suing for breach

Sometimes instead of enforcing contract, you set it aside due to presence of vitiating factors

- Remedies:

Rescission

K is made void

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Restitution

Restoration of benefits unintentionally conferred by one person on another OR prevention of

unjustified enrichment of one at the expense of the other

Contract vs tort

Contract = voluntary set of obligations that applies very specifically to the parties of the K

Tort law = imposed upon people and of general application

Increasingly there is an overlap between tort and contract

Things like consumer guarantees disputes premise that contracts apply specifically to certain

parties – implied terms/standards are imposed broadly

Additionally, sometimes people can voluntarily enter into tortious relationships (e.g. duty of

lawyer to exercise reasonable care towards client)

Concurrent and coextensive liability in tort and contract

The same act/wrongdoing both a breach of K and a tort concurrent liability

If scope of wrongdoing in both areas is equal coextensively liability

Issues arise w/ regards to contributory negligence

Considerations for choosing a cause of action

1. Fault

- Tort: some causes of action require specific fault elements (intention, recklessness,

negligence); can be very difficult to establish

- Contract: fault requirements different for strict liability standard and reasonable care

standards of duty

2. Remedies

- Sue in the more valuable cause of action

- Damages always compensatory

Contract: only recover damages for actual loss suffered

No option of injunction (but could argue repudiation)

Tort: also compensatory, but can additionally get aggravated/exemplary damages

If tort is ongoing, can get an injunction

- The way that damages are calculated different for tort and contract

Contract: damages seek to put P in position they would have been had K been

performed

Tort: damages put P in position they would have been in had tort not been

committed

3. Remoteness

- Can be that the way remoteness is assessed is different in tort and contract

Tort: s 5D CLA

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What was in reasonable contemplation of both parties

4. Privity

- Dictates where contract claims lie

- Tort claims more broad

5. Limitation period

- 6 year period for tort and contract from time cause of action accrued

Tort: moment damage occurred

Contract: moment breach occurred

- Can be different times depending on facts

- May be that limitation has expired in contract but exists in tort or vice versa

6. Choice of law/jurisdiction

- May have cause of action in one jurisdiction but not in another

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Topic 2: Damages in contract

Overview of the topic

1. What are damages?

- Damages a type of remedy; a remedy is the law’s response to a legal wrong

- Other types of remedies:

Specific performance

Sought when CL damages are inadequate for compensation

Injunctions

Prohibitive – prevents someone from doing something

Mandatory –orders someone to do something; rare

Declaration

Of what a party’s rights are

- Judicial remedies

Have to go to court to get access to them (see above examples)

Judicial remedies can be coecive (court orders a party to do something; backed up

by an enforcement mechanism) or non-coecive (i.e. a declaration)

- Non-judicial (self-help) remedies

Termination - don’t have to go to court

Ejectment (of a trespasser)

- Monetary/pecuniary remedies

- Non-monetary/non-pecuniary remedies

Specific performance; injunction

- DAMAGES ARE A JUDICIIAL, COECIVE, MONETARY REMEDY

Damages for breach of K are a common law remedy

CL remedies are mandatory/automatic; equitable remedies are

discretionary (have to convince the court of their need)

Can get equitable damages in lieu of something like specific

performance

In contract law, damages the only remedy available (unlike tort law, equity)

Damages for breach of K available as a right

Where does the right to damages come from?

Either expressly provided in a K (e.g. ‘in the event of a breach,

parties have a right to damages’; an exclusion/limitation clause that

limits the right to damages; an agreed/liquidated damages sum that

stipulates that in the event of a breach, the defaulting party pays a

fixed sum), OR

Implied (see Photo Production v Securicor Transport) – because it is

a substituted secondary obligation

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The purpose of damages in contract law is only to compensate for the loss

Calculated according to actual loss suffered

Intention/malice on the part of defaulting party irrelevant

2. What type of legal wrongs give rise to damages?

- Identify that there has been a term of the K that has been breached

Pre-contractual statement (puff, representation, opinion) – sue for damages under

misleading and deceptive conduct, rescission under misrepresentation

vs

Actual term (a promise the truth of which is guaranteed by the promisor) – sue for

damages for breach

- Once you have identified there is a term, you must decipher whether it is promissory or

non-promissory

Promissory term = primary obligation

Can only sue for breach of these terms

Non-promissory term = mechanical provisions that aid understanding of the

promises – e.g. contingencies, definitions, exclusional liability provisions, agreed

damages clauses

If one of these terms is not fulfilled, you can argue that they affect the

primary obligation, and then you sue for breach of the primary term

- Once you have identified there is a promissory term that has been breached, next question

is whether there is a right to damages

NO REMEDY UNLESS THERE IS A RIGHT

1) Is there a K?

2) What are the terms?

3) Has there been performance/breach/repudiation?

Here is where you establish if there is a right

Question then becomes what the D’s liability is

Consider exclusion/limitation clauses

4) Damages

Unliquidated

3. Defendant’s liability

- Which of the P’s losses must the D pay for?

- Starting from the proposition that the aggrieved party has a right to damages, the court

considers the various heads of damages – categories of loss

- Extent of D’s liability governed by three principles:

1. P must have suffered an actual loss

2. Loss claimed must have been caused by the D’s breach (causation)

3. Any loss caused not too remote a consequence of the breach

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- If all criteria satisfied, then D must pay the amount the P is entitled to

4. Assessment of damages

- How much must be paid

5. Debt recovery/liquidated damages

A. CAUSATION AND REMOTENESS IN CONTRACT

Liability = loss, causation, remoteness

i. Loss

Requirements:

(1) There must be actual loss

- If not, you can receive nominal damages t o recognise the legal infraction (Luna Park v

Tramways Advertising)

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd

Principle(s):

- Where a P claims to have suffered loss or damage by reason of the D’s breach, the onus

of proving the extent of the loss or damage rests on the P

If there is no evidence of loss or damage occasioned by the breach, only a nominal sum is

awarded to indicate the ‘infraction of a legal right’

(2) The lost must have been suffered by the P and not a third party

- Third party beneficiaries under the K not in privity, cannot sue

- In any situation where the loss is not actually suffered by the P, the P will not be able to

recover

Alfred McAlpine Constructions Ltd v Panatown Ltd

Principle:

- The loss has to be suffered by the P

Facts:

- A, a building contractor, was employed by P to construct an office building and a car park

on land belonging to UIPL, an associated company of P. DoC deed between A and UIPL.

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Defects appeared in the building and P brought proceedings against A claiming

substantial damages.

Issue:

- Was A liable to P when P had no proprietary interest in the site and had suffered no

financial loss?

Essentially, could the principle of ‘transferred loss’ from Albarezzo apply?

Held:

- As UIPL had a direct remedy (as per in the DoC deed between A and UIPL), it could not be

argued that P's interest in the due performance of the contract had suffered. P had not

suffered substantial loss and was entitled to nominal damages only.

Reasoning:

- In circumstances where a K between a builder and an employer was for the construction

of a building on the land of a third party who would own that building, the employer

could seek substantial damages from the builder for any defects in the building only

where the third party actually suffering the loss had no direct remedy against that

builder.

- Where a direct remedy existed, such as in the form of a DoC deed, the employer would

be entitled to nominal damages only.

Itemise the losses suffered (e.g. loss of bargain, reliance loss etc.)

Each of the losses claimed must be an actual loss suffered by the P

ii. Causation

Requirements:

(1) The D must have caused each of the losses you are claiming for

- The test for causation will depend upon what type of term was breached

Promissory terms

1. Strict liability terms: party has promised a particular result (OUTCOME)

Breached by not providing the result promised

Does not matter why there has been a breach

Common law test of causation: apply Reg Glass and Cambridge Credit

(but-for test applied using common sense)

Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd

Principle(s):

- Common-sense approach to causation

Facts:

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- D installed security door to P’s premises. Purpose of the door was to provide security

from burglary. Shop was robbed through forcing open this door after 45 minutes of work.

Held:

- D’s breach of contract to provide burglar-proof protection was cause of P’s losses. Despite

the D not breaching any express term, there was implied term that door would be fit for

intended purpose that was breached.

*Alexander v Cambridge Credit Corp

Principle:

- McHugh J: the ‘but for’ test is a guide and not definitive or ultimate - common sense

decides causation really.

Beware: between cases, it’s hard to know what ‘common sense’ will be

- Breach must be a cause of the loss (i.e. a contributing cause/a necessary condition of the

loss)

This is a low threshold: it is not difficult to recognise that something is the cause

of the loss, so do not include every possible condition

There can be independent/concurrent causes

Facts:

- D was auditor of P (contractual relationship); negligent in filling out the reports and doing

its obligations under the contract several times. These breaches led to the company being

overvalued. If the D would have performed its obligations properly, the Board of Trustees

of the P would have realised the financial troubles (that it was trading insolvent) of the P

and closed down the company.

- Instead, the company continued trading for a couple more years and finally incurred a

massive debt. If the company stopped trading earlier (as it would have, but for the breach

by the D), it would have incurred only $10 million debt rather than the $155 million it is

now obligated to pay.

Held:

- No causation; P fails

- McHugh and Glass JJ: used common law (but-for and common sense) test but reached

different outcomes

Reasoning:

- The existence of a company is not the cause of its trading losses or profits - clearly other

factors are the causes (business and governmental decisions etc.)

- Furthermore, even if it was the cause, there were economic changes going on at the time

which served as intervening events (cutting off causation).

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2. Reasonable care terms: party has promised to exercise reasonable care in

achieving the particular result (PROCESS)

Does matter how performance was tendered and whether or not it is of

an appropriate standard (i.e. they cannot be negligent)

Apply s 5D CLA (but-for test)

Factual causation – that the D’s conduct was a necessary condition

of the harm

Applies to contract law because of definitions of ‘negligence’

(means failure to exercise reasonable care and skill) and ‘harm’

(includes economic loss) in s 5

s 5A: applies to a claim for damages ‘regardless of whether claim is

brought in tort or contract’

An ‘exceptional case’ where there are concurrent possible causes:

exercise your judgment – should they be found liable?

No equivalent in the common law test of causation

s 5D Civil Liability Act 2002 (NSW):

(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")

NB: the reality is that you are likely to end up with the same answer using either test

Novus actus interveniens

Can be an external event (e.g. Alexander v Cambridge Credit Corp – governmental policies

breaking the chain of causation between the auditors’ breach of K and the appellant’s loss)

Can also be an act of contributory negligence that supersedes harm caused by the D

Test:

- The act you are investigating must be an independent intervening act which can be treated

in a practical sense as the SOLE cause of the harm (Cambridge Credit Corp per McHugh J)

If you can prove there has been an intervening event, you (theoretically) do not have to deal with

remoteness – but you should do so anyway, to consider all angles

iii. Remoteness

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The idea that once you have identified the D as A cause of the loss, there could be a number of

losses flowing from the breach, and the court must decide what the D should be held

responsible for

Essentially premised on ‘fairness’; because the common law test of causation is so broad in its

scope

D’s liability for loss

A P can only recover damages if the loss suffered was not ‘remote’.

Remoteness KNOWLEDGE and PROBABILITY

KNOWLEDGE

Old test: the D will be liable for (Hadley v Baxendale):

1. A loss that ‘usually occurs’ as a consequence of that kind of breach - arising naturally,

reasonably foreseeable to anyone.

This is based on the presumed/imputed knowledge of the D - what was reasonably

foreseeable.

2. An unusual loss, which usually unforeseeable but the D's knowledge allowed him to

foresee.

This is based on the actual knowledge of the D of the facts or circumstances which

made this unusual/special loss likely

Obviously if the D did not have knowledge, the unusual loss will be remote and

unrecoverable – the D can’t be considered to have accepted responsibility for the

loss.

New test: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd

1. Categorise whether the loss is ‘usual’ or ‘unusual’

2. Identify the degree of knowledge of the circumstances possessed by the D at the time

Timing is important: relevant knowledge must have been possessed prior to entry

into the contract

They do not actually have to have contemplated the breach; or even the type of

breach

Have to have contemplated the type of loss and the manner in which it occurred;

not the extent of the loss

3. If it is a usual loss, minimal knowledge is needed – knowledge will be imputed by the court it

should have been in the reasonable contemplation of the D that this type of loss was likely,

based on the circumstances)

Look at subject matter of K, identity of parties etc.

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4. If it is an unusual loss, more specific/actual knowledge is necessary in order for the D to be

liable

PROBABILITY

Victoria Laundry: ‘reasonable foreseeable’ – no

Koufos: ‘not unlikely’ to result – yes

- At the time the parties entered into the K, they had to have reasonably contemplated that

the loss would be ‘not unlikely’ to occur

Thus:

- If the loss is unreasonable/unusual, they would not have contemplated it, and it is therefore

‘unlikely’

(a) What kind of loss is to be compensated?

*Hadley v Baxendale

Principle:

- The D is liable for loss which can “fairly and reasonably be considered,” at the time of

contract, as occurring “naturally, in the usual course of things”

- Where damage would not occur in the usual course of things, the D will only be liable for

‘extraordinary’ loss when, due to special knowledge, it was “reasonably supposed to be in

the contemplation of both parties” as the probable consequence of a breach

Facts:

- The P (millers) contracted with the D for D to deliver a broken crank shaft used by P in

their mills to an engineering firm to be used as the model for a new one. P told D that the

shaft had to be sent immediately and D promised to deliver it the next day. D was

unaware that the mill was unworkable without a new shaft.

- D delivered the shaft seven days after receiving it. P claimed D's negligence caused the

mill to be inoperable for an additional five days and sought damages covering the

resulting loss of profits and payment of wages.

Issue:

- Whether or not the D should be held responsible for P’s loss of profit?

Held:

- D was not liable for lost profits as they were merely carriers and the loss of profit was not

something B should have considered in the ordinary course of things

Reasoning:

- If there were special circumstances which had been communicated by one party to the

other, the damages resulting from the breach would be the amount as might have been

reasonably contemplated as flowing from such a breach in those circumstances.

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- If those circumstances were unknown to the party alleged to have breached the contract,

that party could only be supposed to have contemplated the amount of damages arising

generally from such a breach.

*Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (UK):

Principle:

- Affirms test from H v B

- Distinguishes between usual and unusual losses:

1. Usual losses are those that arise naturally or according to the usual course of

things. They are not considered remote.

They are losses which a party should have reasonably foreseen. Thus,

they are based on the presumed/imputed knowledge of the D.

2. Unusual losses are losses which do not arise naturally and thus are not reasonably

foreseeable. They are considered remote and a D will not be liable for them.

However, a D will be liable for extraordinary losses if it had particular or

specific knowledge that these losses are likely to occur in the case of a

breach. In the case of actual knowledge by the D of the special

circumstances, he will be liable for extraordinary losses.

Facts:

- A contract between the parties required the delivery of a boiler. D’s delivery was five

months late; as a result, the P’s business was hindered and he then lost a lucrative

cleaning contract.

Issue:

- Whether the Ps were entitled to claim in respect of the business profits which they would

have made had the boiler been delivered punctually

Held:

- P could claim damages for loss of profits, however could not claim damages for the

extraordinary loss of a specific government contract, as was too remote, despite P telling

D they would put the boiler to immediate use.

Reasoning:

- The loss the P suffered from being unable to enter the lucrative contract was not a

natural loss. Thus, it required the D to have actual knowledge of it before it could be held

liable.

- The D had no actual knowledge of the possibility of this contract, and could not have

reasonably foreseen that its breach would cause this loss. D therefore not liable.

Stuart v Condor Commercial Insulation:

Principle:

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- Where an unusual loss is seeking to be claimed, it must first be est. that D had actual

knowledge of the circumstances causing the loss. If proven that D had actual knowledge,

this establishes a presumption that they accept responsibility for the loss and is liable

- However, this presumption can be rebutted based on facts of the case; onus on D to do

so.

Facts:

- P was contracted to provide insulation services under a government program called

SANIP. Some of their services were outsourced to the D [Condor].

- The D did a poor job and a fire broke out. As a result, the P lost its contract with SANIP,

losing a lot of money. The P sought to recover damages from the D for the loss of the

contract with SANIP

- P based claim on second limb in Hadley v Baxendale – argued that in the special

circumstances known to the Ds, it might reasonably be supposed to have been in their

contemplation that the P might enter into such a contract and that if it did so, a breach of

K by the D was liable, and indeed likely, to put the P in breach of any such contract of

resale and would occasion loss or damage.

Held:

- Beazley J: “A defaulting party was liable under the second limb by way of damages for the

losses which, as at the date of the contract, the defaulting party was on notice might be

occasioned by a breach so that it might fairly be held that when entering into the contract

the non-defaulting party had accepted such risk”

Thus if the D had actual knowledge, there is a presumption that they accept

responsibility for the loss and is liable

- However, in this case, K price was too low – can imply from low K price that D had not

accepted the risk of that loss

- Additionally, the way the work was to be done left ultimate supervisory responsibility to

the P

- Also probability element not satisfied – fire unlikely to occur as insulation material

designed to be inflammable; thus improbable that there would be risk to govt K

Transfield Shipping Inc v Mercator Shipping Inc (UK):

Principle:

- A D will not be liable for a loss that arose because of the combination of several

circumstances which were peculiar to the P

Facts:

- T chartered the boat Achilles and agreed to deliver it to its owners, M, by 2nd May. The

boat was delivered late, causing M a loss of profit as they had to renegotiate the daily

rate for a subsequent charter. M attempted to claim for difference between the old and

new rate for the entire subsequent charter contract.

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Held:

- T only had to pay the market value for the 6 days they were late

Reasoning:

- The loss was not of a ‘type’ for which the contract breaker ought fairly be taken to have

accepted responsibility

- T should have known that M would enter into a subsequent contract, but was not

reasonably expected to know they would have to renegotiate the daily rate when they

delivered the boat late

Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd:

Principle:

Facts:

- S bought a semi-rural property, traversed by a road by which neighbours were able to

access their land from a public road. Prior to purchase, S sought to negotiate with the

neighbours to change the location of a road across the property; a surveyor prepared a

plan for a new right of way, but prior to registration, the surveyor altered the plan

without the agreement or knowledge of either the respondent or the benefiting

neighbours.

- S incurred costs in relocating the registered right of way and reconstructing in part the

roadway; sought to recover these costs + those incurred from litigation.

Issue:

Held:

Reasoning:

(b) ‘Foreseeability’

*Koufos v Czarnikow Ltd (UK):

Principle:

- Foreseeable damage = damage was “not unlikely” to result

Contract test is narrower than the tort test of reasonable foreseeability, however

it does not need to be more probable than not (not more than 50%) i.e. “not

unlikely’’

Therefore P must prove greater degree of foresight by D

Facts:

- Ship carrying sugar deviated from agreed course and was 9 days late on 20 day route. P

lost partial part of sale value. Sued ship owner.

Held:

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- Ds were held liable for the P’s lost profits as their decision to deviate their ship from its

course meant the sugar delivery was 10 days late and the P lost when sugar prices fell

Reasoning:

- Owner did not know specifically that sugar would be sold, but court held that it was “not

unlikely” that if the ship was late then the P would have lost money on resale of goods

- The H v B test takes into consideration the D’s occupation, experience etc. (the Ds were

sugar merchants and knew that there was a sugar market in Basrah)

*H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd (UK):

Principle:

- So long as you can generally anticipate the breach, you are liable for the full extent of the

loss

- Where parties contemplate the type of consequence which may follow a breach of K,

they will be liable for specific damage of that type, even where the specific damage was

not foreseeable

Facts:

- Poorly installed pigfeed hopper (with ventilators closed by accident) by the D led to E Coli

infection and dead pigs.

Held:

- The D although not predicting e coli, should have been aware that damages of that

general type of damage could have arisen, and therefore was liable (i.e. not whether the

hopper would lead to e coli, but whether a hopper unfit for its purpose would be ‘not

unlikely’ to lead to sickness of the pigs)

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B. MEASURE OF DAMAGES IN CONTRACT

Damages – key principles

1. Damages for contract law are compensatory

- Only receive the amount that represents the actual loss suffered

- Principle for assessing damages (Robinson v Harman):

“The rule of the CL when assessing damages is that where a party sustains a loss by

reason of a breach of K, he is so far as money can do it to be paced in the same

situation with respect to damages as if the K had been performed”

- Essentially you are seeking to put the P in the same position he would have been in had the

K been performed

Thus you need to work out the value of the K to the P (can be different to what the

value of the K is to the D)

Contract price can be diff to market price

2. P has a duty not to act unreasonably

- Has to try to take reasonable steps to mitigate loss

3. The P cannot recover any more than he is entitled to

- This manifests in the principle against double recovery (you can’t count the same loss twice)

Main types of damages

1. Expectation damages

2. Reliance damages

3. Restitutionary damages

- All types seek to compensate a P for his loss

i. Expectation Damages

Most common form of damages

Expectation damages attempt to place the P in the same situation as if the contract had been

performed – they compensate the aggrieved party for the benefit that it would have gained had

the contract been performed properly

- Based on premise that when you make a K you expect to receive something of value

- Thus, any difference between what you expect to receive and what you actually receive is

an expectation loss

Loss of bargain = difference in value of what was promised and the thing itself

- Can apply to Ks for sale of goods and Ks for services

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Prima facie rules for calculating expectation loss: difference between value of what you received

and market price.

The basic rules are:

Sale of Goods Act 1923 (NSW)

Section 40 – Liability of buyer for neglecting or refusing delivery of goods

When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and

the buyer does not within a reasonable time after such request take delivery of the goods, the buyer

is liable to the seller for any loss occasioned by the buyer’s neglect or refusal to take delivery, and also

for a reasonable charge for the care and custody of the goods:

Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of

the buyer to take delivery amounts to a repudiation of the contract.

Section 52 – Damages for non-acceptance

(2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary

course of events from the buyer’s breach of K (REMOTENESS)

If you’ve suffered extra (usual) losses not covered by prima facie rule, can recover under

this provision

(3) “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 price at the time

when the goods ought to have been accepted”

i.e. what you were promised by the buyer and what you can sell for

Section 53 – Damages for non-delivery

(2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary

course of events from the buyer’s breach of K (REMOTENESS)

(3) The measure 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.

Section 54 – Remedy for breach of warranty

(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to

treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by

reason only of such breach of warranty entitled to reject the goods, but the buyer may:

(a) set up against the seller the breach of warranty in diminution or extinction of the price, or