Contract B Case Analysis Essay 3 PDF

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Introduction Alan has suffered loss and damages as a result of breach of the contract by john. Upon breach of the contract Alan might be able to claim for expectation damages which can compensate him for the loss of the benefit he expected to gain from the performance of the contract. In addition, expectation damages could include the loss of the profit, the cost of harvester repair and employing Zac. However, Alan might have difficulty to recover damages for all the losses he has suffered as the defendant might argue some of the losses may be seen as too remote a consequence of the breach of contract to be compensable by him. This paper aims to discuss and examine why Alan can claim expectation damages and not reliance damages. Also, to examine how far Alan can claim for all losses and which of these losses arising naturally out of the breach of the contract. The Rights to Damages According to facts of the case, there is an enforceable contract between Alan and James. However, James, the defendant was fail to perform his obligation as required under the agreement by providing a harvester machine in a condition that could harvests half an acre per four hours. This was essential term of the written contract between Alan and James. Alan as a plaintiff would not entered to the contract if James did not assure him that he had the perfect machine for Alan.1 James failed to provide such a harvester machine and this gives rise to an action for damages. The general rule in regards to damages in contract has set out in Robinson v Harman,2 which stated “.... 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”.3 This statement has been accepted and applied in Australian court.4 The damages which caused by breach of contract are compensatory and there are three measures of damages that can be recovered. These damages are expectation, reliance and damages for loss of chance.5 Reliance damages return Alan to the financial state, equal to what he had been prior to the contract.6 In this case Alan purchased a second hand harvester machine for $40,000 and he 1

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 633 at 641-642

2

1848) 1 Ex 850.

3

Ibid at 855.

4

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012) 709. 5

Ibid.

6

Ibid.

has lost this money as James breached the contract by providing a non-working machine. Reliance damages can only protect Alan’s reliance investment which is $40,000 the cost for harvester machine.7 A good example for reliance damages is the case of Commonwealth of Australia v Amann Aviation Pty Ltd,8 where the court awarded for his pre-performance reliance on the contract and not future earning because it was difficult for court to quantify future earnings.9 Another example is the case of McRae v Commonwealth Disposals Commission10, where the court stated it is not possible to measure the value of nonexistence object. Since there was no oil tanker and it was impossible for court to assess the expected benefit from a standard oil tanker which did not exist. Therefore, the court measured damages in reliance and awarded all expenditure which the plaintiff spent upon reliance on the defendant’s promise. However, unlike reliance damage cases Alan can establish the value of the benefit that he would have gained if the contract was performed by James. Expectation damages Expectation damages can place Alan in the position he would have been if James had performed his promise under the contract.11 In addition, expectation damages might award Alan the profit or benefit he has expected to receive from the contract with James. In order to establish whether or not Alan can claim expectation damages for the losses of expecting under the contract first Alan needs to identify and prove that he has suffered a loss as a result of the James’s conduct. According to the facts of the case, James provided a harvester machine which was not able even to start working. The condition of harvester was far from what the parties agreed in the written contract and Alan had to pay $10,000 to repair the machine and to start the grape harvest few days later from his plan on 20th March.12 The cost of repair is reasonable according to the judgment of Bellgrove v Eldridge13 where the judges agreed that the builder did not perform his responsibility and cost of demolition was reasonable.14

7

Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64.

8

(1991) 174 CLR 64.

9

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012) 710. 10

(1951) 84 CLR 377.

11

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012) 734. 12

Johnson v Perez (1988) 166 CLR 351.

13

(1954) 90 CLR 613.

14

Bellgrove v Eldridge (1954) 90 CLR 613, Dixon CJ, Webb & Taylor JJ at 617.

All these consequences had damages for Alan and damages measured by taking the market price of grapes. According to the facts of the case, Alan has six-acre crop of grapes this year and last year he earned a net profit of $5000 per acre. This year Alan was able to harvest only two acres and 4 acres of grapes were unusable due to fire smoke. Therefore, given the market price of the grapes, Alan would have had 20,000 profit for 4 acres if James did not breach the contract. additionally, Alan paid $8000 to Zac who could harvested two acres before the bushfire cause damage to the grapes. Therefore, in total Alan received 38,000 damages due to breach of contract by James. Causation In order the court award damages, Alan also must prove his losses caused by the breach of contract. According to the judgment of High Court in March v E & MH Stramare Pty Ltd,15 the question of causation should be determined in a “common sense” way.16 Which would be used in circumstance where the case raise difficulties due to antecedent and multiple causes.17 Mostly in torts cases such as Bennett v Minister for Community Welfare,18and Medlin v State Government Insurance Commission.19 The principles of common sense also applied in contract law. In Alexander v Cambridge Credit Corp Ltd,20 the court affirmed that the “but for” test is a leading test but it can also produce unsatisfactory outcome.21 In that case, the appeal court found out that while the 1971 audit had been careless, this was not the cause of the loss suffered by the corporation in 1974.22 Additionally, the court found out that the collapse of the property market broke the chian of causation and the loss was too remote from negligent act.23 McHugh JA held that “...to establish a causal connection between a breach of contract and the damage which the plaintiff has suffered, he needs only to show that the breach was a cause of the loss. This is to be decided by the application of common sense principles. In general, the application of the “but for” test will be sufficient to prove the necessary causal connection. But that test is only a guide. The ultimate

15

(1991) 171 CLR 506.

16

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 522, 530.

17

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012) 766. 18

Bennett v Minister for Community Welfare (1992) 176 CLR 408.

19

Medlin v State Government Insurance Commission (1995) 182 CLR 1.

20

Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310.

21

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012) 765. 22

Ibid 766.

23

Ibid 767.

question is whether, as a matter of common sense, the relevant act or omission was a cause”.24 However, in this case the “but for” test would be sufficient to assessing whether or not the defendant’s breach, caused the loss to the plaintiff. As Alan’s case is similar to the case of Reg Glass Pty v Rivers Locking Systems Ltd,25 where the defendant had obligation under the contract to provide plaintiff a security door and locking system. Nevertheless, the defendant breached the contract by providing a door which was not reasonably fit for its purpose and plaintiff property was subsequently burgled. The court applied the “but for” test and held that if the defendant installed a door which was reasonably fit the plaintiff would not receive damages from burglary. Therefore, “but for” the defendant breach the loss occurred. In this case, James agreed to supply Alan with a harvester machine in a condition to “harvest efficiently without delay and at the rate of half an acre per four hours. On the hand the James provided a harvester machine which was not usable due to mechanic issues. Alan has to employ Zac a grape picker contractor as the machine did not work as he had to start picking the grapes immediately. Zac only was able to harvest two acres before the fire smoke damaged the other 4 acres’ grapes. Therefore, the damages including the bush fire smoke, the cost of repairing the harvester machine and employing Zac would not have occurred “but for” the defendant’s breach. The defendant might argue that the “but for” test should not apply in this case as there are multiple causes or intervening events such as bush fire.26 Accordingly the defendant might argue that the bush fire broke the chain of causation and he is not liable. However, Alan could respond to the defendant’s argument by saying that what was the condition in the contract? what was the promise? The defendant stated in the contract that he will provide a harvester machine which could harvests half an acre per four hours. Accordingly, if James did not breach the contract, Alan could start harvesting on 16th of March and by 8 hours of working each day he could harvest an acre every day. Alan had 6 acres and could finish it in 6 days on 21th of march before the bushfire cause damages on 22 of March. Therefore, the bushfire cannot break the chian of causation unlike the case of Alexander v Cambridge Credit Corp Ltd.27 Remoteness

24

Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310.

25

(1968) 120 CLR 516.

26

March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, at 516.

27

Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310.

Alan as a plaintiff must also demonstrate that the loss was not too remote. In Hadley v Baxendale28 the court specified the general test for remoteness. The test required that the loss which the plaintiff suffered should arising fairly, reasonably and naturally from breach of the contract. 29 Also, the test requires that the parties at the time of making the contract the probable result of the breach. In this case Alan told the defendant that the start date for harvesting should not be beyond the 17th March because the grapes fully ripened. Therefore, James had certain amount of knowledge at the time entered to the contract. Accordingly, it was reasonably foreseeable to James that in the ordinary circumstance of contract, Alan would not be able to harvests on the time he planned due to repairing the harvester machine. This type of damage is recognised as “first limb” according to the decision in Hadley v Baxendale.30 In addition, Alan should stablish that the defendant had knowledge about the special circumstance outside the ordinary course of contract which would give rise to additional damages. In this case the bushfire was the special circumstance which caused loss to Alan. The defendant might argue that he is not responsible for the damages that the bush fire caused to Alan as it was outside the ordinary circumstance of contract and was too remote. The defendant might support his argument by the case of C Czarnikow Ltd v Koufos31 where Lord Reid stated “the parties are not supposed to contemplate as grounds for the recovery of damage any type of loss or damage which on the knowledge available to the defendant would appear to him as only likely to occur in a small minority of cases”.32 However, Alan can argue that at the time they entered to the contract he provided this information to James that the “Bureau of Meteorology was predicting very dry conditions for the end of March which would have an impact on the crop”. Therefore, James knew because of the dry condition a bushfire or dry condition might cause extra damages to Alan if he would not start harvesting his grapes on 17th March. Accordingly, the defendant will be liable for extraordinary losses as Alan provided specific knowledge about the dry condition. It was reasonably foreseeable to the defendant that the bushfire or the consequence of the dry condition were likely to occur and damages Alan’s grapes if he could not start harvest on time.

Mitigation 28

(1854) 9 Ex 341.

29

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012)769. 30

31

32

(1854) 9 Ex 341. [1969] 1 AC 350. C Czarnikow Ltd v Koufos [1969] 1 AC 350, at 385.

Under the doctrine of mitigation, Alan should have used reasonable care to avoid the damages.33 The case of Burns v MAN Automotive (Aust) 34 is a good example where the plaintiff bought a prime mover and after one year realised it is not working. The defendant did not accept to fix the mover and the plaintiff because of his poor financial condition could not repair it. The plaintiff used the prime mover on state read until finally the engine broke down completely and he sue the defendant for damages. However, Gibbs CJ in his judgement held “It was not reasonable for him to carry on his business with the defective prime mover, once he knew that he was operating at a loss and should have known that he had no prospect of making a profit. As Connolly J. pointed out, this was not a case of a purchaser locked into a business; the appellant was under no compulsion to go on losing money”.35 Accordingly, in this case James the defendant might argue that Alan did not take all reasonable steps to mitigate the losses, if he had let James knew that the harvester machine is not working James would replace or repair it. However, Alan keep the harvester and used while the machine underpowered, damaging the vines and breaking some of them. Alan fails to take reasonable care and should not recover all the losses. On the other hand, Alan can respond that he took all reasonable steps to avoid loss. Firstly, He immediately called the mechanic to repair the harvester and he had tried to work with machine after the ignition switch replaced but still the harvester did not work. Secondly, he accepted to pay 10,000 for extra repairing that the harvester machine required and unlike the case of Burns v MAN Automotive (Aust)36 he did not keep working with machine. Thirdly, Alan took another reasonable step to avoid loss by employing Zac to harvest grapes as soon as possible. Therefore, Alan took all reasonable step to avoid loss and not increase loss. In addition, Alan decided to hold on their contract as it was the best way to minimise the losses.37 In doing so, he tried to repair the harvester and tried to work with it to prevent further losses because Alan knew he would lose even more time if he send back the machine to James. Instead he kept the harvester machine and asked an experienced mechanic to repair it. The case of Simonius Vischer & Co v Holt & Thompson38 is a good example where the plaintiff decided to hold on an excessive contract as the plaintiff thought that is the best way minimise losses. The court refused the defendant argument that the plaintiff should closed all contracts once they realised they were losing money and held “The

33

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Material (Thomson Reuters (Professional) Australia Limited, 12 ed, 2012)780. 34

(1986) 161 CLR 653.

35

(1986) 161 CLR 653 at (658).

36

Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653.

37

Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322

38

Ibid.

plaintiffs had to determine how they could best reduce the losses which had then accrued by reason of their large excess of sold contracts”.39 Conclusion In conclusion and according to the information provided above Alan may successfully claim for the losses he received from the breach of contract by James. Alan would not have entered to the contract if the defendant did not assure him that he has such a harvester machine. The damages including the harvester repair cost, the cost to employ Zac and the bushfire smoke damages to the grapes would not occur if the harvester machine worked in the condition that the parties agreed in the contract.

39

Ibid at 355....