Torts & Contracts II

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 1

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 2

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 3

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 4

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 5

- 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. 6

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: 7

- 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). 8

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 9

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. 10

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. 11

- 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: 12

- 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. 13

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: 14

- 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) 15

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 16

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 17