Principle Governing the Recovery of Damages in Contract Law in Australia - Research Paper Example

Is the general rule contained in Hamlin ineffective as claimed by Judge Bingham when he stated that it was a rule ‘which rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages’ in contract law in Australia? Introduction Australia contract law provides, “that damages are not recoverable for anxiety, disappointment and distress in actions for breach of contract”.1 When breach of contract occurs, the law has several options available when arbitrating such a case and the judicial aim in this case is to make right a wrong that has already been done. This often requires putting the parties to the same position they would have been had the contract been performed. This is consistent with the logic behind damage provisions as we shall see which in general include protection of specific interests namely; expectation, reliance, restitution and indemnity among others.2 But there are exceptions to the rule above since under particular circumstances the same law does in fact provide for payment of damages due to disappointment and distress arising from breach of contract. So, are the rules applied in these exceptional circumstances consistent with the same principles that govern payment of damages in contract law, or are they at odds with these principals? This is the subject matter of this research paper. More specifically, this paper will investigate if the Hamlin rule in its current formulation is at odds with the fundamental principles of damage recovery as asserted by Justice Bingham in one of his notable case summations. The background to damages provisions for disappointment and distress One of the remedies available in breach of contract cases is entitlement to damages usually in form of monies should a court of law find basis for such payment under the given circumstances, and when payment of such damages is determined to promote equity and justice being sought by the plaintiff. Generally, in cases that involve breach of contract, the law provides for damages on four major grounds; expectation interest, restitution interest, reliance and indemnity interest.3 These reasons are summarized in law as follow; “to protect the expectation interest in that P has in the performance of the contract, to undo the harm which reliance on the D’s promise has caused P and to prevent unjust enrichment by the D”.4 In damages that involve disappointment and distress, the law has traditionally refused to award damages where the issue is breach of contract consistent with the rule contained in Hamlin.5 Besides this rule, other complexities such as impracticalities make it impossible for damages resulting from disappointment and distress to be awarded in cases involving breach of contract. Recent cases have tried to overcome this hurdle by developing new rules and exceptions to earlier rule contained in Hamlin and general principles governing provisions of damages in contract law. The implications of these modification, extensions or different perspectives to the Hamlin rule are what we shall be exploring in the following section of the paper to determine if it is consistent with the fundamental principles governing the same. The Hamlin rule: a rule at odd with the principles of damages provisions in contract law? In his summation notes in the case of the Watts v Morrow, 1991 Justice Bingham finally concluded that the concept of the Hamlin rule was in fact at odds with the general principles that govern damage recovery in contract law.6 In doing so, not only did the Judge set new precedent regarding damages recovery in breach of contract case where the issue was disappointment and distress of mind, but also raised serious contentions regarding the reliability of the Hamlin rule in providing guidance on the same. It is because of these inconsistencies that we undertake to investigate this assertion and analyse the application of this rule in as far as breach of contract cases are concerned. This as is evident in subsequent cases and in recently arbitrated cases remains unresolved issue that the courts in Australia have opted to skirt around rather than address. In essence, damages in breach of contract cases are meant to put the parties in the same position prospectively that they would have been had the contract been successfully performed; this is in fact the fundamental principle behind provision of general damages in contract law.7 The rule developed from the ruling made in the case of Hamlin v Great Northern Rly Co (1856) (Hamlin) was borne out of a need to align the objectives of the provisions of damages with the principles of arbitration applied in breach of contract cases such as the one listed above. Towards this end, the ruling in this case in order to limit damages arising from breach of contract to only practical applications provided that damages claimed on the basis of disappointment and distress should not be considered in breach of contract cases.8 As evidenced in the case of Hamlin9 provisions of damages under these circumstances are not only impractical but a legal minefield. This is because of three major reasons; (1) because, issues to do with disappointment and distress are impossible to compound if not determine, (2) because disappointment and distress are emotional feelings that are subjective in nature and (3) because provision of damages under this circumstances will not achieve the intended objectives for which damage provision was invented in breach of contract cases. Thus, since it is impossible to peg monetary estimations on disappointment and distress feelings, then it implies that any attempt to award damages on the same can only be based on presumptions. Under such conditions equity and fairness which are the cardinal rules in justice especially in contract law cannot be guaranteed.10 Also, since disappointment and distress are feelings that are subjective in nature, it means that it is extremely difficult even for the law to set any workable threshold for such feelings that can be adopted for purposes of arbitrating such cases. In any case, the courts risks opening floodgates to these forms of damages suits were it to set a precedent by awarding monetary damages for disappointment and distress arising out of breach of contracts. Additionally, the fundamental principle behind payment of damages from legal perspective is intended to make right a wrong that has been done by equalizing both the plaintiff and the defendant by putting them in similar position had the contract been done. This then means that payment of damages resulting from disappointment and distress serves no purpose at all towards this end. So, on this basis alone, we can conclude that the Hamlin rule in failing to provide for damages payable under this circumstance does not mean it is in conflict with the principles of law that govern damage provision, but rather is consistent with it. Finally, in contract law, the law already provides for recovery of a wide range of damages that might arise out of breach of contract cases; this means that plaintiffs even without invoking the right to damages caused by disappointment and distress already have various other forms of damages as options that they can successfully claim. Therefore, in order to ensure that plaintiff is not overcompensated, or the defendant over penalized, the law in this case rightly declines to provide for this particular form of damages. However, the original formulation of the Hamlin rule and even in its current form has inherent limitations that make its ineffective as reliable model of arbitrating cases in contract law where the issues are disappointment and distress of mind. This is because in its formulation the Hamlin rule made fatal assumptions and failed to consider breach of contract cases where the content of the contract itself has to do with provision of enjoyment, relaxation or even pleasure. To determine this, let us briefly discuss the application of the Hamlin rule in particular case scenarios. The Hamlin rule in exceptional circumstances: a case of conflict with principles of damages recovery or a case of limited application? In this section of the paper we shall discuss the application of the Hamlin rule in several particular circumstances involving breach of contract, which the law has since held that application to this rule, should not apply; these circumstances are what I refer herein as exceptional circumstances. In this section I will argue that the Hamlin rule in failing to provide for disappointment of mind damages in breach of contract cases does not necessarily mean that it is in conflict with principals of damage recovery, but rather, is because it is limited as a governing rule in its application. I will demonstrate this in the following discussion. So far we have established that for all purposes and intents, the Hamlin rule is indeed consistent with the principles of damages recovery in contract law in most circumstances since it provides for such recovery except where the issue is disappointment of mind.11 This raises the question of whether this rule is at odds with principals of damage recovery in contract law as claimed by Justice Bingham. The rule in Hadley v Baxendale (1854) also states damages are awarded for damage which, may fairly and reasonably be considered either arising naturally, i.e., according 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.12 If the circumstances of the ground for which damages (whichever the form of damage) are sought are as described above, then the law requires that such damages be awarded.13 This is also consistent with the Justice Bingham observation in the case of Watts v Morrow (1991), in which he concluded that damages should be provided where a contract is in clear breach of its deliverables previously agreed, or where the repercussions of breach gives rise to the opposite of what the contract agreed to perform.14 But Hamlin rule clearly departs from these two postulations, because it fails to provide for disappointment of mind damages apparently in all breach of contract cases, but this does not mean that other forms of damages cannot be claimed under the same circumstances. Thus, the conclusion that this rule is in conflict with fundamental principle of damages recovery is unfounded since it does not entirely deny awarding damages, but rather just this particular type of damage. Another way to explain this is that, a fact cannot be said to contradict another fact merely because it holds a different view. Another relevant case is Baltic Shipping Co v Dillon, (1993); indeed, in this case which happens to be the case where the validity of Hamlin rule was first challenged. The justices in their final ruling, although sidestepping tackling evaluation of the Hamlin rule, held that restitution damages which the plaintiff was also seeking should not be awarded where damages due to disappointment of mind have been awarded as this would be double recovery by the plaintiff.15 The implications of this observation by the justices is that even had the law barred the plaintiff from collecting this particular damage, other forms of damage, in this case restitution, would have served the same purpose, albeit not perfectly. Still, it was a form of damage which despite its limitations is provided under the Hamlin rule. In this particular example then, in my observation, the limitation of the Hamlin rule in awarding damages cannot be said to be in contradiction with the fundamental principles of damages recovery, but instead just what it is, “a simple matter of limitation”. In the case where the very nature of the contract itself in its provisions requires a party to such a contract to provide such deliverables such as enjoyment, relaxation and so on for instance. Failure to deliver such services will be considered breach of contract, which ideally should allow for recovery of disappointment of mind damages consistent with the rule in Hadley v Baxendale (1854). This hypothetical scenario leads us to ask the question, “if a party to an agreement promises to deliver such results, but fails, is that not breach of contract? Or more rightly as Justice Bingham expounded in his ruling “where the very object of a contract is to provide pleasure, relaxation and peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead”.16 Where breach of contract is the case, the law provide the most appropriate form of damage to the plaintiff consistent with the principles of damage recovery in breach of contract cases. Yet, this is exactly the case even based on the Hamlin rule. This is because application of the Hamlin rule in this same exact scenario will not imply that no damages will be considered entirely given that restitution damage is clearly available under the circumstances, but just that damages due to disappointment of mind will not be awarded. So in this case too, it is clear that the Hamlin rule consistent with the principles governing damage recovery provides for recovery of damages in one way or another. However, it is in the limitation of the Hamlin rule in failing to provide for damages recovery in certain circumstances such as this that makes it an ineffective rule despite its reliability on many other facets relating to arbitration of breach of contract cases as we have so far seen, but certainly not at odds with fundamental principles of damage recovery. Conclusion It is notable to mention that Justice Bingham despite having come to the conclusion previously mentioned in the case of Watts v Morrow [1991] did not expressly advocate for the review of the entire Hamlin rule, but merely provided exceptional circumstances under which the application of this rule should not be considered as we have seen. If anything, this only serves to further confirm the position of this paper argument which as I have so far demonstrated is that the Hamlin rule is indeed effective and reliable as a form of guidance on damages due to disappointment of mind arising from breach of contract cases, but only up to a point. After that it fails to provide workable guidelines for arbitration of such issues in particular cases as rightly pointed by Justice Bingham in his ruling and should not be considered. Additionally, presently the Hamlin rule is in fact still applicable as the guiding principle in most damages provision resulting from breach of contract cases. So in conclusion, based on the review of the Hamlin rule throughout this paper, it will appear that the facts of the matter is that this rule is not actually in conflict with the fundamental principals governing recovery of damages per se, but rather, is limited in its application of the same. Contrary to the observations made by Justice Bingham, the Hamlin rule is actually consistent with fundamental principles of damage recovery in all instances. Bibliography Benzvi, K, Contract Law 101 (Part IV): Breach of Contract and Remedies (2009) . Elias, S & Levinkind, S, Legal Research: How to Find & Understand the Law (Berkeley, 2005). Gibson, A., Rigby, S. and Tamsitt, G., Commercial Law: In Principle (Thomson Law Book Co, 2005) Meiners, R., Ringleb, A., & Edwards, F,The Legal Environment of Business (Thomson, 2006) Nickolas, J, Business Law (John Wiley and Sons, 2012). Sweeney, B., O’Reilley, J. & Coleman, A, Law in commerce fourth edition (Butterworths, 2010). Turner, C, Australian Commercial Law (Thomson Reuters, 2008) Yovel, J, Contract Law, Otto-graph.com (2008) . Read More