Power Point for Contract Damages

Presented by Laina Chan, Barrister
Nine Wentworth Chambers
22 November 2012

Overview
I. General approach to the assessment of
damages
II. The rule in Hadley v Baxendale[1854] 9
Exch 341 („Hadley v Baxendale‟)
a. Causation
b. Remoteness
III. How remote is too remote?
IV. Review of five recent Australian cases

I. General Approach to the
Assessment of Damages
 Object of an award of damages:
 to compensate the claimant for the losses
he has suffered which flow from the breach;
and
 to demonstrate the fact of infringement of
the claimant‟s contractual rights
See British Westinghouse Electric Co Ltd v Underground Electric
Rys Co of London [1912] AC 673 at 689 per Lord Haldane.

 Heads of damage:
 Pecuniary loss
 Non-pecuniary loss

 Starting point: The Compensatory Rule
 Robinson v Harman (1848) 1 EX 850 at
855 per Parke B
„The rule of the common law is, that where a party
sustains 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.‟

 The compensatory rule is limited by:
 the rule in Hadley v Baxendale
○ Causation
○ Remoteness
 Mitigation
 Past and prospective losses

 The common law generally enables the
claimant to recover two types of loss that
flows from a breach of contract:
 damages for loss of bargain (expectation loss);
and
 damages for expenditure incurred in reliance on
the contract (reliance loss)
 see Gates v City Mutual Life Assurance Society
Ltd (1986) 160 CLR 1 at 11-12 per Mason,
Wilson and Dawson JJ; Wingecarribee Shire
Council v Lehman Brothers Australia Ltd (in liq)
[2012] FCA 1028 at [989].

 Date for assessment
 General rule – date of breach: Golden Strait
Corporation v Nippon Yusen Kubishika Kaisha
(The Golden Victory) [2007] AC 353 at [15]
per Lord Scott.
 But this is not an invariable rule.
 Contracts for the sale of goods or land – date
when performance would have occurred
 Contract for services provided over time –
employment contracts, leases of land or
goods and time charterparties – date of
termination

 Basic Pecuniary Loss
 A contract may be breached by a transferor or
transferee of the benefit of the contract as a
result of:
○ Non-performance;
○ Delayed performance; or
○ Defective performance.
 Loss of bargain damages

 Consequential pecuniary loss is
comprised of three categories:
 Gains prevented by the breach, which
includes:
○ Loss of use and loss of profits;
○ Loss of future reputation;
○ Loss of service of relatives;
 Expenses caused by the breach; and
 Expenses rendered futile by the breach.

 Two methods of assessing pecuniary
loss:
1. Diminution in value
2. Costs of rectification

 Diminution in value:
the value to the promisee of the unperformed obligations of
the promisor relative to the contract price which the
promisee agreed to pay or provide: Dominion Coal Co Ltd v
Dominion Iron and Steel Co Ltd [1909] AC 293 at 311;
Lombard North Central Plc v Butterworth [1987] QB 527 at
535; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
at 260, 273; Foran v Wight (1989) 168 CLR 385 at 430.
 Breach by transferor
Damages = Market price – Contract price
 Breach by transferee
Damages = Contract price – Market price

 Costs of rectification:
 Bellgrove v Eldridge (1954) 90 CLR 613 –
ruling principle that the assessment of
contract damages at common law for
defective work in building contracts is on the
basis of the costs of rectification provided
rectification is:
○ necessary to produce conformity; and
○ a reasonable course to adopt.
 See also Tabcorp Holdings Ltd v Bowen
Investments Pty Ltd (2009) 236 CLR 272.

 An intention to rectify the defective work:
 may be one relevant factor when determining
whether an assessment of damages on the basis of
cost rectification is reasonable, but does not in itself
establish that the rectification work was unnecessary
or unreasonable: Westpoint Management Ltd v
Chocolate Factory Apartments Ltd (2007) NSWCA
253 at [51]; Scott Carver Pty Ltd v SAS Trustee
Corporation (2005) NSWCA 462; Director of War
Service Homes v Harris (1968) Qd R 275; De
Cesare v Deluxe Motors Pty Ltd (1997) 13 BCL 136.
 An intention to rectify ceases to be relevant
once a compensable loss has been
established as „the court is not concerned with
the use to which a plaintiff puts its damages‟:
Westpoint Management Ltd at [54].

 In assessing damages, it is also irrelevant whether or
not the owner has sold or given away the defective
works to a third party for no apparent diminution in
value as this does not affect the owner‟s accrued
rights to recover damages for the breach of contract:
Director of War Service Homes v Harris at 278-279.
 Therefore, where rectification is considered to be
unnecessary or unreasonable, damages are to be
assessed on the basis of diminution in value.
 Supervening events: see UI International Pty Ltd v
Interworks Architects Pty Ltd (2007) QCA 402;
Central Coast Leagues Ltd v Gosford City Council
(Unreported Gile CJ CommD, 9/6/98); Westpoint
Management at [59] – [61]; Cordon Investments Pty
Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
at [227] – [231].

II. The Rule in Hadley v Baxendale
 The rule in Hadley v Baxendaleacts as a
limitation on the compensatory rule in the
assessment of damages, and has two
arms.
 It was laid down by Alderson B at 354-355:
“We think the proper rule in such a case as the present is
this: where two parties have made a contract which one of
them has broken, the damages which the other party ought
to receive in respect of such breach of contract should be
such as 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.

Now, if the special circumstances under which the contract
was actually made were communicated by the claimants to
the defendants and thus known to both parties, the
damages resulting from the breach of such a contract,
which they would reasonably contemplate, would be the
amount of injury which would ordinarily follow from a
breach of contract under these special circumstances so
known and communicated.
But, on the other hand, if these special circumstances were
wholly unknown to the party breaking the contract, he, at
the most, would only be supposed to have had in his
contemplation the amount of injury which would arise
generally…”

 In other words, for damages to be recoverable, it must be
established that:
1) First, the loss suffered resulted from the breach (causation);
2) Second, that all losses suffered as a result of the breach of
contract arose naturally in the „usual course of things‟ („first arm‟ of
rule); and
3) Third, if relevant in the circumstances of the case, that the parties
had special or actual knowledge of specific consequential losses
resulting from the breach of contract („second arm‟ of rule).
 While the rule in Hadley v Baxendalehas often been referred to
as the test for remoteness, it is evident that the element of
causation is part of the rule, and precedes the question of
remoteness i.e. the two arms of the rule.

 Causation:
 There must be a causal link between the breach of
contract and the loss for which recovery is sought: Burns v
MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653.
 Causation is to be determined by applying the criteria of
common sense: March v Stramare Pty Ltd (1991) 171 CLR
506; Alexander v Cambridge Credit Corporation Ltd (1987)
9 NSWLR 310; Galoo Ltd v Bright Grahame Murray [1994]
1 WLR 1360 at 1374-5; Mallesons Stephen Jacques v
Trenorth Ltd [1999] 1 VR 727 at 734.
 The relevant breach must have materially caused or
contributed to the harm suffered: Chappel v Hart (1998)
195 CLR 232 at 238 and Henville v Walker (2001) 206
CLR 215 at 493. See also Galoo Ltd v Bright Grahame
Murray [1994] 1 WLR 1360 at 1374 where the phrase
“effective” or “dominant” cause of the loss was used in the
context of causation for breach of contract.

II. The Rule in Hadley v
Baxendale Causation continued:
 The “but for” test is not an exclusive or exhaustive intention of
causation but it is important as a negative criterion of causation:
March v Stramare(1991) 171 CLR 506 at 515-516 per Mason
CJ, 522-3 per Deane J, 524 per Toohey J and 525 per Gaudron
J; Bennett v Minister for Community Welfare (1992) 176 CLR
408.
 There is a distinction between whether the breach is a proximate
(material) cause of the loss and whether it merely afforded the
opportunity or occasion for the loss to occur: Galoo Ltd v Bright
Grahame Murray [1994] 1 WLR 1360 at 1374.
 The causal link between breach and loss can be severed by an
act or event subsequent to and independent of the breach. A
respondent‟s own conduct may be so unreasonable that it may
sever the causal link: Mallesons Stephen Jaques v Trenorth Ltd
[1999] 1 VR 727; Australian Medic-Care v Hamilton (2009) 261
ALR 501 at 583[364]; Arkin v Borchard Lines Ltd [2003] 2
Lloyds‟ Rep 225 at [537]; JonesvPersal&Company(afirm) [2000]
QCA 386 at [54].

 The rule in Hadley v Baxendalehas been
explained and restated in several
subsequent cases in the UK, namely:
 Victoria Laundry v Newman [1949] 2 KB 528
(„Victoria Laundry‟);
 C Czarnicow Ltd v Koufos (The Heron II)
[1969] 1 AC 350 („The Heron II‟); and
 TransfieldShipping Inc v Mercator Shipping
Inc (The Achilleas) [2009] 1 AC 61 („The
Achilleas‟).

 Remoteness:
 Loss will not be recoverable in contract if it is too remote and does
not fall within the first limb of Hadley v Baxendale. In The Heron II
at 385 (and approved in Australia by the High Court in Baltic
Shipping Co v Dillon (1993) 176 CLR 344 at 368) the principle
was stated in these terms:
“The crucial question is whether, on the information available to the appellant
when the contract was made, he should, or the reasonable man in his
position would, have realized that such loss was sufficiently likely to result
from the breach of contract to make it proper to hold that the loss flowed
naturally from the breach or that loss of that kind should have been within his
contemplation.”
 The test of remoteness in contract under the first limb of Hadley v
Baxendale involves not only a consideration as to whether the
claimant‟s loss is a loss of a kind which was within the
contemplation of reasonable persons, but also whether the
claimant himself has behaved with reasonable prudence or
reasonable common sense: Gould v Vaggelas (1985) 157 CLR
215 at 222-223 and 227-228 per Gibb CJ; Mann Judd (A Firm) v
Papers Sales Australia (WA) Pty Ltd (unreported, Western
Australia Court of Appeal, 25 September 1998, BC9805061);
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158.

 Remoteness continued:
 A loss is too remote in tort if it was not reasonably foreseeable
as likely to result from the breach either because of imputed
knowledge or because of a party‟s actual knowledge:
Commonwealth v Amman Pty Ltd (1991) 174 CLR 64 at 91 -
92.
 Loss of a commercial opportunity to effect a sale of the
property at a favourable time of the claimant‟s choosing may
be claimed and recovered in contract, tort or s 82 of the Trade
Practices Act 1974: Commonwealth v Amman Pty Ltd (supra)
or in tort: Sellars v Adelaide Petroleum NL (1994) 179 CLR
332.
 Loss of a commercial opportunity falls within the second limb of
Hadley v Baxendale(as expanded upon by Lord Reid and Lord
Upjohn in The Heron II at 385 and 421). That is, the
commercial opportunity (the “special circumstances”) must
reasonably be supposed to have been in the contemplation of
both parties at the time that the contract was made.

 Remoteness continued:
 In order to recover damages for loss of
opportunity, the claimant must establish that the
opportunity, as a matter of reality, had ever
existed and that it would have been pursued. It
is insufficient to show that the default of the
defendant prevented an asserted opportunity
being taken: Cadoks Pty Ltd v Wallace
Westley&Vigar Pty Ltd [2000] 2 VR 569 at 576.
 The issue of foreseeability must be considered
when a claim for damages for loss of a
commercial opportunity is brought in contract, or
tort or both: Cadoks Pty Ltd v Wallace
Westley&Vigar Pty Ltd [2000] 2 VR 569 at 576.

III. How Remote Is Too Remote?
 In determining whether a loss is too
remote or not, there are two important
questions to consider:
1) the degree of likelihood that the parties
would have reasonably contemplated that
the loss in question would have resulted
from the breach; and
2) the degree of knowledge required by the
parties for the loss in question to be not
too remote.

 Likelihood – Type of Loss v Extent of Loss
 In deciding whether the loss in question is too
remote, the court is not concerned with whether the
extent of the particular damage was within the
contemplation of the parties but with whether the
type of damage was within the parties‟
contemplation.
 Hence, as long as the loss can be regarded as a
general loss within the first arm of the Hadley v
Baxendalerule and not one tied to a particular
contract, recovery would be allowed even if the
degree of loss is unusual or exceptional: Wroth v
Tyler [1974] Ch 30; Brown v KMR Services [1995] 2
Lloyd‟s Rep 513.

 Knowledge – Actual v Imputed
 As Evans LJ rightly put in Kpohraror v Woolwich
Building Society [1996] 4 All ER 119 at 127g-128a, „the
starting point for any application of Hadley v
Baxendaleis the extent of the shared knowledge of
both parties when the contract was made.‟ Once the
shared knowledge is established, it may be
unnecessary to draw a distinction between the first
and second arm of the rule in the argument for
recovery.
 Where actual knowledge is required to impose liability
for particular losses i.e. to demonstrate that the loss
was not too remote, the defendant must have had that
knowledge at the time of entering into the contract.
Knowledge after this time is inadequate, although
before breach.

 Knowledge may be imputed if it is in „the ordinary course of
things‟, or if required to decide what the defendant should
have known so as to decide what he should have realised
would be not unlikely to result. This would bring the claim
within the first arm of the rule in Hadley v Baxendale.
 What knowledge is to be imputed to the defendant would
depend on the circumstances of each case, but there are
three factors assisting in the extent to which knowledge will be
imputed:
i. First, the business or profession of the contracting parties, and in
particular the claimant, may throw light on the knowledge to be
imputed.
ii. Second, where the defendant defaults in supplying a self-contained
profit-earning whole, the knowledge imputed may be greater than
where his default is in supplying part of that whole.
iii. Third, where the defendant defaults in supplying or accepting
goods, he will be taken to have contemplated that changes might
arise in the state of the market.

Power Point for Contract Damages

A. Gumland Property Holdings Pty Limited v Duffy
Bros Fruit Market (Campbelltown) Pty Limited and
Ors(2008) 234 CLR 237
 This case concerned the recoverability and assessment of loss of bargain damages in a claim
by a subsequent landlord as assignee of the reversion for the breach of the head lease.
 Among other issues, a relevant issue was whether loss of bargain damages was recoverable,
and how it was to be assessed.
Facts:
 A sub-lessee had remained in occupation of sublet premises without renewal of the sub-lease,
and was only paying half the payable rent.
 The landlord alleged that this constituted a breach of obligations owed under the head lease
by the head lessee and also of obligations under a deed supplementing and varying the head
lease.
 On these grounds, the landlord terminated the head lease and sought from the head lessee
and its guarantors:
 arrears of rent,
 loss of bargain damages for the remainder of the term of the head lease and
 costs of re-letting the premises.
 At first instance, the NSW Supreme Court held that the breach of deed clause 10.2 and lease
clause 3 entitled the landlord to terminate the head lease as the breach of lease clause 3 was
breach of an essential term. This breach of an essential term gave rise to loss of bargain
damages, and the landlord was awarded damages for the shortfall of rent, arrears of rent and
outgoings, loss of bargain damages and reinstatement damages.
 The Court of Appeal reversed this decision.

A. Gumland Property Holdings Pty Limited v Duffy
Bros Fruit Market (Campbelltown) Pty Limited and
Ors(2008) 234 CLR 237
HCA‟s Decision:
 The HCA unanimously reversed the Court of Appeal‟s decision and held that the sub-lessee‟s
default resulted in the breach by the head lessee of obligations under the deed and the head lease,
including the breach of an essential term of the head lease which entitled the lessor to terminate
the lease and recover loss of bargain damages.
 It is accepted that „under general contractual principles, an innocent promisee can terminate the
contract, and recover loss of bargain damages, where there is a repudiation, or a fundamental
breach, or a breach of condition – i.e. a breach of an essential term: at 259, [58].
 The breach of an essential term giving the right to terminate the lease carried a secondary right to
sue for loss of bargain damages. The benefit of all these rights „was annexed and incident to, and
liable to go with, the reversionary estate‟, as the covenant to pay rent touched and concerned the
land: at 262, [68].
 Therefore, although the landlord was not the original contracting party in the lease in question, the
existence of difficulty in the assessment of damages by reference to what was within the
contemplation of the original contracting parties did not pose a stumbling block to the assessment
of contract damages, as, by the operation of s 117(1) of the Conveyancing Act 1919, the landlord
was able to enforce the covenant to pay rent as the assignee of the reversion.
 As to the assessment of loss of bargain damages here, the Court provided the guidance that the
Court „simply compares the rent payable under the lease with that recovered or to be recovered
from any new lease, discounting to obtain present value‟: Gumland Holdings at 263-4, [72]

B. TabcorpHoldings Ltd v Bowen Investment Pty Ltd
(2009) 236 CLR 272
 This case concerned the measure of damages as a result of a breach of a
covenant under the lease.
 The main issue was whether damages in this instance were to be assessed
based on the diminution in value of the property (at first instance) or based on
the cost of reinstatement.
Facts:
 A lease contained a covenant by the tenant not to make or permit to be made
any substantial alteration or addition to the demised premises without the
written approval of the landlord first obtained (which was not to be
unreasonably withheld or delayed): clause 2.13.
 The tenant commenced work to alter and construct a new foyer without the
landlord‟s written consent. The tenant was fully aware that consent did not
exist.
 At first instance, judgment was given for the landlord, and damages were
assessed on the basis of the diminution in value of the property with the new
foyer.
 On appeal to the Full Federal Court, judgment was increased where damages
were assessed on the basis of reinstatement costs, taking into account the cost
of restoring the foyer to its original condition and for rent lost during the
restoration period.
 The tenant appealed to the High Court.

HCA‟s Decision:
 The High Court unanimously dismissed the appeal and held that
it was not unreasonable for damages in this case to be assessed
on the basis of the cost of reinstating the foyer to its original
condition.
 The Court held that in the present case, diminution in value
damages will not restore the innocent party to „the same situation,
with respect to damages, as if the contract had been performed.‟
This is so for several reasons.
 First, an important reason for this conclusion by the High Court was the
nature of clause 2.13 as an express negative covenant, which their
Honours saw as relevant in the assessment of damages for its breach. It
„serves a function of considerable practical utility in relation to the
landlord‟s capacity to protect its legitimate interest in preserving the
physical character of the premises leased‟: at 287, [14].
 Second, only damages assessed on the basis of the cost of
reinstatement would be able to provide the landlord with what it
contracted for and was entitled to under the lease: see Bellgrove v
Eldridge.
(2009) 236 CLR 272

 Third, assessment based on the costs of rectification in the
present case was held to satisfy the two qualifications to the
Bellgrove v Eldridge rule i.e. being „necessary to produce
conformity‟ and „reasonableness‟.
○ The Court held that applied to this case, the expression
„necessary to produce conformity‟ means „apt to bring about
conformity between the foyer as it would become after the
damages had been spent in rebuilding it and the foyer as it was
at the start of the lease‟: Tabcorp at 290, [19].
○ As for the requirement of reasonableness, the Court also
accepted that it did not mean that any excess over the amount
recoverable on a diminution in value was unreasonable: Tabcorp
at 290, [19].
○ The test of “unreasonableness” is only to be satisfied by fairly
exceptional circumstances… [and] aligns closely with what Oliver
J said in Radford v De Froberville, that is, that the diminution in
value measure of damages will only apply where the innocent
party is “merely using a technical breach to secure an
uncovenanted profit”: Tabcorp at 288, [17].
(2009) 236 CLR 272

C. Monaghan Surveyors Pty Ltd v Stratford Glen-Avon
Pty Ltd [2012] NSWCA 94
 This case concerned the application of the rule in Hadley v
Baxendalei.e. whether the damages claimed by the respondent
was too remote.
Facts:
 The respondent had purchased a property traversed by a right
of carriageway in 1997. This right of carriageway allowed the
occupants of neighbouring land access to a public road. The
neighbours had agreed to permit the respondent to move the
right of carriageway prior to purchase.
 The first appellant was engaged for a plan of the new right of
carriageway, and prior to its registration, the second appellant,
the principal of the first appellant, had altered the plan without
the agreement or knowledge of the respondent or the
neighbours, and the plan was subsequently registered.
 This resulted in disputation and litigation between the
respondent and the neighbours subsequently in February 2004
following discovery of the alterations, relating to the alteration of
the plans and the quality of the roadway.

 The respondent incurred losses as a result of the appellants‟
negligent breach of contract, being:
1) the surveying and legal expenses required to correct the title,
2) the costs of moving a retaining wall and fencing which encroached on
the right of carriageway,
3) the costs of the litigation in the Supreme Court between the
respondent and the neighbours, and
4) the loss resulting from the inability to sell the land while it was subject
to a caveat lodged by the neighbours.
 The respondent sought to recover these losses against the
appellants in the District Court, which held in the
respondent‟s favour. The appellants appealed the orders of
the District Court in the NSW Court of Appeal, conceding
liability only for losses (1) and (2) but not losses (3) and (4).
 The issue before the Court of Appeal was one of
remoteness i.e. whether losses (3) and (4) were too remote.

NSW Court of Appeal Decision
 In relation to the claim in contract, the Court of Appeal applied the
rule in Hadley v Baxendaleand unanimously allowed the appeal in
part.
 As the respondent had run the case based on a claim for economic
loss for a negligent breach of contract involving a failure to exercise
due care and skill instead of a loss of opportunity, Civil Liability Act
2002 (NSW), Pt 1A applied to the contract (and tort) claim.
 Accordingly, in the determination of whether the losses in question
were recoverable, the court had to apply s 5D, appearing under Div 3
„Causation‟ i.e. statutory test for causation.
 Section 5D(1) has been identified as establishing a two-stage test of
causation whereby what is described as „factual causation‟ is to be
addressed separately from „scope of liability‟: Adeels Palace Pty Ltd v
Moubarak 239 CLR 420 at [43].
 In applying the contractual test for causation and remoteness, it was
held that losses (1) and (2) were recoverable as one would
reasonably expect them to flow naturally from the breach of contract.

 In relation to the claim for loss (3), it was held that the legal costs incurred by the
respondent up to the point at which the full extent of the alterations was discovered
fell within the scope of the first appellant‟s liability for breach of contract which would
arise from the application of the rule in Hadley v Baxendale: at [92].
 However, it was not established that the ongoing litigation, after the extent of the
alterations was discovered, might reasonably have been in the contemplation of the
parties to the contract at the time it was made as the probable result of the breach in
question.
 It was held that liability for the expenses incurred by the respondent after February
2004 fall into a different category because „[t]he offers to compromise made by the
neighbours prior to that date demonstrated a willingness to end the litigation once the
agreement recorded in the original linen plan was effected. A dispute as to the
construction of the road was no part of the breach of contract by the first appellant‟: at
[94].
 Basten JA stated that the on-going litigation, after February 2004, „certainly would not
have been covered by an assessment of the usual course of things, within the first
limb of Hadley v Baxendale, nor did the trial judge make findings as to the specific
circumstances known to the appellants at the time of the contract which could have
given rise to an expectation, within the second limb‟: at [94].

 A challenge to a recovery of loss (4) was dismissed by
the Court of Appeal as the amount in issue was not
sufficient to warrant a retrial: at [108].
 Accordingly, the respondent was entitled to recover its
reasonable expenditure under the following heads:
 removal and replacement of the retaining wall and
fencing; costs of resurvey and preparation of a new
s 88B instrument and linen plan; registration
expenses; and
 cost of first Supreme Court proceedings up to
28 February 2004.

D. PowercorAustralia Ltd v Thomas [2012]
VSCA 87
 This case concerned an appeal to the Victorian Court of
Appeal regarding the assessment of damages in
relation to an individual who claimed for the cost of
reinstatement and repair of farm fixtures when the work
was carried out by the individual himself and volunteers.
 There was no issue with causation or remoteness of
damage here. The two main issues were with regards to
 the appropriate method of assessment of damages, and
 whether the respondent‟s and volunteers‟ labour should have
been disallowed in the assessment of damages.
 While the case was one in tort as a result of a negligent
breach of tortious duty, the principle applied in this case
with regards to the assessment of damages in relation
to property damage is similarly applicable to the
assessment of damages in a case of a negligent breach
of contractual duty.

Facts:
 The respondent owned a farm which suffered significant damage
as a result of a bushfire caused by the negligence of the appellant
power company.
 A group proceeding was brought under pt 4A of the Supreme Court
Act1986(Vic) against the appellant on behalf of those whose
property was damaged by the fire. The claim alleged breach of
statutory duties and common law duties of care, and in the further
alternative nuisance: at [6].
 At first instance, Forrest J held that the respondent could claim for
the cost of reinstatement and repair of farm fixtures (fences, sheds
and stockyards) carried out by the respondent himself and
volunteers.
 The appellant appealed on the basis that the Victorian Supreme
Court had erred in deciding that the appropriate method of
assessment was the reasonable commercial cost of repairing or
reinstating items, and that the work performed by the respondent
or volunteers should have been disallowed.
VSCA 87

Victorian Court of Appeal Decision
 The Court of Appeal unanimously dismissed
the appeal and affirmed that the basis for
assessment of damages with respect to items
used in the farming enterprise and damaged
or destroyed by the fire was the reasonable
commercial cost of repairing or reinstating the
damaged fixtures: at [73].
 Further, it was held that the work performed by
the respondent himself and the volunteers did
not preclude the respondent from recovering
damages: at [90]-[91].
VSCA 87

I. Appropriate method of assessment of damages – General
Principles
 In general, the measure of tortious damage to fixtures such as
fencing, sheds and stockyards is the reasonable commercial
cost of repairing and/or reinstating them: Powercorat [25];
Thomas v Powercor Australia Ltd [2011] VSC 586 at [35], [54].
 However, an exception is that where a reasonable substitute is
available for a price significantly less than the cost of repair, the
replacement cost is the measure of damages: Powercor[26];
Thomas v Powercor Australia Ltd [2011] VSC 586 at [35].
 The principle that the measure of this damage is ordinarily the
reasonable cost of repair, will ordinarily apply to fixtures unless
reinstatement is not practicable or sensible: Powercorat [27];
Thomas v Powercor Australia Ltd [2011] VSC 586 at [36];
Hollebone v Midhurst &Fernhurst Builders (1968) 1 Lloyd‟s Rep
38 applied in the context of a breach of contract claim in
Harbutt‟s Plasticine Ltd v Wayne Tank & Pump Company Ltd
[1970] 1 QB 447.
VSCA 87

 In general, it is appropriate in determining damages which are to be
awarded for the replacement of an item which is destroyed or damaged
beyond repair to allow the cost of a new replacement. If this leads to a
superior replacement, then allowance should be made for that
improvement if practicable. The onus of proving the level of
improvement lies with the defendant: Powercorat [28].
 Where the defendant contends that a replacement of the damaged or
destroyed item(s) with a substitute (other than a new replacement) is
practicable, then the defendant bears the onus to establish that:
○ a market exists for an available substitute; and
○ the cost of such a substitute can be obtained at less than the
replacement cost: at [28].
 Insofar as damage to fixtures upon land – as distinct from chattels – is
concerned, the case of Jones v Gooday(1841) 8 M&W 146 stands for
the general proposition that the cost of replacement or repair of fixtures
will not be the appropriate measure of damages if they are out of all
proportion to the injury to the claimant: Powercorat [29]. This case does
not stand for the general proposition that the normal measure of
damages is the amount of diminution of the value of the land upon
which the fixtures stand: see McGregor on Damages, 18 ed, at [34-003],
[34-004].
VSCA 87

 There is also authority to support the view that the costs of
reinstatement of fixtures will not be allowed where it is
clear that reinstatement is not contemplated: at [29] see
Hole & Son (Sayers Common) v Harrisons of
Thurnscoe(1973) 1 Lloyd‟s Rep 347; Taylor (Wholesale) v
Hepworths(1977) 1 WLR 659.
 Finally, as a general principle, a plaintiff who seeks to
recover damages must prove that he has suffered a loss,
but if property belonging to him has been damaged to an
extent which is proved and the court is satisfied that the
property has been or will be repaired I do not consider that
the court is further concerned with the question whether
the owner has had to pay for the repairs out of his own
pocket or whether the funds have come from some other
source: Jones v Stroud District Council [1988] 1 All ER 5 at
13-14 per Neill LJ; Powercorat [42]. The correctness of
Jones v Stroud District Council was affirmed in Burdis v
Livsey[2003] QB 36 at [95]-[96].
VSCA 87

 The damage here in question was a direct damage/loss to property i.e.
the destruction of the fences by fire without opportunity to mitigate that
damage. Therefore no relevant question of mitigation arises: at [49],
[56].
 Accordingly, applying the principles stated above, Osborn JA stated that
in the present case, the normal measure of damages is the reasonable
cost of repair or reinstatement of the damaged fixtures, and no issue of
mitigation bears on the relevant measure of direct loss: at [58].
 None of the exceptions apply because it is clear the restoration of such
fixtures is „essential to the continuing highest and best use of the land
and that the restoration has been or will be carried out.
 In line with Jones v Stroud District Council, Osborn JA did not accept
that the fact that a claimant undertakes or proposes to undertake
repairs himself or herself displaces the ordinary measure of loss
resulting from direct damage to chattels including fixtures: Powercorat
[59], [60].
 Further, the respondent‟s labour is not claimed by way of further
consequential loss; the claim was for direct damage to fixtures and the
measure of such damage is the cost of reinstatement of the destroyed
fixtures: at [62].
VSCA 87

II. Reinstatement of farm fixtures by volunteers
 In applying the relevant authorities, Osborn JA also affirmed the trial
judge‟s conclusion that repair works carried out by volunteers do not
preclude the respondent from recovering in respect of damage to the
fences and other farm fixtures.
 The most recent restatement of the fundamental principles applicable to
this issue was stated by the High Court in Zheng v Cai(2009) 239 CLR
446 at 453-454, [18] – [20]:
„… it is the policy of the law which informs the importance of the wishes of those providing
the benefaction.
This is apparent from the treatment of the subject by Windeyer J in Espagne [National
Insurance co of New Zealand v Espange (1961) 105 CLR 569 at 599-600 cited in
Redding v Lee (1983) 151 CLR 117]… voluntary gifts should not diminish damages
because “they are given for the benefit of the sufferer and not for the benefit of the
wrongdoer”.
The “intent” of the donor thus assumed great importance, but it was an intent of a
particular character, contrasting an intention to benefit the wrongdoer with an intention to
benefit the victim…
To that there may be added the observation by Professors Harper, James and Gray in
their treatise upon United States tort law:
“Often of course the intent was never even thought out by the donor, certainly not
expressed. In these cases of private generosity the best solution seems to be a rule of
thumb that would give greatest scope to the donor‟s generosity and to the adjustment of
moral obligations within the more or less intimate relationships that usually bring such
generosity into play. The gift should be disregarded in assessing damages.”‟
VSCA 87

 Accordingly, the „ultimate question‟ to be answered here
was whether the labour of the volunteers was a benefit
conferred on the respondent (Thomas) independently of any
right or redress against others and so that he might enjoy
the benefit even if he enforced the right: Redding v Lee
(1983) 151 CLR 117at 137 per Mason and Dawson
JJ;Zheng v Caiat 456, [29]; Powercorat [88].
 Osborn JA answered the „ultimate question‟ in the positive,
holding that consistent with the approach of the High Court,
„the gifts of voluntary labour received by Thomas should be
disregarded rom the assessment of damages‟: Powercorat
[89].
 There was further, no suggestion in the evidence that the
work done by volunteers was intended to benefit Powercor
and it is „inherently improbable that it was‟: Powercorat [87].
VSCA 87

E. St George Fertility Centre Pty Ltd v Clark
[2011] NSWSC 1276
 This case concerned the assessment of damages arising from a breach of
contract for the sale of donor sperm to a fertility clinic.
 The main question here was the appropriate method of assessing damages
for the loss occasioned from the sperm purchased being unusable as a result
of a failure to comply with certain warranties in the contract of sale, and the
quantum of damages.
Facts:
 In early 2002, Dr Clark, St George Facility and Dr Macourt executed a deed
whereby St George Facility and Dr Macourt were to sell Dr Clark assets
including donor sperm, for Dr Clark‟s assisted reproductive technology practice
known as Fertility First.
 It is uncontroversial that in relation to the donor sperm supplied by St George
Fertility, St George Facility had breached warranties in the deed in that it had
failed to identify donors of sperm in compliance with the Code of Practice for
Assisted Reproductive Technology Units of the Reproductive Technology
Accreditation Committee (RTAC).
 As a result of these breaches i.e. the failure to comply with donor identification
requirements, the majority of the sperm purchased was unusable and hence,
valueless.
 Dr Clark sought damages for the breach.

NSW Supreme Court Decision
 In the assessment of damages, the court here
adopted a classic approach of sale of goods.
 Gzell J held that damages should be
assessed on the value of the goods at the
date of the breach of contract. Gzell J saw no
reason to depart from the general principle
that in breach of contract cases involving
goods available in a market, damages should
be assessed as at the date of breach i.e. in
2002 at the time of contract
[2011] NSWSC 1276

 With regards to the appropriate method for
assessing damages, Gzell J dismissed all of
St George‟s objections and held that
damages due was to be assessed on the
basis of the cost of restoration/replacement.
 Therefore, damages was to be assessed on
the basis of a hypothetical purchase from the
only supplier available in the market, the
American company – Xytex – with no credit
for betterment on the number of straws of
those supplied by that supplier that Dr Clark
expected to use.
[2011] NSWSC 1276

 The fundamental compensatory rule stated by Parke B in Robinson v
Harman at 855 provided the starting point in determining the
appropriate method for assessing damages.
 From this, Gzell J found that there were two ways to measure these
damages – the difference in value between the goods as promised
and the goods delivered and the cost of restoration/replacement:
Ruxley Electronics and Construction Ltd v Forsyth [1994] WLR 650 at
655 per Staughton LJ.
 The cost of restoration method is more appropriate in this case
because:
 damages assessed on the basis of diminution in value of the goods seeks only
to reflect the financial consequences of a notional transaction whereby the
buyer sells the defective goods on the market and purchases the contract
goods; and
 In the present case, the goods in question – donor sperm – is a marketable
commodity, and a market existed in which replacement sperm could be
purchased – from the American company, Xytex Corporation, which Fertility
First did purchase from: St George at [19]. Therefore, it was not unreasonable
to assess damages on the basis of the cost of replacement.
[2011] NSWSC 1276

 Gzell J also provided guidance on the proper approach to be taken in
the exercise of the assessment of damages where the defendants
seek to rely upon their own wrongdoing and put forth various
propositions for the reduction of damages, but where elements of
uncertainty in relation to the quantification process exist.
 In the present case, Dr Clark did not commence acquiring Xytex sperm until
2005, such that elements of uncertainty remained in relation to the
quantification process of the hypothetical purchase in 2002.
 Therefore, in view of the difficulties in assessing damages or
compensation due to Dr Clark, Gzell J held that in considering these
propositions for deduction, the proper approach to be taken in the
exercise of assessment of damages was to apply the principle of
assessing damages in a robust manner, relying on the presumption
against wrongdoers, the onus of proof, and resolving doubtful
questions against the party „whose actions have made an accurate
determination so problematic‟: St George at [104] – [107]; [111]; see
Biscayne Partners Pty Ltd v Valance Corp Pty Ltd &Ors [2003]
NSWSC 1016 at [17]; Houghton v Immer (No 155) Pty Ltd (1997) 44
NSWLR 46 at 59; Commercial & Accounting Services (Camden) v
Cummins [2011] NSWSC 843 at [44].
[2011] NSWSC 1276

 Gzell J also held that the various regulation changes were
far too remote to be taken into account in the assessment
of damages because „[a] hypothetical purchase of
replacement straws in 2002 should not be made on the
assumption that future legislation might limit the number
of women producing offspring from the same donor‟s
sperm‟.
 St George had argued against Dr Clark being awarded the full
value for the unusable sperm as there were a number of
regulatory changes since the creation of the contract and many
of the samples would have been unusable anyway due to the
regulation changes. For example, the National Health and
Medical Research Council guidelines were changed in 2004 to
mandate for the identification of donors. The RTAC Code was
amended in 2005 to discourage the use of a sample for more
than 10 families.
[2011] NSWSC 1276

 Finally, Gzell J held that Dr Clark did not have
to give credit for any betterment in the
damages due to her.
 St George argued that the cost of sperm bought from
an American company – Xytex Corporation – was
not an appropriate measure of damages as the
American sperm was superior to the sperm that
should have been supplied by St George. This was
because the American company supplied donor
information well in excess of that necessary to
comply with Australian regulations, and thus was an
inappropriate measure in the assessment of
damages.
[2011] NSWSC 1276

 The onus of proving the presence of betterment and its quantum lies with St
George Fertility and Dr Macourt: Roberts v Rodier [2006] NSWSC 282 at
[143]; (2006) 12 BPR 23,453 at 23,477.
 In Roberts v Rodier, Campbell J pointed out that if the only practical way in
which a plaintiff can be compensated for damage to an item is by providing the
plaintiff with the price of acquiring an item that is better than the item that was
damaged, it could sometimes be appropriate to allow the plaintiff the full value
of that better item: see also Harbutt‟s Plasticine Ltd v Wayne Tank and Pump
Co Ltd [1970] 1 QB 447 at 468 per Lord Denning MR (note: Harbutt was
overruled by the House of Lords in Photo Production Ltd v Securicor Transport
Ltd [1980] AC 827, but on a different point). Lord Denning MR said: „The
destruction of a building is different from the destruction of a chattel. If a
second-hand car is destroyed, the owner only gets its value; because he can
go into the market and get another second-hand car to replace it. He cannot
charge the other party with the cost of replacing it with a new car. But when
this mill was destroyed, the plasticine company had no choice. They were
bound to replace it as soon as they could, not only to keep their business
going, but also to mitigate the loss of profit (for which they would be able to
charge the defendants). They replaced it in the only possible way, without
adding any extras. I think they should be allowed the cost of replacement. True
it is that they got new for old; but I do not think the wrongdoer can diminish the
claim on that account. If they had added extra accommodation or made extra
improvements, they would have to give credit. But this is not this case.‟
[2011] NSWSC 1276

 In the present case, the market available
comprised only one seller, Xytex, and Dr Clark
had no choice but to purchase from Xytex for
replacement. The evidence neither suggested
that she could have acquired the sperm more
cheaply elsewhere, nor suggested that the
price paid was inflated by the agreement (with
Xytex) for exclusive supply to Fertility First.
Further, St George Fertility and Dr Clark failed
to establish the quantum of any benefit: St
George at [82].
 Accordingly, damages due to Dr Clark did not
have to credit for any betterment.
[2011] NSWSC 1276

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