CLAIMS FOR CONSEQUENTIAL PECUNIARY LOSS

CLAIMS FOR CONSEQUENTIAL PECUNIARY LOSS Richard Douglas SC John C Faulkner

Introduction Character of consequential pecuniary loss Contract Tort (a) Negligence (b) Intentional Torts Misleading and Deceptive Conduct (TPA) Equity

68 Accordingly s5 (1) of the 1946 Act does not affect Oxley's right to recover damages for breach of contract. The amount of the damages would be measured by the damages and the costs Oxley was ordered to pay to the plaintiff and its own costs of the proceedings brought by the plaintiff against it, less any amount paid by Brambles on account of those damages and costs.

69 Brambles' claim in contract is not so clear. It was obliged to carry the goods to the Oxley depot and there deliver them on its truck. Oxley had the obligation of unloading. No doubt it was contractually obliged to do so so as not to damage Brambles' property or injure Brambles' employee or contractor. But the damages for breach of the contract which Brambles now claims to recover, being the amount of its liability to the plaintiff, were, in my opinion, too remote. I say this for the following reasons. The degree of probability that Oxley's breach of the contract would cause Brambles to suffer loss as the result of a claim against it by an employee of Oxley for injuries suffered was such as to make the loss wholly unpredictable... In my opinion, damages for the loss which Oxley suffered as a result of the injury to its employee and its liability as employer to that employee could fairly and reasonably be considered to arise according to the usual course of things from Brambles' breach of its contractual obligation to load and secure the goods with reasonable care and skill. However, I do not think that the possibility of Brambles' liability to Oxley's employee flowing from the consequence of Oxley's failure to unload the goods with reasonable care and skill could fairly and reasonably be considered to arise according to the usual course of things. … Nor do I think such damages could reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as not unlikely to occur … .

70 In Wenham v Ella (1972) 127 CLR 454 at 466-7 Walsh J said: "Lord Wright [in Monarch Steamship Co Limited v Karlshamns Oljefabriker (A/B) [1949] AC 196] went on to say that remoteness `is in truth a question of fact' [1949] AC at 223 and he cited a passage from the speech of Lord Haldane in an earlier case, to the effect that the apparent discrepancies found in the statements of general principles governing damages are due mainly to the varying nature of the particular questions which have arisen in different cases and to the need to mould the expression of the general principles, in applying them to the circumstances of particular cases. Lord du Parcq expressed agreement with what Lord Wright had said and added [1949] AC at 232: `Circumstances are so infinitely various that, however carefully general rules are framed, they must be construed with some liberality, and not too rigidly applied. It was necessary to lay down principles lest juries should be persuaded to do injustice by imposing an undue, or perhaps an inadequate, liability on a defendant. The court must be careful, however, to see that the principles laid down are never so narrowly interpreted as to prevent a jury, or judge of fact, from doing justice between the parties. So to use them would be to misuse them.' "

71 In my opinion, justice between the parties requires that the loss suffered by Brambles in consequence of Oxley's breach of contract be treated as too remote. Accordingly, the claim by Brambles against Oxley in contract must fail.

The rule of the common law is that 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.

The award of damages for breach of contract protects a plaintiff’s expectation of receiving the defendant’s performance. That expectation arises out of or is created by the contract. Hence damages for breach of contract are often described as ‘expectation damages’.

Where two parties have made a contract which one of them has broken, the damages which the other party ought to recover 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.

For this purpose, knowledge ‘possessed’ is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in that ordinary course. That is the subject matter of the fist rule in Hadley v Baxendale. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possess of special circumstances outside the ‘ordinary course of things’ of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the ‘second rule’ so as to make additional loss also recoverable.

The crucial question is whether on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised 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. (our emphasis)

(A) type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the parties.

(T)here has been a tendency to play down the distinction between reasonable foreseeability and reasonable contemplation as semantic only. However, I think that the difference is a real one which results in a significant narrowing of liability. The word contemplation seems to be used in Koufos in the sense of ‘thoughtful consideration’ or perhaps ‘having in view the future’. It emphasises that, if the parties had thought about the matter, they would really have considered that the result had at least a ‘serious possibility’ of occurring. The actual decision in Hadley v Baxendale bears out the proposition that the contemplation test limits the area of potential liability. For it is surely reasonably foreseeable as a serious possibility that a millshaft was required for the operation of the mill and that a launderer and dyer might have special contracts with a lucrative profit margin. Yet the losses to the plaintiffs arising from those circumstances were not recoverable (our emphasis).

the defendant in Victoria Laundry, in breach of a contract to deliver a boiler to a working laundry, may be liable for the loss of use of that boiler in the day-to-day operations of the laundry or for hiring costs of a replacement boiler. But the defendant was not, without actual knowledge, liable for the consequential loss of profit on a particularly lucrative contract with a third party due to the late delivery.

in Hadley v Baxendale the defendant was not liable for the consequential pecuniary loss of profits sustained due to a delay in delivering the broken millshaft to the boilermaker to be used as a model for a new one, they not being aware, nor ought they have been, that the shaft was actually required to operate the mill.

(T)he law is conscious of the injustice of visiting the party in breach with the consequences of a loss that was not within the party’s reasonable contemplation when contracting.

(T)he reason for this is because, were it otherwise, the defaulting party may have lost the opportunity to make an informed decision as to whether or not to have accepted the risk. … so as to decide whether to accept the risk would include having sufficient information to assess whether insurance cover for risks concerned ought to be obtained.

The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money. But, even in the case of incurred expense, it is at least strongly arguable that a plaintiff's loss or damage represented by this expense is not too remote on the score of foreseeability. In truth, it is an expense which represents loss or damage flowing naturally and directly from the defendant's wrongful act or omission, particularly when that act or omission results in the withholding of money from a plaintiff or causes the plaintiff to pay away money. (emphasis added)

The point is that the loss of the use of the money paid away is so directly related to the wrong that the loss cannot be classified simply as due to the late payment of damages. See also General Securities Ltd. v. Don Ingram Ltd. (1940) SCR 670 (the plaintiff recovered a business loss incurred as a borrower in consequence of the lender's breach of obligation to advance the money) and Pelletier v. Pe Ben Industries Company Ltd. (1976) 6 WWR 640 (damages awarded on a contract to purchase a truck in consequence of the defendant's wrongful dismissal of the plaintiff from his employment). These cases proceed on the proposition that the cost of borrowing money to avoid a loss caused by a breach of contract is recoverable and not too remote. (emphasis added)

It is not necessary for us to say that the Liesbosch was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in the Clippen’s Oil case [907] AC 291, 303. The rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages. (emphasis added)

146 The Deceased's suicide in response to the proceedings was "quite unlikely according to the natural and ordinary course of things". It was a fortuitous event, because no reasonable person would have thought of it as being within "the range of possible consequences" after the 27 February 1993 accident for a person of normal susceptibility. The same is true of the Deceased's depression after 24 April 1998.

147 Counsel for the Plaintiff knew of no instance in his experience when a party to litigation had committed suicide in consequence of the manner in which that party was treated by the legal representatives of an opposing party. The law reports reveal no instance of a plaintiff in civil litigation doing this. Nor do they reveal any case in which a plaintiff in civil litigation developed a psychiatric illness by reason of the behaviour of the opposing legal representatives. Since these events happened in this case, they are obviously capable of having been foreseen, in the sense that they were not beyond the realms of all possibility in relation to a person of the Deceased's susceptibility. But they were not reasonably foreseeable for a person of normal susceptibility. They were reactions to the hearing, but irrational reactions. They were reactions beyond what a person in the Defendant's position on 27 February 1993, applying criteria of reason to a person of normal fortitude, would contemplate. In ordinary experience people of normal fortitude only commit suicide because they are suffering great physical, mental or emotional stress. Litigation generates stress of a kind in persons of normal fortitude, but not stress of a magnitude or kind making either suicide or a psychiatric illness a reasonably foreseeable response. Litigation can generate disappointment, outrage, distress, worry, anxiety, anger and shame in persons of normal fortitude, but these reactions are qualitatively different from psychiatric illness or suicide. (our emphasis)

… conversion is a tort of strict liability … and, as such, is to be found at the lower or less culpable end of what Lord Steyn in Smith New Court called ‘a sliding scale from strict liability to intentional wrongdoing’. Negligence of course is to be found midway along the sliding scale, for it requires fault in the sense of the failure to measure up to the standard of reasonable care. His Lordship (in whose judgement on the measure of damages three other members of the House of Lords agreed) was of the view that there was a justification for differentiating between the extent of civil liability for civil wrongs depending where in that sliding scale the particular civil wrong fitted in. It might, therefore, be said that a more stringent test of remoteness, satisfied only by express notice or special knowledge, is required for conversion than for negligence (our emphasis)

Thus some more stringent test of remoteness than reasonable foreseeability is required for the strict liability tort of conversion. The obvious candidate seems to me that stated in France v Gaudet, namely, express notice or special knowledge.

Certainly, as at present I incline generally to the views taken by Batt JA with respect to remoteness of damage and in particular his opinion that reasonable foreseeability is not the appropriate test in the case of conversion. If, however, the true test depends rather more upon notice or knowledge (as his Honour opines) it may be that the formulation of the test as propounded by Callaway JA will turn out to be more durable than the actual words used in France v Gaudet.

I also agree with his Honour [speaking about Batt JA] that the measure of damages for consequential loss in conversion is not reasonable foreseeability. Liability in conversion is strict: like liability for breach of contract, which is also strict, it lies at the opposite end of the spectrum from deceit and is quite unlike negligence, The ordinary measure is the value of the chattel and consequential damages require some knowledge (or express notice) on the part of the defendant of facts whereby additional loss of the relevant kind is likely to result. To put the point another way, the consequential loss must be of a kind that should have been within the contemplation of the defendant as a likely consequence of having regard to the defendant’s knowledge (or express notice) of the facts. There is, to that extent, a closer analogy with damages for breach of contract than with damages for negligence. The dicta in France v Gaudet were well founded (emphasis added).

It is not necessary to determine whether notice is or is not necessary in trover, in order to enable a plaintiff to recover special damage which cannot form part of the actual present value of things converted, as in the case of withholding of the tools of a man’s trade, in which the damage arising from the deprivation of his property is not, and apparently cannot be fixed at the time of the conversion of the tools. In that case, however, we are inclined to think that either express notice must be given, or arise out of the circumstances of that case. The point is not determined in Bodlley v Reynolds …; but we think that there must have been evidence of knowledge on the part of the defendant that in the nature of things inconvenience beyond the loss of the tools must have been occasioned to the plaintiff (emphasis added).

The plaintiffs face a second difficulty in attempting to support the assessment of damages in reliance upon the loss of profit on sales to Mr Taschner’s company. There was no evidence that the defendants were ever informed by the plaintiffs that the purlin machine was required by the plaintiffs for the purpose of a profitable contract with Mr Taschner’s company. Indeed, there is no suggestion that the plaintiffs put the defendants on notice at all as to the purpose for which the purlin machine was required at the time of the plaintiffs’ demand for the return of the goods. In these circumstances, the plaintiffs failed to establish a basis on which they could be awarded damages for the profits foregone in fulfilling any orders from Mr Taschner.

Indeed the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg s. 52) or with equity (eg. 51AA) but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.

This is not to say that no help can be had from the common law in deciding what damages may be allowed under s. 82 in cases of conduct contravening s. 52. Very often, the amount of the loss or damage caused by a contravention of s. 52 will coincide with what would have been allowed in an action for deceit.

The remedy does not depend either on the principle’s loss or on whether the principle could have earned the gain.

…he who bargains in a matter of advantage with a person placing confidence in him is bound to show a reasonable use has been made of that confidence …

CLAIMS FOR CONSEQUENTIAL PECUNIARY LOSS