Power Point for Contract Damages

Assessment Of Damages and

Remoteness Of 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 lossNon-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

MitigationPast 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 assessmentGeneral 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 occurredContract for services provided over time –

employment contracts, leases of land or goods and time charterparties – date of termination


Basic Pecuniary LossA 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 transferorDamages = Market price – Contract price

Breach by transfereeDamages = 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.

I. General Approach to the Assessment of Damages 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 Baxendale acts 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 Baxendale has 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.


II. The Rule in Hadley v Baxendale 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]; Jones v Persal & Company (a firm) [2000] QCA 386 at [54].


The rule in Hadley v Baxendale has 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 Transfield Shipping Inc v Mercator Shipping

Inc (The Achilleas) [2009] 1 AC 61 (‘The Achilleas’).

II. The Rule in Hadley v Baxendale 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.

III. How Remote Is 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 Baxendale rule 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.

III. How Remote Is Too Remote?

Knowledge – Actual v ImputedAs 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 Baxendale is 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.

III. How Remote Is Too Remote? 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.

IV. Review of Five Recent Australian Cases

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. Tabcorp Holdings 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.


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].


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 Baxendale i.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 Baxendale and 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. Powercor Australia 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 Act 1986 (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.


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].


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: Powercor at [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: Powercor at [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.


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: Powercor at [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: Powercor at [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].


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; Powercor at [42]. The correctness of Jones v Stroud District Council was affirmed in Burdis v Livsey [2003] QB 36 at [95]-[96].


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: Powercor at [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].


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.”’


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 117 at 137 per Mason and Dawson JJ; Zheng v Cai at 456, [29]; Powercor at [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’: Powercor at [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’: Powercor at [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


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.


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.


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].


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.


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.


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.’


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.


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