BALTIC SHIPPING COMPANY v. DILLON
(1993) 176 CLR 344(1993) F.C. 93/001
(Judgment by: BRENNAN J)
Between: BALTIC SHIPPING COMPANY
And: DILLON
Judges:
MASON CJ
BRENNAN JDEANE J
DAWSON J
TOOHEY J
GAUDRON J
McHUGH J
Subject References:
Contract
Judgment date: 10 February 1993
CANBERRA
Judgment by:
BRENNAN J
The Chief Justice has stated the relevant facts in this appeal and has defined the issues for determination. It is clear that, until the ship foundered, the plaintiff (the respondent) was receiving "the benefit bargained for under the contract" ((96) Rover International Ltd. v. Cannon Film Ltd. [1989] 1 WLR 912, at p 923). Whether or not the contract was entire, the consideration did not totally fail. Therefore, I respectfully agree with the Chief Justice, for the reasons which his Honour gives, that the plaintiff was not entitled to a return of the fare as money paid for a consideration that totally failed.
2. There remains the question of the plaintiff's entitlement to damages described as "compensation for disappointment and distress". In Hamlin v. Great Northern Railway Company ((97) (1856) 1 H.and N.408, at p 411 (156 ER 1261, at p 1262) followed in Fink v. Fink (1946) 74 CLR 127 , at p 143), Pollock CB said that a plaintiff in an action for breach of contract "is entitled to recover whatever damages naturally result from the breach of contract, but not damages for the disappointment of mind occasioned by the breach of the contract". Damage and disappointment of mind may be caused equally by the breach, but damages are not generally recoverable for disappointment of mind. (It will aid our analysis of principle if we confine the meaning of "damage" hereafter to the phenomenon in respect of which an assessment of damages is made, excluding the assessment itself.)
The distinction between damage naturally resulting and disappointment of mind is based not on causation, but on remoteness ((98) See Vorvis v. Insurance Corporation of British Columbia (1989) 58 DLR (4th) 193, per Wilson J. (dissenting) at pp 218-219; Heywood v. Wellers (1976) QB 446, at p 461; and cf. Wilson v. United Counties Bank Ltd. [1920] AC 102 , at p 132 (a case of damage to reputation)). That distinction accords with the observation of Pollock CB in Hamlin v. Great Northern Railway Company which confined the plaintiff's damages for breach of contract to "damages of a pecuniary kind as he may have really sustained as a direct consequence of the breach of contract" (emphasis added) ((99) (1856) 1 H. and N., at p 411 (156 ER, at p 1262)).
3. Remoteness is governed by the rules in Hadley v. Baxendale((100) (1854) 9 Ex 341 (156 ER 145)) which prescribe the measure of damages in respect of breach of contract to include not only damage naturally resulting from the breach ("i.e., according to the usual course of things"((101) ibid., at p 354 (p 151)) but also damage which might "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"((102) ibid.). Additional or special knowledge known to both parties may widen or contract the scope of liability for breach. These rules have been merged in a single principle((103) The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 CLR64, at p 92) expressed by Lord Reid in C. Czarnikow Ltd. v. Koufos((104) (1969) AC350, at p 385) and adopted in this Court((105) Wenham v. Ella (1972) 127 CLR454, at p 471; Burns v. M.AN. Automotive (Aust.) Pty. Ltd. (1986) 161 CLR653, at p 667; The Commonwealth v. Amann Pty. Ltd. (1991) 174 CLR, at pp 92, 99):
"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."
The relevant question is therefore whether "disappointment of mind" is sufficiently likely to result from a particular breach "to make it proper to hold that the loss flowed naturally from the breach".
4. In one sense, a promisee's disappointment of mind flows naturally whenever a contractual promise is not fulfilled. This is the point made by Lord Atkinson in Addis v. Gramophone Company Limited((106) [1909] AC 488 , at pp 495-496). But where disappointment of mind is no more than a mental reaction to a breach of contract and damage flowing therefrom, the law has treated such a mental reaction as too remote((107) Cf. Hobbs v. London and South Western Railway Co. (1875) LR 10 QB 111, at p 122). Thus, in Fink v. Fink, Dixon and McTiernan JJ. held((108) (1946) 74 CLR, at p 144; and see Vivian v. Coca-Cola Export Corporation (1984) 2 NZLR 289; but cf. Whelan v. Waitaki Meats (1991) 2 NZLR 74, per Gallen J. at pp 86-89) that, in assessing the amount to be awarded for breach of contract, "(r)esentment, disappointment and the loss of esteem of friends are not proper elements". In my opinion, there is a sound policy underlying this rule.
5. The institution of contract, by which parties are empowered to create a charter of their rights and obligations inter se, can operate effectively only if the parties, at the time when they create their charter, can form some estimate of liability in the event of default in performance. But no approximate estimate of liability could be formed if the subjective mental reaction of an innocent party to a breach and resultant damage were added on as further damage without proof of pecuniary loss by the innocent party.
If the mental reaction to breach and resultant damage were itself a head of damage, the liability of a party in breach would be at large and liable to fluctuation according to the personal situation of the innocent party. If a promisor were exposed to such an indefinite liability in the event of breach, the making of commercial contracts would be inhibited((109) Addis v. Gramophone Company Limited (1909) AC, at p 495), the assignment of a contractual right would carry new risks for the party subject to the reciprocal obligation, and trade and commerce would be seriously impeded((110) Hayes v. Dodd [1990] 2 All ER 815 , at p 823; Treitel, The Law of Contract, 8th ed. (1991), p 878).
6. This policy has no relevance to the measure of damages in tort. The rights infringed by a wrongdoer are not acquired by bargain but are imposed by law in order to keep an innocent party secure from the consequences of proscribed acts or omissions. Unlike a party entering into a contract who negotiates to protect himself from a risk of injury, the wrongdoer's victim has no opportunity to negotiate protection((111) Per Lord Reid in C. Czarnikow Ltd. v. Koufos (1969) AC, at p 386). The policy of the law would fail if the wrongdoer were to be exempt from liability for "resentment, disappointment and the loss of esteem" suffered by the innocent party in consequence of the wrong done.
7. If I have correctly apprehended the policy underlying the contractual rule, it is clear that the Hamlin v. Great Northern Railway Company principle has no application when (to adopt the words of Pollock CB) the "disappointment of mind" is itself the "direct consequence of the breach of contract". In such a case the disappointment is not merely a reaction to the breach and resultant damage but is itself the resultant damage. If a contract contains a promise, express or implied, that the promisor will not cause the promisee, or will protect the promisee from, disappointment of mind, it cannot be said that disappointment of mind resulting from breach of the promise is too remote.
Such a promise is expressed or implied in many contracts the object of which is to provide a service or facility conducive to peace of mind, tranquillity of environment or ease of living((112) Branchett v. Beaney (1992) 3 All ER 910, at p 916; Bliss v. South East Thames Regional Health Authority (1987) ICR 700, at p 718) and damages have been awarded accordingly. Analogously, damages have been awarded without proof of pecuniary loss for damage caused in direct breach of a contractual promise where the damage consists in a general loss of reputation((113) Wilson v. United Counties Bank Ltd.; and cf. Herbert Clayton and Jack Waller Ltd. v. Oliver [1930] AC 209 (a case of loss of publicity: see pp 220, 221)) but, except in the "direct breach" cases, damages are not awarded for general loss of reputation without proof of pecuniary loss((114) Foaminol Ltd. v. British Plastics Ltd. (1941) 2 All ER 393, at pp 399-400). The distinction between a case where a contract is expressed to protect a promisee from disappointment of mind and a case where disappointment of mind is merely a mental reaction to a breach and resultant damage appears in Heywood v. Wellers. That was a case of a solicitor's negligence in prosecuting proceedings in accordance with his retainer. Bridge LJ. said((115) (1976) QB, at pp 463-464):
"There is, I think, a clear distinction to be drawn between mental distress which is an incidental consequence to the client of the misconduct of litigation by his solicitor, on the one hand, and mental distress on the other hand which is the direct and inevitable consequence of the solicitor's negligent failure to obtain the very relief which it was the sole purpose of the litigation to secure. The first does not sound in damages: the second does."
8. The principle applies to cases where peace of mind is promised. In Kemp v. Sober((116) (1851) 1 Sim(NS) 517, at p 520 (61 ER 200, at p 201)) Lord Cranworth VC. observed that:
"a person who stipulates that her neighbour shall not keep a school stipulates that she shall be relieved from all anxiety arising from a school being kept; and the feeling of anxiety is damage."
In Silberman v. Silberman((117) (1910) 10 SR (NSW) 554, at p 557) Cullen C.J. said:
"Take a very simple case where the contract is strictly confined to the making of a promise, for a consideration, that the person receiving the consideration would not annoy the other person, e.g., where a householder with a serious case of illness in his house paid a bandmaster not to play in front of the house, and it was shown that the bandmaster had broken the contract; here the very breach involves proof of the thing in the contemplation of the parties, i.e., the creation of a risk of disturbance to the sick person. Could it be said that if nothing else was proved only nominal damages could be recovered? In my opinion the mere breach of such a contract brings about the very consequence contemplated by the parties."
And in Watts v. Morrow((118) (1991) 1 WLR 1421 , at p 1445) Bingham LJ. said:
"Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective."
I respectfully agree. To ascertain whether the obtaining of peace of mind is the object of a contract or, more accurately, an object of a contract, reference is made to its terms, express or implied, construed in the context of facts which the parties know or are taken to have known. Thus, if peaceful and comfortable accommodation is promised to holidaymakers and the accommodation tendered does not answer the description, there is a breach which directly causes the loss of the promised peacefulness and comfort and damages are recoverable accordingly((119) Jarvis v. Swans Tours (1973) QB 233, applied in Jackson v. Horizon Holidays Ltd. (1975) 1 WLR 1468 ; and see Woodar Ltd. v. Wimpey Ltd. (1980) 1 WLR 277 , at pp 283, 293; Bliss v. South East Thames Regional Health Authority; Wings Ltd. v. Ellis [1985] AC 272 , at p 287). In cases of this kind, a statement by the promisor commending a service or facility to be provided under the contract is frequently a term of the contract, not a mere representation.
9. In the present case, the plaintiff was promised a holiday cruise, an interlude to relax the mind and refresh the spirits. Or, at the least, the defendant promised to exercise all reasonable care to provide such a cruise. In breach of the contract, she was shipwrecked: an event provoking severe tension of mind and depression of spirit. The damage inevitably and directly consequent on the breach of the implied promise to carry her safely (or to use all reasonable care to carry her safely) to her destination was not simply a on-performance of the carriage but an exposure of the plaintiff to danger and an infliction of mental distress. The "disappointment and distress" in respect of which the trial judge awarded an amount of damages was a result of the shipwreck that occurred in breach of the defendant's contractual obligation. It was such an inevitable and direct result of that breach that it is proper to hold that it flowed naturally from the breach. An award of damages for "disappointment and distress" was therefore right in principle. The amount of that award is in issue.
10. Damages for breach of contract, the measure of which is governed by Robinson v. Harman((120) (1848) 1 Ex 850, at p 855 (154 ER 363, at p 365), followed in The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 CLR, at pp 80, 98, 117, 134, 148, 161), are intended to restore the plaintiff to the same situation as if the contract had been performed. As Mason C.J. and Dawson J. said in The Commonwealth v. Amann Aviation Pty. Ltd.((121) (1991) 174 CLR, at p 82):
"The corollary of the principle in Robinson v. Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed."
As Amann Aviation shows, in assessing a plaintiff's damages for breach of contract, the cost to the plaintiff of performing his obligations under the contract must be taken into account. It follows that it was erroneous in the present case for the learned trial judge to award the plaintiff both an amount representing the fare and an amount of damages for disappointment and distress. Nevertheless, the plaintiff's damages for disappointment and distress were assessed as part of an award which included a return of the fare and it was submitted that, if restitution of the fare were denied, the amount awarded under that head should be added to the damages awarded for disappointment and distress. To accede to that submission would increase the latter amount so as to exceed an amount which a majority of the Court of Appeal regarded as already on the higher end of the scale of permissible awards. Although I would not agree with the reference by the majority of the Court of Appeal to the fare paid as a factor relevant to the appropriateness of an award of damages for disappointment and distress in this case, I agree that $5,000 should not be increased when it is intended to cover simply the plaintiff's disappointment and distress suffered by reason of the ship's foundering.
11. I agree with the orders proposed by the Chief Justice.