BALTIC SHIPPING COMPANY v. DILLON
(1993) 176 CLR 344(1993) F.C. 93/001
(Judgment by: GAUDRON J)
Between: BALTIC SHIPPING COMPANY
And: DILLON
Judges:
MASON CJ
BRENNAN J
DEANE J
DAWSON J
TOOHEY J
GAUDRON JMcHUGH J
Subject References:
Contract
Judgment date: 10 February 1993
CANBERRA
Judgment by:
GAUDRON J
The facts of this matter are set out in the judgment of the Chief Justice. The question that arises by reference to those facts is what, if anything, Mrs Dillon is entitled to by way of compensation as a result of a fourteen-day holiday cruise being brought to a premature end when, on the tenth day, the ship, the "Mikhail Lermontov", sank off the coast of New Zealand. Baltic Shipping Company arranged alternative transport for Mrs Dillon's return to Sydney, her point of embarkation and the point of her intended disembarkation.
2. There is no dispute as to Mrs Dillon's entitlement to damages for the property she lost, for the injuries she sustained and for the trauma she suffered when the cruise ship went down. All that is in issue is the entitlement that arises by reason that she did not receive what she paid for, namely, a fourteen-day holiday cruise. Mrs Dillon claims that she is entitled to a refund of the full amount of her fare, together with damages for disappointment and distress.
3. Mrs Dillon's claim for a refund of the fare was made on the basis of total failure of consideration. That claim was determined in her favour at first instance and on appeal in the Court of Appeal of the Supreme Court of New South Wales, it being held on both occasions that the contract was an entire contract.
4. The expression "entire contract" is a convenient description of a contract involving an obligation which cannot be and, thus, is not performed at all unless it is fully or completely performed((151) A contract may be entire as to one aspect and not as to another. So, for example, a contract for the carriage of goods by sea with freight payable on arrival is entire with respect to delivery at the stipulated port: Cook v. Jennings (1797) 7 TR 381 (101 ER 1032); Metcalfe v. Britannia Iron Works Company (1877) 2 QBD 423, but is not entire with respect to the quantity of the cargo delivered: Ritchie v. Atkinson (1808) 10 East 295 (103 ER 787); Dakin v. Oxley (1864) 15 CB (N.S.) 646 (143 ER 938). See also Hoenig v. Isaacs [1952] 2 All ER 176 , at p 181 for an example of a contract containing both entire and non-entire obligations.). It has been said that, if the party whose obligation makes the contract an entire contract fails to carry out his or her part of the contract, the other party is "thereby discharged from his part"((152) Sinclair v. Bowles (1829) 7 LJKB 178, at p 179). That statement requires analysis but, for the moment, it may be accepted as correct. And on that basis, special provision and prepayment aside, a party is not obliged to pay for anything proffered under an entire contract unless it constitutes complete performance. And consistency requires that, unless some special provision governs the question, a party who has paid a deposit or paid in advance should be entitled to a refund in those same circumstances.
5. The nature and consequences of an entire contract were explained in a passage in E.V. Williams' Notes to Saunders((153) 6th ed. (1845), vol.1; Pordage v. Cole (1669) 1 Wms Saund 319, at p 320 n.(c) (85 ER 449, at p 453)(153) 6th ed. (1845), vol.1; Pordage v. Cole (1669) 1 Wms Saund 319, at p 320 n.(c) (85 ER 449, at p 453)), cited with approval by Dixon J. in Steele v. Tardiani((154) (1946) 72 CLR 386 , at p 401):
"Where the consideration for the payment of money is entire and indivisible ... no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether."
6. Two important features emerge from that statement. The first is that failure to perform any part of the obligation which makes a contract an entire contract necessarily amounts to a total failure of consideration. Conversely, it follows that, unless it can be said that failure to perform a contract in its entirety amounts to a total failure of consideration, the contract is not an entire contract. And because partial failure necessarily involves a total failure of consideration, it also follows that, special provision aside, moneys paid in advance are, on that account, recoverable((155) See, generally as to total failure of consideration, Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] AC 32 . See, with respect to recovery under an entire contract, Giles v. Edwards (1797) 7 TR 181 (101 ER 920); Scurfield v. Gowland (1805) 6 East 241 (102 ER 1279).). Of course, the right to recover depends on the contract being brought to an end, for, otherwise, the other party might still perform his or her part of the bargain((156) See Weston v. Downes (1778) 1 Dougl. 23, at pp 24-25 (99 ER 19, at p 20); Towers v. Barrett (1786) 1 TR 133, at p 136 (99 ER 1014, at p 1016); Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 QB 459 , at p 475; Fibrosa (1943) AC, at p 64).
7. The second feature that emerges from the statement from Williams is that the obligation to pay under an entire contract is conditional upon full performance. The parties may provide otherwise but, unless they do, a term is implied in the contract to that effect. Thus, it is not accurate to say that a party is "discharged" from his or her obligation if the other party does not fully perform his or her part of the bargain. Rather, there is no obligation to pay until that happens((157) See, for example, Cutter v. Powell (1795) 6 TR 320, at p 325 (101 ER 573, at p 576) where it was said that "the condition (precedent) must be performed before the other party is entitled to receive any thing under it" and Hoenig v. Isaacs (1952) 2 All ER, at p 181 where Lord Denning described "entire performance" as a "condition precedent to payment" in respect of some obligations.). Of course, if there is an acceptance of the benefit of work done or services provided, even though not amounting to full performance of the contract, considerations based on the notion of unjust enrichment may lead to the conclusion that there is an obligation to pay for what has been accepted. But, if so, it will be an obligation separate and distinct from that which would arise in the event of full performance((158) See Pavey and Matthews Pty. Ltd. v. Paul (1987) 162 CLR 221 , per Mason and Wilson JJ. at p 227, per Deane J. at pp 254-257.).
8. Quite apart from entire contracts, the parties may provide, expressly or impliedly, that the obligation to pay or the right to retain moneys paid in advance is conditional upon completion of the contract. Thus, in McDonald v. Dennys Lascelles Ltd., Dixon J. explained that under a contract for sale of land involving prepayment of some part of the purchase price, the vendor's "title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract"((159) (1933) 48 CLR 457, at p 477). And the contract considered in Dies v. British and International Mining and Finance Corporation Ltd.((160) [1939] 1 KB 724 ) seems to have involved a condition of a similar kind((161) See the analysis by Beatson, The Use and Abuse of Unjust Enrichment, (1991), pp 54-55). A contract involving a term having the effect of making an obligation to pay or the right to retain money paid in advance conditional upon completion is, in some respects, similar to an entire contract. But it is different in that the right to have moneys refunded comes about because the condition is unsatisfied, regardless of whether there is a total failure of consideration, whereas, if there is less than full performance of an entire contract, there is necessarily a total failure of consideration which, in the absence of some provision to the contrary, entitles the other party to a refund.
9. In the present case, there can be no doubt that there was an obligation on the part of Baltic Shipping Company to take Mrs Dillon on a journey that began and ended in Sydney. That is an obligation that is either discharged or breached, depending on where the journey ends, and which may well be an entire obligation. And it is one which was satisfied by the arrangements made for Mrs Dillon's return to Sydney or, in any event, is one about which no complaint is made. But the contract was not merely a round-trip journey contract; it was a contract for a fourteen-day pleasure cruise, beginning and ending in Sydney. It seems to me that, in that context and at least insofar as the duration of the cruise is concerned, there is no basis for treating the contract as an entire contract with the premature termination of the cruise constituting a total failure of consideration. And so far as the duration of the cruise is concerned, although it is something of a circular consideration, there are real difficulties in describing the events which happened as involving a total failure of consideration when, plainly enough, Mrs Dillon received the benefit of accommodation, sustenance and other facilities associated with the cruise until the ship went down.
10. It was not argued on behalf of Mrs Dillon that the contract, if not an entire contract, was a contract containing an implied term that the fare would be refunded in the event that the cruise ended prematurely. Had it been, the question whether the fare was to be used to constitute a fund to meet costs associated with the cruise would have been relevant((162) Beatson, op cit, p 57). Even so, it is appropriate that I state my general agreement with the approach of the Chief Justice on this question and with his Honour's conclusion that Mrs Dillon is not entitled to recover her fare on the basis of an implied term to the effect that it would be refunded if the cruise ended prematurely. That being so and the contract not being an entire contract the breach of which amounted to a total failure of consideration, the early termination of the cruise gives rise to an entitlement to damages, but not to a refund of the fare.
11. One other matter should be mentioned. In my view, Mrs Dillon's claim for damages, if successful, precludes a refund of the fare. The claim for damages is a claim to the full benefit of the contract, part of that benefit taking the form of money as compensation for its breach. If Mrs Dillon were to receive damages and a refund of her fare as well, she would, in effect, take the benefit of the contract without an obligation to give consideration for it.
12. I agree with the Chief Justice, for the reasons that his Honour gives, that Mrs Dillon is entitled to damages for disappointment and distress. Disappointment is a natural consequence of the shortening of her holiday. And it may be taken that she was greatly disappointed and distressed. Even so, the sum of $5,000 seems very generous, particularly when it is borne in mind that Mrs Dillon was also awarded damages for the injuries she sustained and the trauma she suffered in the shipwreck.
13. Quite apart from damages for disappointment and distress, Mrs Dillon is entitled to the difference in value between a fourteen-day cruise and what she received. It is possible that that exceeds the amount which Baltic Shipping paid as a pro-rata refund of the fare before this action was commenced. However, the amount of $5,000 is, in my view, adequate compensation for disappointment and distress as well as any additional amount that may be referable to the difference in value between a fourteen-day holiday cruise and what was received under the contract. There is, thus, no merit in the contention made at the close of argument that the sum of $1,417 which was awarded to Mrs Dillon by way of refund of the balance of her fare should be allowed as general damages.
14. I agree with the orders proposed by the Chief Justice.