BALTIC SHIPPING COMPANY v. DILLON

(1993) 176 CLR 344
(1993) F.C. 93/001

(Judgment by: MASON CJ)

Between: BALTIC SHIPPING COMPANY
And: DILLON

Court:
High Court of Australia

Judges:
MASON CJ
BRENNAN J
DEANE J
DAWSON J
TOOHEY J
GAUDRON J
McHUGH J

Subject References:
Contract

Judgment date: 10 February 1993

CANBERRA


Judgment by:
MASON CJ

This is an appeal by the owner and operator of a cruise vessel, the "Mikhail Lermontov", which, on 16 February 1986, struck a shoal off Cape Jackson, on the north-eastern tip of the South Island of New Zealand, was holed and sank. The cruise commenced in Sydney on the evening of 7 February 1986 and was scheduled to end on the vessel's return to Sydney on the morning of 21 February 1986. The respondent was a passenger on the vessel. She lost possessions and suffered certain injuries as a result of the sinking.

Together with 122 other passengers, she commenced proceedings in the Admiralty Division of the Supreme Court of New South Wales against the appellant and its agent, Charter Travel Company Limited. The latter was not a party to this appeal. For the purpose of determining the issue of liability, all proceedings were consolidated in a single action in the name of the respondent. The trial judge (Carruthers J.) ordered a separate trial on the issue of liability. The appellant at first contested liability but, at a late stage, made certain admissions of negligence. The trial judge then proceeded to determine the extent of the appellant's liability, if any, to pay damages to the respondent and entered judgment in favour of the respondent. Included in the award of damages were amounts of $1,417 described as "Restitution of fare" and $5,000 described as "Compensation for disappointment and distress at the loss of entertainment (and facilities for enjoyment which had been promised)".

2. The appellant appealed by leave to the Court of Appeal. The appeal was dismissed by a majority of the Court ((1) Baltic Shipping Co. v. Dillon (1991) 22 NSWLR 1 (Gleeson C.J., Kirby P; Mahoney J.A dissenting)). So far as it is relevant to this appeal, the judgments of the majority decided four questions. First, that the respondent was entitled, by reason of the operation of the Contracts Review Act 1980 (N.S.W.), to relief from a deed of release she had signed. Secondly, that certain exclusion clauses contained in the printed ticket received by the respondent were not incorporated in the contract under which she was carried on the vessel. Thirdly, that the award of restitution of the fare was properly made. Fourthly, that the award of compensation for disappointment and distress was properly made.

3. In its appeal to this Court, the appellant challenged each of these conclusions. During the hearing of the appeal, special leave to appeal on the first two questions was rescinded with reasons given at the time. There is no occasion to repeat those reasons here.

4. It is necessary therefore to consider only the other two questions.

THE CLAIM FOR RESTITUTION OF THE FARE

Basis on which the claim is advanced

5. By cl.12 of her further amended writ of summons in personam, the respondent claimed:

"return of the full fare in the sum of $2,205.00 as for a total failure of consideration".

By cl.7 of the defence, the appellant simply denied that there had been a total failure of consideration. At trial, the respondent's claim was refined so as to extend only to the balance of the fare not already refunded by the appellant, that balance being $1,417.50.

6. Carruthers J. held that the contract of passage was an entire one ((2) Dillon v. Baltic Shipping Co. (1989) 21 NSWLR 614, at p 667) and said ((3) ibid., at p 668):

"In reality, the plaintiff got no benefit from this contract. It is true that she did have eight days cruising on the vessel and visited the Bay of Islands, Auckland, Tauranga, Wellington and Picton, but those benefits were entirely negated by the catastrophe which occurred upon departure from Picton. Thus, I would allow the amount claimed under this head."

In the Court of Appeal, the appellant challenged the finding that there was a total failure of consideration. The challenge was rejected. Kirby P. ((4) (1991) 22 NSWLR, at p 26), with whom Gleeson C.J. agreed on this point ((5) ibid., at p 7), noted that the appellant had urged that there was no total failure of consideration as "(t)he respondent had had the benefit of eight of fourteen days of an idyllic cruise." He concluded that the contract of carriage was an entire one. His Honour said ((6) ibid., at p 26):

"On this point it is my view that Carruthers J reached the right conclusion. The respondent did not contract with the appellant for an eight-day cruise, still less for an eight-day cruise interrupted by the disaster which befell the 'Mikhail Lermontov'. What she contracted for was a relaxing holiday experience. It is this that she failed to secure. The contract of carriage was properly categorised as an entire contract. I agree with the judge that there is a good analogy to Sir George Jessel MR's statement in Re Hall and Barker ((7) (1878) 9 Ch D 538, at p 545):
'... If a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe, and ask you to pay one half of the price.'"

He then observed that, in order to avoid over-compensation, a claim for restitution of money paid on a total failure of consideration will succeed only if accompanied by counter-restitution of benefits bargained for and received by the claimant.

7. In the Court of Appeal, the appellant also relied upon cl.9 of the printed ticket terms and conditions. That clause incorporated a right to proportional return of the consideration in certain circumstances ((8) In part the clause read:

"If, for any reason beyond the control of the Company during the voyage hereunder, it is impossible for the vessel to continue to perform the advertised voyage then the Company will use its best endeavours to substitute for the vessel named on the Passenger Ticket another vessel whether belonging to the Company or whether or not in the same class.

In the event of such substitution the Passenger shall have the option of accepting such substitute or of cancelling this contract. In the event of such cancellation or in the event of its inability to arrange a substitute the Company agrees to make travel arrangements for the onward passage to the place of scheduled disembarkation and return to the Passenger a proportional amount of his passage money less expenses incurred by the Company in respect of such onward passage.").

Kirby P. held that the clause, while it could exclude the right to restitution in certain circumstances, was inapplicable for two reasons: first, the clause was not incorporated into the contract of carriage; secondly, by reason of the admission of negligence by the appellant, the reason for the impossibility of continuation of the voyage was not "beyond the control" of the appellant and, therefore, a precondition of its operation was not satisfied. Gleeson C.J. agreed generally that the ticket terms and conditions were not incorporated.

However, he said that sufficient notice may have been given of some terms and conditions printed on the ticket so as to incorporate them. He did not consider cl.9 separately.

8. Accordingly, the Court of Appeal, by majority, held that the respondent was entitled to restitution of the balance of the fare.

9. In this Court, the appellant contends that the majority in the Court of Appeal erred in holding that the respondent was entitled to restitution of the whole of the fare. In support of this contention, the appellant submits that there was not a total failure of consideration arising from the fact that the contract of carriage was entire.

The appellant also submits that a plaintiff cannot pursue both a claim for restitution of the consideration paid under a contract and a claim for damages for breach of that contract. It seems that this argument was not presented to, or considered by, the courts below. The merits of this argument, which will be considered below, do not necessarily depend on the availability of damages for disappointment and distress. That is but one head of damages whose recoverability is in question. However, if restitution is available and such damages are recoverable, questions of double compensation arise.

Is the fare recoverable on the ground of total failure of consideration or otherwise?

10. An entire contract or, perhaps more accurately, an entire obligation is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. In Steele v. Tardiani ((9) (1946) 72 CLR 386 , at p 401), Dixon J. cited the general proposition stated in EV. Williams' Notes to Saunders ((10) 6th ed. (1845), vol.1: Pordage v. Cole (1669) 1 Wms Saund 319, at p 320, n.(c) (85 ER 449, at p 453)):

"Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of every part of the consideration jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether."

11. The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other's liability to pay the stipulated price or to render an agreed counter-performance ((11) Hoenig v. Isaacs [1952] 2 All ER 176 , at pp 180-181; Glanville Williams, "Partial Performance of Entire Contracts", (1941) 57 Law Quarterly Review 373; Beck, "The Doctrine of Substantial Performance: Conditions and Conditions Precedent", (1975) 38 Modern Law Review 413). If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant's obligations were entire, on the facts as I have stated them, the appellant's incomplete performance of its obligations would not entitle it to recover.

12. When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration ((12) Goff and Jones, The Law of Restitution, 3rd ed. (1986), p 449; Birks, An Introduction to the Law of Restitution, rev. ed. (1989), pp 242-248). If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.

13. In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration ((13) Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] AC 32 , at p 48). In that context, the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract. So, in Whincup v. Hughes ((14) (1871) LR 6 CP 78), the plaintiff apprenticed his son to a watchmaker for six years for a premium which was paid. The watchmaker died after one year. No part of the premium could be recovered. That was because there was not a total failure of consideration ((15) See also Hunt v. Silk (1804) 5 East 449 (102 ER 1142)).

A qualification to this general rule, more apparent than real, has been introduced in the case of contracts where a seller is bound to vest title to chattels or goods in a buyer and the buyer seeks to recover the price paid when it turns out that title has not been passed. Even if the buyer has had the use and enjoyment of chattels or goods purportedly supplied under the contract for a limited time, the use and enjoyment of the chattels or goods has been held not to amount to the receipt of part of the contractual consideration. Where the buyer is entitled under the contract to good title and lawful possession but receives only unlawful possession, he or she does not receive any part of what he or she bargained for. And thus, it is held, there is a total failure of consideration ((16) Rowland v. Divall [1923] 2 KB 500 ; Butterworth v. Kingsway Motors Ltd. (1954) 1 WLR 1286 ). As this Court stated in David Securities Pty. Ltd v. Commonwealth Bank ((17) (1992) 66 ALJR 768, at p 779; 109 ALR 57, at p 78):

"the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact".

14. An alternative basis for the recovery of money paid in advance pursuant to a contract in expectation of the receipt of the consideration to be provided by the defendant may arise when the defendant's right to retain the payment is conditional upon performance of his or her obligations under the contract. This basis of recovery has a superficial, but not a close, resemblance to the concept of an entire contract. In this class of case the plaintiff may be entitled to recover so long as the payment remains conditional.

15. So, in Dies v. British and International Mining and Finance Corporation ((18) [1939] 1 KB 724 ), the plaintiff bought arms for the price of 135,000 pounds, paying 100,000 pounds in advance. Though unwilling or unable to take delivery, the plaintiff succeeded in recovering the payment, notwithstanding that Stable J. held that there was not a total failure of consideration.

There can, of course, be no such failure when the plaintiff's unwillingness or refusal to perform the contract on his or her part is the cause of the defendant's non-performance. The decision is explicable either on the ground that the seller accepted the plaintiff's repudiation and thus itself effected the discharge of the contract ((19) Birks, op cit, p 237) or on the ground that the payment was a mere part payment, the right to which depended upon performance of the contract and was thus conditional ((20) Beatson, The Use and Abuse of Unjust Enrichment, (1991), p 54). Of the two explanations, the second is to be preferred because it is in closer accord with the judgment of Stable J. His Lordship said ((21) (1939) 1 KB, at p 743):

"(W)here the language used in a contract is neutral, the general rule is that the law confers on the purchaser the right to recover his money, and that to enable the seller to keep it he must be able to point to some language in the contract from which the inference to be drawn is that the parties intended and agreed that he should".

This statement in turn accords with the distinction drawn by Lord Denman C.J. (to which Stable J. referred) in Palmer v. Temple ((22) (1839) 9 Ad and E 508, at pp 520-521 (112 ER 1304, at p 1309)) between a deposit which was to be forfeited if the plaintiff should not perform the contract and a mere part payment the right to which depended upon performance of the contract. The statement also accords with the point made by Dixon J. in McDonald v. Dennys Lascelles Ltd., where he said ((23) (1933) 48 CLR 457 , at p 477):

"When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor's promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract."

16. The question whether an advance payment, not being a deposit or earnest of performance, is absolute or conditional is one of construction. In determining that question it is material to ascertain whether the payee is required by the contract to perform work and incur expense before completing this performance of his or her obligations under the contract. If the payee is so required then, unless the contract manifests a contrary intention, it would be unreasonable to hold that the payee's right to retain the payment is conditional upon performance of the contractual obligations ((24) See Hyundai Shipbuilding and Heavy Industries Co. Ltd. v. Pournaras (1978) 2 Lloyd's Rep 502; Hyundai Heavy Industries Co. Ltd . v. Papadopoulos (1980) 1 WLR 1129 ; and the discussion in Beatson, op cit., pp 56-57).

17. I have come to the conclusion in the present case that the respondent is not entitled to recover the cruise fare on either of the grounds just discussed. The consequence of the respondent's enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was "entirely negated by the catastrophe which occurred upon departure from Picton" ((25) (1989) 21 NSWLR, at p 668), to repeat the words of the primary judge.

18. Nor is there any acceptable foundation for holding that the advance payment of the cruise fare created in the appellant no more than a right to retain the payment conditional upon its complete performance of its entire obligations under the contract. As the contract called for performance by the appellant of its contractual obligations from the very commencement of the voyage and continuously thereafter, the advance payment should be regarded as the provision of consideration for each and every substantial benefit expected under the contract. It would not be reasonable to treat the appellant's right to retain the fare as conditional upon complete performance when the appellant is under a liability to provide substantial benefits to the respondent during the course of the voyage. After all, the return of the respondent to Sydney at the end of the voyage, though an important element in the performance of the appellant's obligations, was but one of many elements.

In order to illustrate the magnitude of the step which the respondent asks the Court to take, it is sufficient to pose two questions, putting to one side cl.9 of the printed ticket terms and conditions. Would the respondent be entitled to a return of the fare if, owing to failure of the ship's engines, the ship was unable to proceed on the last leg of the cruise to Sydney and it became necessary to airlift the respondent to Sydney? Would the fare be recoverable if, owing to a hurricane, the ship was compelled to omit a visit to one of the scheduled ports of call? The answer in each case must be a resounding negative.

19. The respondent sought to derive support from authorities relating to the contracts for the carriage of goods by sea which hold that freight is due on the arrival of the goods at the agreed destination. More to the point is the principle that an advance by the shipper on account of the freight to be earned is, in the absence of any stipulation to the contrary, "an irrevocable payment at the risk of the shipper of the goods" ((26) Allison v. Bristol Marine Insurance Co. (1876) 1 App Cas 209, per Lord Selborne at p 253; see also Greeves v. The West India and Pacific Steamship Company (1870) 22 LT 615). The result of this rule is that an advance on account of freight may be retained, notwithstanding that, because of a failure to complete the voyage and to deliver the goods, the freight remains unearned ((27) See Compania Naviera General S.A v. Kerametal Ltd. (The "Lorna I") (1983) 1 Lloyd's Rep 373) and that a payment due as an advance on account of freight is recoverable (if not duly paid) even after frustration of the voyage ((28) See Goff and Jones, op cit, p 451, n.14.

This does not mean that freight is earned prior to delivery: it will be earned upon shipment only if the parties expressly so stipulate). This rule, although it has been said to be a stipulation introduced into such contracts by custom and not the result of applying some abstract principle ((29) Fibrosa (1943) AC, at p 43), would certainly exclude a restitutionary claim on facts analogous to those in the present case.

The combination of a claim for restitution and a claim for damages

20. In view of my conclusion that the respondent cannot succeed in her restitutionary claim for recoupment of the fare, there is no necessity for me to consider whether the two claims can be maintained. However, as the question has been argued, I should record my view of the question. There is authority to suggest that the claims are alternative and not cumulative ((30) e.g., Walstab v. Spottiswoode (1846) 15 M. and W. 501, per Pollock CB at p 514 (153 ER 947, at p 953)). But Lord Denning M.R. was clearly of the view that the claims may be concurrent. In Heywood v. Wellers, he said ((31) (1976) QB 446, at p 458):

"(The plaintiff) could recover the 175 pounds as money paid on a consideration which had wholly failed. She was, therefore, entitled to recover it as of right. And she is entitled to recover as well damages for negligence. Take this instance. If you engage a driver to take you to the station to catch a train for a day trip to the sea, you pay him 2 pounds - and then the car breaks down owing to his negligence. So that you miss your holiday. In that case you can recover not only your 2 pounds back but also damages for the disappointment, upset and mental distress which you suffered".

Lord Denning was speaking of negligence in the sense of breach of a contractual obligation of due care. He noted a qualification to the entitlement to maintain the two claims ((32) ibid., at p 459):

"Some reduction should be made for the fact that if the (defendants) had done their duty ... it would have cost her something."

That reduction was accordingly made to the damages for breach of contract.

21. Similarly, in Millar's Machinery Company Limited v. David Way and Son ((33) (1935) 40 Com.Cas. 204), the Court of Appeal dismissed an appeal from a decision of Branson J. in which such a dual award was made. The case concerned a contract for supply of machinery. It was held that there had been a total failure of consideration and that the purchasers were entitled to recover the amount paid on account. In addition, the purchasers were held to be entitled to damages, the proper measure of which was ((34) ibid., at p 208):

"the sum which the (purchasers) had to spend to put themselves in the position which they would have been if the (suppliers) had carried out their contract".

That amount was the difference between the contract price and the amount which they had to pay to another supplier for a similar machine.

22. And Treitel says in relation to claims for loss of bargain, reliance loss and restitution ((35) The Law of Contract, 8th ed. (1991), p 834. However, elsewhere he appears to treat the claims as alternatives: pp 932-933):

"There is sometimes said to be an inconsistency between combining the various types of claim ...
The true principle is not that there is any logical objection to combining the various types of claim, but that the plaintiff cannot combine them so as to recover more than once for the same loss ... The point has been well put by Corbin: 'full damages and complete restitution ... will not both be given for the same breach of contract' ((36) Corbin on Contracts, para 1221. Emphasis added by Treitel)."

23. The action to recover money paid on a total failure of consideration is on a common money count for money had and received to the use of the plaintiff ((37) Fibrosa (1943) AC, at pp 61-63. To the extent that it is necessary to say so, this decision correctly reflects the law in Australia and, to the extent that it is inconsistent, should be preferred to the decision of this Court in In re Continental C. and G. Rubber Co. Proprietary Ltd. (1919) 27 CLR 194 ). The action evolved from the writ of indebitatus assumpsit ((38) See Lucke, "Slade's Case and the Origin of the Common Counts - Part 3" (1966) 82 Law Quarterly Review 81). It is available only if the contract has been discharged, either for breach or following frustration ((39) Goff and Jones, op cit, p 449, states that the law in either case is "fundamentally similar".

The House of Lords in Fibrosa drew no distinction), and if there has been a total, and not merely partial, failure of consideration ((40) The action in debt based on a partial failure of consideration (Anon, (1293) YB 21-22 Edw I (R.S.) 110-111) disappeared in the middle ages. See Stoljar, A History of Contract at Common Law, (1975), p 7). It is now clear that, in these cases, the discharge operates only prospectively, that is, it is not equivalent to rescission ab initio . Nor is rescission ab initio a precondition for recovery ((41) Fibrosa (1943) AC, at pp 49, 53, 57, 60, 70, 73, 83). Unconditionally accrued rights, including accrued rights to sue for damages for prior breach of the contract ((42) McDonald v. Dennys Lascelles Ltd. (1933) 48 CLR, per Dixon J. at p 477), are not affected by the discharge. Prepayments can, in general, be recovered, but the position of deposits or earnests is not entirely clear, the better view being that they are not recoverable if paid to provide a sanction against withdrawal ((43) Birks, op cit, pp 223-224; Mayson v. Clouet [1924] AC 980 ).

24. In 1846, when Pollock CB held in Walstab v. Spottiswoode that it was not possible to combine a claim for damages with one for restitution, the restitutionary action was brought on the writ of indebitatus assumpsit ((44) Stoljar, op cit, pp 116-117, notes that the availability of indebitatus assumpsit (from the late seventeenth century) in such quasi- contractual situations supplementing and eventually supplanting debt and account (see Jackson, The History of Quasi-Contract in English Law, (1936), p 18 et seq. and Stoljar, op cit, p 181), was essentially a procedural development, simplifying recovery and providing a more convenient or more summary remedy). Subsequently, Lord Wright said in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. ((45) (1943) AC, at p 63):

"The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and the assumpsit . The former was the basis of the claim and was the real cause of action. The latter was merely fictitious and could not be traversed, but was necessary to enable the convenient and liberal form of action to be used in such cases."

The action was, as Lord Mansfield said in Moses v. Macferlan ((46) (1760) 2 Burr 1005, at p 1008 (97 ER 676, at p 678)), "quasi ex contractu" and founded on an obligation imposed by law and accommodated within the system of formal pleading by means of the fictitious assumpsit or promise. It was necessary to plead the fictitious assumpsit until the enactment of s.3 of the Common Law Procedure Act 1852 (Eng.). And even then its influence continued.

The abolition of the forms of action inspired an analysis of the sources of obligation in the common law in terms of a rigid dichotomy between contract and tort. In that context, there was little room for restitutionary obligation imposed by law except as a "quasi-contractual" appendix to the law of contract. As a result, until recently, restitutionary claims were disallowed when a promise could not be implied in fact ((47) Birks and McLeod trace civil law origins of the implied contract approach: "The Implied Contract Theory of Quasi-Contract: Civilian Opinion Current in the Century Before Blackstone", (1986) 6 Oxford Journal of Legal Studies 46). However, since Pavey and Matthews Pty. Ltd. v. Paul ((48) (1987) 162 CLR 221 ), such an approach no longer represents the law in Australia.

25. But, in the circumstances prevailing in 1846, it is not difficult to see that a plaintiff would necessarily be put to an election between the real and fictitious promises. In cases of tort it is equally plain that there had to be a choice between an action on a fictitious assumpsit (waiving the tort) and seeking damages for the tort.

26. The decision in Walstab v. Spottiswoode may also be seen as a consequence of two historical threads. The first is the competition in the latter part of the sixteenth century between the judges of the King's Bench and those of the Common Pleas as to the relationship between debt and assumpsit . The critical decision in the resolution of the conflict was Slade's Case ((49) (1602) 4 Co Rep 92b (76 ER 1074); also reported as Slade v. Morley Yelv 21 (80 ER 15), MooKB 433 (72 ER 677)). While the precise contemporary import of the decision is a matter of controversy ((50) See Lucke, "Slade's Case and the Origin of the Common Counts", (1964) 81 Law Quarterly Review 422 and 539, (1966) 82 Law Quarterly Review 81; Baker, "New Light on Slade's Case", (1971) Cambridge Law Journal 51 and 213; Ibbetson, "Sixteenth Century Contract Law: Slade's Case in Context", (1984) 4 Oxford Journal of Legal Studies 295.), it was taken in he seventeenth century as deciding that indebitatus assumpsit lay as well as debt to recover sums due under a contract in the absence of an express subsequent promise to pay ((51) See Ibbetson, op cit). The assumpsit or promise was founded "not upon any fiction of law, but upon an interpretation of facts by the court which led it to the genuine conclusion that the parties had actually agreed (to make the payment)" ((52) Winfield, The Law of Quasi-Contracts, (1952), p 7).

27. The second is the decision at around the same time that indebitatus assumpsit lay in circumstances where the assumpsit was necessarily imputed rather than genuinely implied from the facts ((53) See Winfield, op cit , p 8; Jackson, op cit, pp 40-41). Arris v. Stukley ((54) (1677) 2 Mod. 2 60 (86 ER 060)) is an example. In that case, the defendant, who had been granted by letters patent the office of comptroller of the customs at the port of Exeter, continued to pretend title to that office after its termination and grant to the plaintiff. The Court held that indebitatus assumpsit lay to recover the profits received by the defendant after the grant of the office to the plaintiff. In Holmes v. Hall ((55) (1704) 6 Mod 161 (87 ER 918); Holt KB 36 (90 ER 917)), Holt C.J. refused to nonsuit the plaintiff who sued on an indebitatus assumpsit to recover moneys he paid as executor to the defendant who held certain writings of the testator. The defendant failed to perform his promise to deliver up the writings ((56) According to the Modern Reports, the plaintiff was nonsuited when it became clear that the money was paid in discharge of a debt owed by the testator to the defendant: (1704) 6 Mod., at p 161 (87 ER, at p 919)).

28. But it was recognized early on that cases like Holmes v. Hall were equally cases of breach of contract in which a special assumpsit lay, and the question was raised whether the plaintiff should be required to bring his or her action in that form. In Moses v. Macferlan, Lord Mansfield said ((57) (1760) 2 Burr, at p 1010 (97 ER, at pp 679-680)) that the plaintiff would be permitted to proceed on an indebitatus assumpsit , although an action for damages in covenant or on a special assumpsit was available. He continued:

"If the plaintiff elects to proceed in this favourable way (on the indebitatus assumpsit ), it is a bar to his bringing another action upon the agreement; though he might recover more upon the agreement, than he can by this form of action."

He referred to Dutch v. Warren where the general principles were re-stated as follows ((58) (1720) 1 Stra. 406, at p 406 (93 ER 598, at p 599)):

"(T)he defendant by a refusal to execute, or by a complete and selfevident inability to perform, or by a fraudulent execution he has given the plaintiff an option to disaffirm the contract, and recover the consideration he was paid for it in the same manner as if it had never existed ... But then the contract must be totally rescinded, and appear unexecuted in every part at the time of bringing the action; since otherwise, the contract is affirmed by the plaintiff's having received part of that equivalent for which he has paid his consideration, and it is then reduced to a mere question of damages proportionate to the extent to which it remains unperformed."

See also Greville v. Da Costa ((59) (1797) Peake Add.Cas. 113 (170 ER 213); cf. Giles v. Edwards (1797) 7 TR 181 (101 ER 920)).

29. This insistence on rescission or the non-existence of an "open" contract makes it easier to understand how the decision in Chandler v. Webster ((60) [1904] 1 KB 493 . It was overruled in Fibrosa) was reached. We now know the effect of discharge to be different and, as Fibrosa indicates, nothing more than that usual effect is necessary to ground the action to recover money paid on a total failure of consideration.

Conclusion: the respondent cannot recover the fare and damages for breach of contract

30. The old forms of action cannot provide the answer today. But, in my view, Walstab v. Spottiswoode and the earlier cases support the view expressed by Corbin and Treitel that full damages and complete restitution will not be given for the same breach of contract. There are several reasons. First, restitution of the contractual consideration removes, at least notionally, the basis on which the plaintiff is entitled to call on the defendant to perform his or her contractual obligations. More particularly, the continued retention by the defendant is regarded, in the language of Lord Mansfield, as "against conscience" or, in the modern terminology, as an unjust enrichment of the defendant because the condition upon which it was paid, namely, performance by the defendant may not have occurred ((61) See Fibrosa (1943) AC, per Lord Wright at pp 65-67). But, equally, that performance, for deficiencies in which damages a re sought, was conditional on payment by the plaintiff. Recovery of the money paid destroys performance of that condition. Secondly, the plaintiff will almost always be protected by an award of damages for breach of contract, which in appropriate cases will include an amount for substitute performance or an amount representing the plaintiff's reliance loss. It should be noted that nothing said here is inconsistent with McRae v. Commonwealth Disposals Commission ((62) (1951) 84 CLR 377 ).

31. I would therefore conclude that, even if the respondent had an entitlement to recover the cruise fare, Carruthers J. and the majority of the Court of Appeal erred in allowing restitution of the balance of the fare along with damages for breach of contract. The consequences of this conclusion will be considered below in light of the conclusion to be reached with regard to the award of damages for disappointment and distress.

THE CLAIM FOR DAMAGES FOR DISAPPOINTMENT AND DISTRESS

32. Pain and suffering is a well-known common law head of damage recoverable in actions for damages for personal injury, whether awarded for tortious conduct or conduct which constitutes a breach of statutory duty. And, in some circumstances at least, a plaintiff can recover damages for injury to his or her feelings caused by tortious conduct; assault, false imprisonment, malicious prosecution and defamation are causes of action in which a plaintiff may recover damages on that score. This is not surprising. As Lord Cranworth V.C. observed in Kemp v. Sober ((63) (1851) 1 Sim(NS) 517, at p 520 (61 ER 200, at p 201)), "the feeling of anxiety is damage". No doubt his Lordship, by that statement, intended to convey that damages could be recovered by a plaintiff for anxiety, disappointment or distress when those feelings were the consequence of conduct for which damages are recoverable and the damages recoverable for that actionable wrong include compensation for injured feelings of that kind.

33. Even more significant for the purposes of the present case was Lord Cranworth's conclusion that the owner of an estate having the benefit of a negative covenant against the carrying on of a business or calling suffered actual damage when a school was carried on in breach of the covenant. The basis of his Lordship's conclusion was expressed in these terms ((64) ibid):

"But 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."

This statement stands for the proposition that damages for anxiety suffered by the plaintiff may be recovered in an action for breach of a contract which promises freedom from anxiety. As will appear, that proposition is central to the approach which has been taken in the more recent English decisions which I shall consider later in these reasons.

34. Despite Kemp v. Sober, for a long time it was considered that, in general, damages for injured feelings of the kind just mentioned could not be awarded in an action for breach of contract. So, in Hamlin v. Great Northern Railway Company ((65) (1856) 1 H. and N. 408 (156 ER 1261)), where the plaintiff recovered pecuniary loss and nominal damages but was refused damages for distress arising from the defendant's failure to carry him by train to Hull in breach of contract resulting in his being delayed for days and missing appointments with customers, Pollock CB said ((66) ibid., at p 411 (p 1262 of ER)):

"(G)enerally in actions upon contracts no damages can be given which cannot be stated specifically, and ... the plaintiff 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 contract". (emphasis added)

In Hobbs v. London and South Western Railway Co. ((67) (1875) LR 10 QB 111, at p 122), Mellor J. reiterated this approach, observing:

"(F)or the mere inconvenience, such as annoyance and loss of temper, or vexation, or for being disappointed in a particular thing which you have set your mind upon, without real physical inconvenience resulting, you cannot recover damages".

35. Subsequently, in Addis v. Gramophone Company Limited ((68) [1909] AC 488 ), the House of Lords held that the plaintiff could not recover in an action for damages for breach of contract in respect of his injured feelings and loss of employment prospects arising from the harsh and humiliating manner of his dismissal. The same approach has been adopted in the United States ((69) Southern Express Co. v. Byers (1915) 240 US 612; Farnsworth on Contracts, (1990), vol.3, section 12.17, pp 274-276; Restatement, Second, Contracts, para 353) and Canada ((70) Vorvis v. Insurance Corporation of British Columbia (1989) 58 DLR (4th) 193, but cf. the strong dissenting judgment of Wilson J. (L'Heureux-Dube J. concurring) at pp 212-220), but it has not been followed in New Zealand ((71) Whelan v. Waitaki Meats Ltd. (1991) 2 NZLR 74; see also Horsburgh v. NZ Meat Processors Union (1988) 1 NZLR 698, per Cooke P at pp 701-702; Hetherington v. Faudet (1989) 2 NZLR 224, per Cooke P at p 227). The only consideration of the principle in this Court is the approval by Dixon and McTiernan JJ. in Fink v. Fink ((72) (1946) 74 CLR 127 , at pp 142-143) of the statement of Pollock CB in Hamlin v. Great Northern Railway Company set out above ((73) The principle was referred to briefly and without decision in Mann v. Capital Territory Health Commission (1982) 148 CLR 97 , at p 103). The general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract is, in any event, subject to exceptions to which I shall refer shortly. The scope of the exceptions has been expanded by judicial decision in recent years, so much so that the authority of the general rule is now somewhat uncertain.

36. The conceptual and policy foundations of the general rule are by no means clear. It seems to rest on the view that damages for breach of contract are in essence compensatory ((74) See Whitfield v. De Lauret and Co. Ltd. (1920) 29 CLR 71 , per Isaacs J. at p 80) and that they are confined to the award of that sum of money which will put the injured party in the financial position the party would have been in had the breach of contract not taken place. On that approach, anxiety and injured feelings do not, generally speaking, form part of the plaintiff's compensable loss which flows from a breach of contract.

37. At bottom, this approach to the problem is based on a policy of excluding the recovery of compensation for injured feelings in cases of breach of contract or confining recovery to cases of a limited class or classes, viz., those where physical inconvenience is caused by the breach of contract. This policy is based on an apprehension that the recovery of compensation for injured feelings will lead to inflated awards of damages in commercial contract cases, if not contract cases generally ((75) Hayes v. Dodd [1990] 2 All ER 815 , per Staughton LJ. at p 823). Treitel suggests that this approach is sensible because "anxiety is an almost inevitable concomitant of expectations based on promises, so that a contracting party must be deemed to take the risk of it" ((76) op cit, p 878).

38. But one might ask why the injured party should be deemed to take the risk of damage of a particular kind when the fundamental principle on which damages are awarded at common law is that the injured party is to be restored to the position (not merely the financial position) in which the party would have been had the actionable wrong not taken place. Add to that the fact that anxiety and injured feelings are recognized as heads of compensable damage, at least outside the realm of the law of contract. Add as well the circumstance that the general rule has been undermined by the exceptions which have been engrafted upon it. We are then left with a rule which rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages, the more so now that the approaches in tort and contract are converging.

39. It is convenient now to take stock of the exceptions to the general rule ((77) For the exceptions to the general rule in the United States, see Farnsworth, op cit, vol.3, section 12.17, pp 274-275; Restatement, Second, Contracts, section 353). First, damages for injured feelings were recoverable in the action for damages for breach of promise of marriage. Secondly, it is beyond question that a plaintiff can recover damages for pain and suffering, including mental suffering and anxiety, where the defendant's breach of contract causes physical injury to the plaintiff ((78) Damages for pain and suffering consequent upon physical injury caused by breach of contract may be awarded: Godley v. Perry (1960) 1 WLR 9 , at p 13; and damages for pain and suffering may include compensation for injured feelings. The class of physical injury for which damages are available includes nervous shock: Mount Isa Mines Ltd. v. Pusey (1970) 125 CLR 383 ). Thirdly, there are cases in which damages for breach of contract have included compensation for the physical inconvenience suffered by the plaintiff in certain circumstances.

They include the physical inconvenience suffered by a plaintiff when the defendant's train did not carry him to the stipulated destination ((79) Hobbs v. London and South Western Railway Co.; but cf. Hamlin v. Great Northern Railway Company) and that suffered by a plaintiff who purchased property with defects not revealed in the surveyor's report upon which the plaintiff relied ((80) Perry v. Sidney Phillips and Son (1982) 1 WLR 1297 ; Watts v. Morrow (1991) 1 WLR 1421 ). Fourthly, courts have included compensation for an element of subjective mental suffering where the plaintiff has sustained physical inconvenience as a result of the defendant's breach of contract and the mental suffering is directly related to that physical inconvenience ((81) Hobbs v. London and South Western Railway Co. (1875) LR 10 QB, per Cockburn C.J. at p 116; Archibald J. at p 124; Bailey v. Bullock [1950] 2 All ER 1167 , at pp 1171-1172; Athens-MacDonald Travel Service Pty. Ltd. v. Kazis (1970) SASR 264, per Zelling J. at pp 274- 275; and see Watts v. Morrow (1991) 1 WLR, per Ralph Gibson LJ. at pp 1439-1440; Bingham LJ. at p 1445).

Finally, there are other cases in which the plaintiff has recovered damages for distress, vexation and frustration where the very object of the contract has been to provide pleasure, relaxation or freedom from molestation. So, in Heywood v. Wellers ((82) (1976) QB 446), where the plaintiff instructed a solicitor to obtain an injunction to protect the client from molestation and the solicitor negligently failed to do so, the client recovered damages for the mental distress she suffered in consequence of being molested. The contract between the client and the solicitor had as its object the protection of the client from molestation of the kind which occurred ((83) ibid., per Lord Denning M.R. at pp 458-459; James L.J. at pp 461-462; Bridge L.J. at pp 463-464). Likewise, plaintiffs have recovered damages for disappointment and distress caused by the breach of a contract to provide a stipulated holiday, entertainment or enjoyment, the object of the contract being to provide pleasure or relaxation ((84) Jarvis v. Swans Tours Ltd. (1973) QB 233, per Lord Denning M.R. at pp 237-238; Edmund Davies LJ. at pp 238-240; Jackson v. Horizon Holidays Ltd. (1975) 1 WLR 1468 ).

40. The approach which has been taken in the more recent English decisions, particularly those decisions which vindicate the last three of the exceptions set forth above, is based on the rule in Hadley v. Baxendale ((85) (1854) 9 Ex 341 (156 ER 1 5)). Thus, in Cox v. Philips Industrie s Ltd. ((86) (1976) 1 WLR 638 , at p 644; see also Heywood v. Wellers (1976) QB, per Lord Denning M.R. at p 459; James LJ. at p 461), Lawson J. concluded that there was:

"no reason in principle why, if a situation arises which within the contemplation of the parties would have given rise to vexation, distress and general disappointment and frustration, the person who is injured by a contractual breach should not be compensated in damages for that breach".

On other occasions reference has been made to the concept of reasonable foreseeability ((87) See, for example, Perry v. Sidney Phillips and Son (1982) 1 WLR, per Lord Denning M.R. at p 1303) which is the test for remoteness of damage. However, the remoteness test does not provide a satisfactory explanation for the approach now adopted in England. If that test be the sole determinant for the recovery of damages for disappointment and distress, such damages would generally be recoverable so long as they were not too removed; their availability would not be relegated to an exception to a general rule denying recovery. Furthermore, it is clear that in England emphasis is given in the cases to the limited circumstances in which such damages are awarded for breach of contract. Thus, in Watts v. Morrow ((88) (1991) 1 WLR, at p 1445), Bingham LJ. denied that the general exclusionary rule was founded on the assumption that the plaintiff's feelings are not foreseeable and asserted that it was founded on considerations of policy. He went on carefully and convincingly to delineate the circumstances in which damages could be awarded, observing ((89) ibid):

"But the rule is not absolute. 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. A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category.
In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort."

41. The rule in Hadley v. Baxendale ((90) (1854) 9 Ex, per Alderson B. at p 354 (156 ER, at p 151)) presents a somewhat narrower test than that posed by the concept of foreseeability and therefore avoids some of the criticisms to which that concept is exposed. The rule in Hadley v. Baxendale would entitle the plaintiff to damages for disappointment and distress when those damages are ((91) ibid):

"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".

Likewise, the plaintiff would be entitled to such damages if the case fell within the second limb of the rule by showing knowledge by the parties of special circumstances.

42. In C. Czarnikow Ltd. v. Koufos ((92) [1969] 1 AC 350 ), the House of Lords held that damage in the reasonable contemplation of the parties must be "a serious possibility", "a real danger", "liable to result" or "not unlikely" to occur. In Wenham v. Ella ((93) (1972) 127 CLR 454 , at pp 471-472), Gibbs J. found it unnecessary to decide which of these expressions conveyed most precisely the desired shade of meaning but stated that a person suing for breach of contract did not need to establish that the loss was "a near certainty or an odds-on probability".

43. Wilson J., in her dissenting judgment in Vorvis v. Insurance Commission of British Columbia ((94) (1989) 58 DLR (4th), at pp 218-219), accepted that the principle stated in Czarnikow was the test to apply in determining whether damages for disappointment and distress should be awarded for breach of contract. The merits of this approach to the problem are obvious. Damages for disappointment and distress are put on precisely the same footing as other heads of damage in cases of breach of contract.

44. On the other hand, as a matter of ordinary experience, it is evident that, while the innocent party to a contract will generally be disappointed if the defendant does not perform the contract, the innocent party's disappointment and distress are seldom so significant as to attract an award of damages on that score. For that reason, if for no other, it is preferable to adopt the rule that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation. In cases falling within the last-mentioned category, the damages flow directly from the breach of contract, the promise being to provide enjoyment, relaxation or freedom from molestation. In these situations the court is not driven to invoke notions such as "reasonably foreseeable" or "within the reasonable contemplation of the parties" because the breach results in a failure to provide the promised benefits. In my view, this approach to the problem is to be preferred to the artificial expedient of saying that damages of the kind under consideration will be awarded for breaches of non-commercial contracts but not for breaches of commercial contracts. That expedient requires a distinction to be drawn between commercial and non-commercial contracts; that distinction is by no means easy to draw and, in any event, it is not a distinction which should necessarily be decisive in determining whether such damages are available or not.

45. In the present case, the contract, which was for what in essence was a "pleasure cruise", must be characterized as a contract the object of which was to provide for enjoyment and relaxation. It follows that the respondent was entitled to an award of damages for disappointment and distress and physical inconvenience flowing from that breach of contract. Indeed, an award for disappointment and distress consequential upon physical inconvenience was justified on that account alone.

46. No submission was addressed to the Court that, in the event that the claim for restitution of the fare was disallowed, the award of damages for disappointment and distress should be increased. In this regard, it is pertinent to refer to Kirby P.'s comments. His Honour said ((95) (1991) 22 NSWLR, at p 31):

"Whilst I would not myself have awarded the sum of $5,000 for disappointment etc, particularly after having ordered the return of the whole of the ticket price, I have to defer to his Honour's advantage in weighing the effect of disappointment of the respondent whom he saw. Unless there is some exceptional circumstance increasing the sting of the failure to provide the enjoyment and pleasure promised, I would be inclined to suggest that no more than half the sum awarded in this case should be the norm for the ordinary passenger. I refrain from disturbing the sum which his Honour fixed in this case only because it might have been influenced (as assessments of the benefit and loss of enjoyment and pleasure typically are) by the impression which his Honour derived from seeing the respondent give evidence of her disagreement."

47. On the hearing of the appeal, the respondent was given leave to raise the contention that, in the event that it was held that the award of $1,417 as restitution of the balance of the fare ought not to have been made as such, nonetheless the verdict ought not be disturbed since the sum so awarded as restitution damages was in any event recoverable, although properly identified under a different head. I agree with McHugh J., whose judgment I have had the benefit of reading since writing this judgment, that this contention must be rejected for the reasons arising out of the passage from the judgment of Kirby . set out above. If the respondent were to retain that sum and the sum of $5,000 awarded as compensation for disappointment and distress, her compensation would be excessive.

CONCLUSION

48. In the result, the appeal should be allowed and the order of the Court of Appeal, so far as it dismissed the appeal to that Court, be set aside. In lieu of that part of the order of the Court of Appeal, it should be ordered that the appeal to that Court be allowed and that the order made by Carruthers J. for restitution of the fare and so much of the award of interest as relates to the order for restitution be set aside. Although the appeals to this Court and to the Court of Appeal have been allowed, the actual success of the appellant has been limited. I see no reason to disturb the order for costs made by the Court of Appeal. The appellant should pay 75 per cent of the costs of the respondent in this Court.