Baltic Shipping Co v Dillon

Restitution of [balance of] fare $1,417 Loss of [items of personal property] 4,265 Compensation for disappointment and distress at the loss of the entertainment, etc. 5,000 Damages for personal injuries [including emotional trauma] 35,000 Interest 10,500 56,182 Less paid by the defendant 4,786 $51,396

An appeal by Baltic to the New South Wales Court of Appeal (Gleeson C.J. and Kirby P., Mahoney J.A. dissenting) was dismissed. Baltic now appeals from the judgment and orders of the Court of Appeal. It should be noted that the damages for loss of property, "personal injuries" and "disappointment and distress" were all awarded as compensatory damages for breach of contract. The statement of claim had contained an alternative claim in negligence but that appears to have been discarded as superfluous somewhere along the way.

Two issues now remain for determination on this appeal. The first is whether Mrs. Dillon was entitled to the order made in her favour for "[r]estitution" of the amount of $1,417 being the balance of the fare after the refund of $787.50, that is to say, being that part of the fare which Baltic claims to be attributable to the period of the cruise which had expired before the shipwreck. The second is whether Mrs. Dillon was entitled to "[c]ompensation for disappointment and distress at the loss of the entertainment, etc.".

The learned trial judge and the majority of the Court of Appeal held that Mrs. Dillon was entitled to a refund of the whole fare. The money had, in their Honours' view, been paid under a contract of passage which was an entire contract. It had been paid for an indivisible consideration which had wholly failed. In the words of Kirby P. (with whom Gleeson C.J. agreed on this aspect of the case), Mrs. Dillon "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." Both the learned trial judge and the majority of the Court of Appeal thought that there was a good analogy between the present case and Sir George Jessel M.R.'s well known example in In re Hall & Barker [18] : "[I]f a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe, and ask you to pay one half the price."

The fact that the promised consideration under a contract is "entire" or "entire and indivisible" [19] will, subject to any applicable provision of the contract, prevent recovery, in an action in contract, of part of the promised purchase price in circumstances where there has been a failure to provide part of that consideration. In such a case, the purchase price represents the contractual quid pro quo for the whole of the promised indivisible consideration and the promisee is not, in the absence of any applicable provision in the contract, under a contractual obligation to accept or pay for part only thereof. If, in such a case, the promisee accepts the benefit of part only of the consideration, any enforceable obligation to pay for it must arise from some new contract or from the operation of principles of unjust enrichment in the particular circumstances.

1. See, e.g., Steele v Tardiani (1946), 72 C.L.R. 386, at p. 401.

The present case is not, however, one in which a party who has provided part only of the promised consideration seeks to recover part of the agreed purchase price. In the present case, it is the promisee, Mrs. Dillon, who seeks to recover the whole of a prepaid purchase price on the ground that the consideration for which it was paid has wholly failed. Mrs. Dillon does not rely upon any provision of the contract between Baltic and herself under which Baltic was obliged to refund the whole of the fare in the events which happened. There was no such contractual provision. The basis of her claim is the obligation of restitution which the law prima facie imposes upon the recipient of a payment made under a contract which has become "abortive for any reason not involving fault on the part of the plaintiff" in a case "where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue" [20] . Such a claim is not a claim on the contract [21] . Its historical antecedent in terms of forms of action is the old indebitatus count for money had and received to the use of the plaintiff [22] . Its modern substantive categorization is as an action in unjust enrichment. In other words, the receipt of a payment of money for a consideration which wholly fails "is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution to the person who has sustained the countervailing detriment" [23] .

1. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd. , [1943] A.C. 32, at pp. 64-65, per Lord Wright. 2. See Pavey & Matthews Pty Ltd v Paul (1987), 162 C.L.R. 221, at pp. 256-257; Lipkin Gorman (A Firm) v Karpnale Ltd. , [1991] 2 A.C. 548, at pp. 572, 578; and, generally, Birks, "The Independence of Restitutionary Causes of Actions", University of Queensland Law Journal, vol. 16 (1990) 1, at pp. 19-20. 3. See, e.g., Moses v Macferlan (1760), 2 Burr. 1005, at p. 1012 [97 E.R. 676, at pp. 680-681]; Fibrosa, [1943] A.C., at pp. 62-64; Bullen and Leake, Precedents of Pleadings, 3rd ed. (1868), pp. 44-50. 4. Australia & New Zealand Banking Group Ltd. v Westpac Banking Corporation (1988), 164 C.L.R. 662, at p. 673.

The principle which underlies the claim of the payer for restitution of the whole purchase price in that category of case is "the most ordinary principle of law" identified by Brett L.J. in Wilson v Church [24] :

[W]here money is paid for a consideration which is to be performed after the payment, if that consideration wholly fails, the money becomes money in the hands of the borrowers held to the use and for the benefit of the lenders, and must be returned [25] . That statement of principle was made in an appeal from a judgment of Fry J. in proceedings in the Chancery Division. Like the indebitatus count for money had and received, it was framed in the traditional language of trust or use. The indebitatus count was, however, a common law count for the enforcement of a common law obligation [26] and the underlying principle which Brett L.J. identified had long been part of the fabric of the common law. Nonetheless, in a modern context where common law and equity are fused with equity prevailing, the artificial constraints imposed by the old forms of action can, unless they reflect coherent principle, be disregarded where they impede the principled enunciation and development of the law. In particular, the notions of good conscience, which both the common law and equity recognized as the underlying rationale of the law of unjust enrichment, now dictate that, in applying the relevant doctrines of law and equity, regard be had to matters of substance rather than technical form. 1. (1879) 13 Ch. D. 1, at p. 50. 2. See, also, Fibrosa, [1943] A.C., at p. 81, per Lord Porter. 3. Indeed, a conclusion that the money had and received had been received by the recipient as a trustee was seen - though not always - as providing a defence against, rather than a foundation for, a claim on the count: see, e.g., Bullen & Leake, op. cit., pp. 46-47.

The critical question on this aspect of the present case is whether the consideration for which Mrs. Dillon paid the stipulated fare to Baltic wholly failed. That consideration was not, for the purposes of her action in unjust enrichment, the contractual promise which she received from Baltic. Technically, it can be argued that Baltic's bare promise to provide the pleasure cruise itself represented some consideration for Mrs. Dillon's fare and that, that being so, it is wrong to say that the consideration for the prepayment wholly failed. As has been said, however, the law of unjust enrichment is concerned with substance rather than technical form. If a bare promise to provide consideration were regarded as the provision of consideration, "there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled" [27] . Prima facie, where a simple promise of future performance is involved, the law of unjust enrichment looks to the future performance and not the bare promise as the relevant consideration [28] . Thus, the consideration for which Mrs. Dillon paid the fare was the substance of Baltic's contractual promise, namely, the actual provision of the components of the promised fourteen-day pleasure cruise upon the " Mikhail Lermontov ". If all that Mrs. Dillon had relevantly received had been Baltic's bare promise, unperformed and unenforced, the consideration for the whole of the fare would have wholly failed. In fact, however, Baltic provided and Mrs. Dillon accepted the accommodation, the sustenance, the entertainment and the transport involved in the first eight clear days of the fourteen-day cruise. We turn to consider the significance of that fact.

1. See Fibrosa, [1943] A.C., at p. 48, per Viscount Simon L.C. 2. See, e.g., Rowland v Divall , [1923] 2 K.B. 500, at pp. 506-507; Shaw v Ball (1962), 63 S.R. (N.S.W.) 910, at p. 915; Rover International Ltd. v Cannon Film Ltd. , [1989] 1 W.L.R. 912, at pp. 923-924; [1989] 3 All E.R. 423, at pp. 433-434; Birks, An Introduction to the Law of Restitution, rev. ed. (1989), pp. 222-223; Goff and Jones, The Law of Restitution, 3rd ed. (1986), pp. 369-370; Beatson, The Use and Abuse of Unjust Enrichment, (1991), pp. 3, 63.

It is arguable that the promised consideration of the pleasure cruise was severable in the sense that, subject to the obligation to transport passengers back to Sydney, the fare could be apportioned or allocated on a day by day basis. As has been seen, however, the view that has prevailed in the courts below is that the consideration was entire and indivisible and it may be assumed, for the purposes of this appeal, that that view is correct. The fact that the promised consideration was entire and indivisible may be important in an action in unjust enrichment for restitution of money paid for a consideration that has failed. Thus, as the above extract from the speech of Lord Wright in Fibrosa indicates [29] , the weight of authority supports the approach that in such an action that fact will automatically preclude recovery of part of the purchase price in a case of partial failure of consideration [30] with the result that the innocent party is confined to suing in contract for the difference in value between what was promised and what was provided [31] . It is, however, unnecessary to consider that question here since it has not been argued that, if Mrs. Dillon is not entitled to restitution of the full fare on the basis of a complete failure of consideration, the refund by Baltic of part of the fare was inadequate compensation for the failure to provide the final days of the cruise. Again, the fact that the consideration was entire and indivisible will prima facie entitle the promisee to reject a tender of only part of the consideration [32] and may, depending upon the circumstances, support a conclusion that part only of the consideration, if provided, was worthless and, for the purposes of the law of unjust enrichment, no consideration at all [33] . Ordinarily, however, an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted. If, for example, the customer of Sir George Jessel's shoemaker, having paid in advance, had accepted one shoe and worn it with a matching shoe from another pair, it could not be said that the consideration for the prepayment had wholly failed. On the other hand, if the customer, having paid in advance, had refused to accept the tender of a single shoe on the ground that the agreed consideration of a pair of shoes was entire and indivisible, the money which he had paid would have been recoverable for a total failure of consideration.

1. See above fn. (39). See also, [1943] A.C., at pp. 56, 60, 77; and cf. The Commonwealth v Amann Aviation Pty Ltd (1991), 174 C.L.R. 64, at p. 117. 2. See, generally, Goff and Jones, op. cit., pp. 54-55, 369-371, 449-454, 458-465, 480-481. 3. In many, and possibly most, cases, there will be no practical difference in the result in that the difference in value between what was promised and what was provided will be equivalent to that part of the purchase price which can be attributed to that which was not provided. 4. See, e.g., Giles v Edwards (1797), 7 T.R. 181 [101 E.R. 920]. 5. See, e.g., Heywood v Wellers (A Firm) , [1976] Q.B. 446, at pp. 458-459.

There can be circumstances in which there is, for relevant purposes, a complete failure of consideration under a contract of transportation notwithstanding that the carrier has provided sustenance, entertainment and carriage of the passenger during part of the stipulated journey. For example, the consideration for which the fare is paid under a contract for the transportation of a passenger by air from Sydney to London would, at least prima facie, wholly fail if, after dinner and the inflight film, the aircraft were forced to turn back due to negligent maintenance on the part of the carrier and if the passenger were disembarked at the starting-point in Sydney and informed that no alternative transportation would be provided. Thus, in Heywood v Wellers, Lord Denning M.R. regarded it as self-evident that, in some circumstances where part of a journey had been completed, money paid to the carrier or "driver" was recoverable "as of right" for the reason that it was "money paid on a consideration which had wholly failed" [34] .

However, the promised consideration in the present case was not, as a matter of substance, the transportation of Mrs. Dillon from Sydney to Sydney. As has been said, it was the provision of all that was involved in the promised pleasure cruise as a holiday experience. Even on the assumption that that promised consideration was entire and indivisible, it did not wholly fail. Baltic provided and Mrs. Dillon accepted and enjoyed eight complete days of the cruise. It is true that Mrs. Dillon would have been entitled to decline to board the ship or to accept only part of the promised consideration if it could have, and had, been known in advance that all that Baltic would in fact provide was eight days of cruising culminating in the sinking of the ship off New Zealand as a result of Baltic's breach of its contractual duty to take reasonable care. If, in that necessarily hypothetical situation, Mrs. Dillon had wisely decided to stay at home, the consideration for the fare would have failed completely and, subject to any applicable provisions of the contract between herself and Baltic [35] , she would have been entitled to succeed in an action in unjust enrichment for the recovery of the whole fare. In circumstances where Mrs. Dillon accepted and enjoyed the major portion of the pleasure cruise, however, there was no complete failure of the consideration for which she paid the fare. The catastrophe of the shipwreck and its consequences undoubtedly outweighed the benefits of the first eight complete days. It did not, however, alter the fact that those benefits, which were of real value, had been provided, accepted and enjoyed.

There is a further reason, which would appear not to have been raised in argument in the courts below, why Mrs. Dillon's action for restitution of the fare paid to Baltic must fail. It is that she has sought and obtained an order against Baltic for compensatory damages for Baltic's failure to perform its contractual promises to her. In particular, she has received a refund of a proportionate part of the fare and has obtained and will retain (see below) the benefit of an award of damages for the disappointment and distress which she sustained by reason of Baltic's failure to provide her with the full pleasure cruise which it promised to provide. In these circumstances, Mrs. Dillon has indirectly enforced, and indirectly obtained the benefit of, Baltic's contractual promises.

Ordinarily, as has been seen, "when one is considering the law of failure of consideration and of the right to recover money on that ground, it is not the promise which is referred to as the consideration, but the performance of the promise" [36] . That statement has nothing to say, however, to the situation which exists when the promisee has sought and obtained an award of full compensatory damages for the failure to perform the promise. In that situation, the damages are awarded and received as full compensation for non-performance or breach of the promise and represent the indirect fruits of the promise. That being so, it would be quite wrong to say either that the only quid pro quo which has been obtained for the payment by the promisee is the bare promise or that the promise and the recovery of compensatory damages for its breach can realistically be seen as representing no consideration at all. In such a case, the promise has been indirectly enforced and the award of compensation has, as a matter of substance, been received in substitution for the promised consideration. In those circumstances, the promisee, having received full compensation for non-performance of the promise, is not entitled to a refund of the price upon payment of which the performance of the promise was conditioned [37] . Were it otherwise, the promisee "would have the equivalent" of performance of the contractual promise "without having borne the expense" which he or she had agreed to pay for it [38] .

1. ibid., at p. 48, per Viscount Simon L.C. 2. See, e.g., Moses v Macferlan (1760), 2 Burr., at p. 1010 [97 E.R., at p. 679]. 3. See T.C. Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963), 37 A.L.J.R. 289, at p. 293; [1964] A.L.R. 1083, at p. 1090.

The general principle underlying the ascertainment of damages for breach of contract is that a successful plaintiff is entitled to the monetary sum which provides reasonable compensation for the breach "without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept" [39] . The various rules which have been enunciated by the courts in an endeavour to provide guidance and to promote consistency in the assessment of such damages have, to some extent, been self-fulfilling in that, particularly in the case of commercial contracts, the parties to a contract are likely to make their bargain on the basis that, in the absence of any contrary provision in the contract, damages will, in the event of breach, be assessed on the basis of those rules. In that context, and notwithstanding the validity of Walsh J.'s comment in Wenham v Ella (60) to the effect that many of the "rules which constitute useful guidance in the ascertainment of damages" should not be treated as other than "prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve" an appropriate result, the courts should tread warily before disturbing general rules which have come to be regarded as settled.

1. Wenham v Ella (1972), 127 C.L.R. 454, at p. 466, per Walsh J.

One of the general rules relating to the assessment of compensatory damages for breach of contract which has been accorded the status of settled principle is the rule that a plaintiff is not entitled to recover damages for the "disappointment of mind", distress and injured feelings "occasioned by the breach of contract" [40] . That rule, where applicable, represents an essentially pragmatic and judicially imposed assumption which is to be made for the purposes of the application of the second limb of the rule in Hadley v Baxendale [41] , that is to say, it is to be assumed that disappointment or distress flowing from the breach of contract would not have been in the contemplation of the parties, at the time they made the contract, as a likely result of breach. As Kirby P. commented in the Court of Appeal, it is a result of history, rather than logic, that a different rule evolved in the law of torts. Notwithstanding that the rule is based upon pragmatism rather than logic, we are unable to agree with the suggestion to be found in some recent judgments that it should now be effectively abolished by judicial decision [42] . There are, however, established qualifications of or exceptions to the general rule. The question which arises on this aspect of the case is whether disappointment and distress sustained by reason of breach of a contract to provide a pleasant and relaxing holiday experience comes within them. In our view, it does.

1. Hamlin v Great Northern Rly Co. (1856), 1 H. & N. 408, at p. 411 [156 E.R. 1261, at p. 1262]; and see, e.g., Addis v Gramophone Co. Ltd. , [1909] A.C. 488. 2. (1854) 9 Ex. 341 [156 E.R. 145]. 3. See, in particular, Vorvis v Insurance Corporation of British Columbia , [1989] 1 S.C.R. 1085, at pp. 1113-1124; (1989) 58 D.L.R. (4th) 193, at pp. 212-220; Rowlands v Collow , [1992] 1 N.Z.L.R. 178, at p. 208.

The many cases in which an award of damages for breach of contract has included compensation for mental distress can be grouped (sometimes a little uncomfortably) into a number of different categories, including breach of promise of marriage, breach of contract causing physical injury and breach of contract directly causing physical inconvenience. There is something to be said for the approach that those different categories of case in which the general rule is inapplicable should be seen as manifestations of some more general qualification or confinement of the prima facie rule. It has, for example, been suggested that the prima facie rule excluding damages in contract for mental distress should be seen as confined to ordinary commercial contracts and contracts involving proprietary rights as distinct from contracts relating to personal and social services and relationships [43] . It is, however, unnecessary to pursue that question for the purposes of the present case since we consider that regardless of whether it be possible to identify some such overall confinement of the general rule, it should be accepted that the present case falls within a category to which the general rule does not apply. That category of case encompasses cases where the disappointment and distress have been caused by breach of a contract under which the party allegedly in breach is shown expressly or impliedly to have agreed to provide pleasure, entertainment or relaxation or to prevent molestation or vexation [44] . In cases falling within that category, an assumption that the disappointment and distress occasioned by breach would not have been within the contemplation of the parties is particularly unjustifiable. In that regard, we agree with the comment of Bingham L.J. in Watts v Morrow [45] :

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. 1. See, e.g., Horsburgh v New Zealand Meat Processors Industrial Union of Workers , [1988] 1 N.Z.L.R. 698, at pp. 701-702; Whelan v Waitaki Meats Ltd. , [1991] 2 N.Z.L.R. 74, at pp. 87-89. 2. See, e.g., Silberman v Silberman (1910), 10 S.R. (N.S.W.) 554, at pp. 557-560; Stedman v Swan Tours (1951), 95 Sol. J. 727; Athens-MacDonald Travel Service Pty Ltd v Kazis , [1970] S.A.S.R. 264, at pp. 270-275; Jarvis v Swans Tours , [1973] Q.B. 233, at pp. 237-238, 239, 240-241; Jackson v Horizon Holidays Ltd. , [1975] 1 W.L.R. 1468, at p. 1472; [1975] 3 All E.R. 92, at p. 94; Heywood v Wellers, [1976] Q.B., at p. 459; Falko v James McEwan & Co. Ltd. , [1977] V.R. 447, at p. 451; Sampson v Floyd , [1989] 2 E.G.L.R. 49, at p. 50; Hayes v James & Charles Dodd (A Firm) , [1990] 2 All E.R. 815, at pp. 824, 826. 3. [1991] 1 W.L.R. 1421, at p. 1445; [1991] 4 All E.R. 937, at p. 960.

The object of the contract between Baltic and Mrs. Dillon in the present case was to provide Mrs. Dillon with the relaxing enjoyment and entertainment of a fourteen-day pleasure cruise. It was an implied term of the contract that Baltic would take all reasonable steps to provide such a cruise. The direct consequence of Baltic's admitted breach of contractual duty was that Baltic failed to provide the latter part of that promised pleasant holiday. Instead, it provided an extraordinarily unpleasant experience. Subject to the ordinary need to avoid double compensation, Mrs. Dillon was entitled to recover damages for the disappointment and distress which she suffered as the result of Baltic's breach of contract.

It follows from what has been said above that the award of damages in Mrs. Dillon's favour should be reduced by eliminating the award of $1,417 which represented "[r]estitution" of that part of the fare which Baltic had retained as attributable to the eight clear days of the cruise before the shipwreck. The interest component of the award should consequently be reduced to the extent that it is attributable to that $1,417.

There remains for consideration the question whether the amount of $5,000 awarded for "disappointment and distress at the loss of the entertainment, etc." should be increased for the reason that, in the context of the need to avoid double compensation, that amount may have been adjusted down to take account of the fact that Baltic was also being required to make restitution of the whole of the fare. Both the learned trial judge and the majority of the Court of Appeal were clearly conscious of the need to avoid overlapping or double compensation. Nonetheless, we have come to the conclusion that any upwards adjustment of the amount of $5,000 could not be justified. Viewed against the "emotional scars" and "psychological trauma" (including "sense of panic, continued preoccupation with the event, nightmares, jumpiness, poor concentration and hyper-vigilance") which the learned trial judge found that Mrs. Dillon had sustained as a result of the shipwreck, any disappointment and distress caused by Baltic's failure to provide the whole of the pleasure cruise seems to us to have necessarily been comparatively insignificant. In a context where Mrs. Dillon has received a refund of part of the fare to cover the lost final days and has been compensated, under another head of damages, for those "emotional scars" and that "psychological trauma", the award of an additional $5,000 damages represents more than adequate compensation for any "disappointment and distress at the loss of the entertainment" and other benefits of those final days.

I agree with the judgment of the Chief Justice and with the orders he proposes. In particular, I agree that the consideration for the contract of voyage into which the respondent entered did not totally fail; that the respondent was not entitled to a return of her fare as money paid for a consideration that totally failed; and that, in accordance with the principles enunciated by the Chief Justice, the respondent was entitled to an award of damages for disappointment and distress and physical inconvenience flowing from the appellant's breach of contract. I have nothing to add to the Chief Justice's reasons.

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.

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.

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.

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 [46] . 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" [47] . 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.

1. 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 T.R. 381 [101 E.R. 1032]; Metcalfe v Britannia Iron Works Co. (1877), 2 Q.B.D. 423, but is not entire with respect to the quantity of the cargo delivered: Ritchie v Atkinson (1808), 10 East 295 [103 E.R. 787]; Dakin v Oxley (1864), 15 C.B. (N.S.) 646 [143 E.R. 938]. See also Hoenig v Isaacs , [1952] 2 All E.R. 176, at p. 181 for an example of a contract containing both entire and non-entire obligations. 2. Sinclair v Bowles (1829), 7 L.J.K.B. 178, at p. 179.

The nature and consequences of an entire contract were explained in a passage in E. V. Williams' Notes to Saunders' Reports [48] , cited with approval by Dixon J. in Steele v Tardiani [49] :

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. 1. 6th ed. (1845), vol. 1; Pordage v Cole (1669), 1 Wms Saund. 319, at p. 320 n. (c) [ 85 E.R. 449, at p. 453]. 2. (1946) 72 C.L.R. 386, at p. 401.

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 [50] . 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 [51] .

1. See, generally as to total failure of consideration, Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd. , [1943] A.C. 32. See, with respect to recovery under an entire contract, Giles v Edwards (1797), 7 T.R. 181 [101 E.R. 920]; Scurfield v Gowland (1805), 6 East 241 [102 E.R. 1279]. 2. See Weston v Downes (1778), 1 Dougl. K.B. 23, at pp. 24-25 [99 E.R. 19, at p. 20]; Towers v Barrett (1786), 1 T.R. 133, at p. 136 [99 E.R. 1014, at p. 1016]; Kwei Tek Chao v British Traders & Shippers Ltd. , [1954] 2 Q.B. 459, at p. 475; Fibrosa, [1943] A.C., at p. 64.

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 [52] . 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 [53] .

1. See, e.g., Cutter v Powell (1795), 6 T.R. 320, at p. 325 [101 E.R. 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 E.R., at p. 181 where Lord Denning described "entire performance" as a "condition precedent to payment" in respect of some obligations. 2. See Pavey & Matthews Pty Ltd v Paul (1987), 162 C.L.R. 221, at p. 227, per Mason and Wilson JJ.; pp. 254-257, per Deane J.

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" [54] . And the contract considered in Dies v British & International Mining & Finance Corporation Ltd. [55] seems to have involved a condition of a similar kind [56] . 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.

1. (1933) 48 C.L.R. 457, at p. 477. 2. [1939] 1 K.B. 724. 3. See the analysis by Beatson, The Use and Abuse of Unjust Enrichment (1991), pp. 54-55.

In the present case, there can be no doubt that there was an obligation on the part of Baltic Shipping Co. 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 in so far 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.

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 [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.

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.

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.

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.

I agree with the orders proposed by the Chief Justice.

Baltic Shipping Co. ("Baltic") appeals against an order of the Supreme Court of New South Wales (Court of Appeal). The order in question dismissed an appeal by Baltic against so much of an order made in the Admiralty Division of the Supreme Court as awarded damages to the respondent, Mrs. Joan Norma Dillon, for breach of contract by Baltic. The action for breach of contract arose out of the sinking of the " Mikhail Lermontov ", a cruise ship owned by Baltic.

Sometime prior to 7 February 1986, Baltic agreed in consideration of the sum of $2,205, payable in advance, to carry Mrs. Dillon on the " Mikhail Lermontov " on a fourteen day cruise in the South Pacific. At about 5.30 p.m. on 16 February 1986, the tenth day of the cruise, the ship struck a rock. It sank later that evening. Mrs. Dillon was taken off the ship, shortly before it sank. Subsequently, she commenced an action against Baltic in the Admiralty Division of the Supreme Court of New South Wales for breach of contract. After the hearing of the action had commenced, Baltic admitted liability. Pursuant to the powers conferred by the Contracts Review Act 1980 NSW, Carruthers J., who heard the action [58] , set aside a deed under which Mrs. Dillon released Baltic from liability in consideration of the payment of certain moneys including a partial repayment of her fare. His Honour awarded Mrs. Dillon the following damages:

Restitution of the balance of fare $ 1,417 Loss of valuables 4,265 Compensation for disappointment and distress 5,000 Damages for personal injury 35,000 $45,682

An appeal to the Court of Appeal (Gleeson C.J. and Kirby P., Mahoney J.A. dissenting) against the award of damages failed [59] . 1. (1989) 21 N.S.W.L.R. 614. 2. (1991) 22 N.S.W.L.R. 1.

The questions for determination in this Court are whether Mrs. Dillon was entitled to have her fare refunded and whether she was entitled to claim damages for distress and disappointment because the cruise was not completed.

Contrary to the conclusion reached in the Supreme Court of New South Wales, Mrs. Dillon was not entitled to have her fare refunded. The advance payment of the fare was not a security for the price of the cruise. Nor was it a payment which was to be earned by Baltic only upon performance of its promise to provide a fourteen day cruise. The fare, with other fares, was payable in advance in order to provide a fund from which Baltic could meet the expense of providing the various benefits associated with the cruise, benefits which were to be enjoyed throughout and from the commencement of the cruise. Consequently, the right of Baltic to retain the amount of the fare became unconditional once Baltic began to provide those benefits to Mrs. Dillon. Furthermore, the subsequent sinking of the " Mikhail Lermontov " did not alter Baltic's unconditional right to retain the amount of the fare. Because the common law has no doctrine of apportionment in respect of a partial failure of consideration, Mrs. Dillon's remedy in respect of Baltic's failure to complete the cruise was an action for damages for breach of contract and not an action for partial restitution of the sum paid as the price of the fare.

When a contractual payment is made conditionally upon the performance of a promise by the payee, the right to retain the moneys after discharge of the contract is dependent upon whether the promise has been performed. If the promise has not been performed, there has been a total failure of consideration by reason of the nonfulfilment of the condition, and the money is recoverable as money had and received to the use of the payer [60] . In this context, consideration is not necessarily the same concept as the consideration which supported the formation of the contract. In a case where a promise and not an act or forbearance is the consideration for the contract, it is the performance of the promise which constitutes the consideration for the purpose of the law of restitution [61] . As Birks [62] says:

Failure of the consideration for a payment means that the state of affairs contemplated as the basis or reason for the payment has failed to materialize or, if it did exist, has failed to sustain itself. 1. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd. , [1943] A.C. 32, at p. 65. 2. ibid., at p. 48; Rover International Ltd. v Cannon Film Ltd. , [1989] 1 W.L.R. 912, at pp. 923-924; [1989] 3 All E.R. 423, at pp. 433-434. 3. An Introduction to the Law of Restitution, (1985), p. 223.

Furthermore, where the condition upon which the money was paid has failed, the payer is entitled to the return of the money advanced, even though that person has obtained some benefit from the contract. Work done or expense incurred by the payee or benefit enjoyed by the payer will not constitute consideration unless it constitutes a partial performance of the condition upon which the money was paid. Thus, the purchaser of a motor vehicle is entitled to the return of the full purchase price of the vehicle if the vendor has failed to make title even though the purchaser has had the use of the vehicle for a considerable period [63] . The seller cannot retain the purchase moneys because their retention is conditional upon the vendor making good his or her promise to transfer the title of the vehicle to the purchaser. Similarly, a solicitor who is paid money on account of costs to seek a court order cannot retain the costs if he fails to take reasonable care to seek the order even though he has incurred expense or done work on the case [64] .

1. Rowland v Divall , [1923] 2 K.B. 500; Warman v Southern Counties Car Finance Corporation Ltd. , [1949] 2 K.B. 576; Butterworth v Kingsway Motors Ltd. , [1954] 1 W.L.R. 1286; [1954] 2 All E.R. 694. 2. Heywood v Wellers (A Firm) , [1976] Q.B. 446.

Moreover, "once it does appear that the condition for retaining the money has failed the fact that it failed in response to the payer's own breach does not matter" [65] . As Birks says [66] , this is the best explanation of the much discussed case of Dies v British & International Mining & Finance Corporation [67] where a buyer in default was held entitled to recover instalments of the purchase price of guns and ammunition. Once the seller elected to accept the buyer's repudiation and terminate the contract, the consideration for the advance payment had wholly failed because the seller retained the guns and ammunition.

1. Birks, op. cit., p. 238. 2. ibid., pp. 236-237. 3. [1939] 1 K.B. 724.

However, when a contractual payment is not subject to any condition or the condition for its retention has been fulfilled, discharge of the contract does not entitle the payer to the return of money advanced even though the payee is in breach of a promise going to the root of the contract. In such a case, the payer's remedy is for breach of contract for non-performance of the promise and not for restitution of the payment. In McDonald v Dennys Lascelles Ltd. [68] , Dixon J. pointed out:

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. (Emphasis added.) Thus in Whincup v Hughes [69] , the plaintiff, who had paid a premium to have his son apprenticed to a watchmaker for a term of six years, failed to recover the premium or any part of it when the watchmaker died during the second year of the apprenticeship. Bovill C.J. said [70] that "the person receiving the premium naturally assumes that it becomes his property to be dealt with as he pleases". His Lordship said [71] that the "general rule of law is, that where a contract has been in part performed no part of the money paid under such contract can be recovered back". 1. (1933) 48 C.L.R. 457, at pp. 476-477. 2. (1871) L.R. 6 C.P. 78. 3. ibid., at p. 82. 4. ibid., at p. 81.

Whether or not a payment is the subject of a condition at the time a contract is discharged depends upon the express and implied terms of the contract. As a general rule, however, absent an indication to the contrary, a payment, made otherwise than to obtain the title to land or goods, should be regarded as having been made unconditionally, or no longer the subject of a condition, if the payee has performed work or services or incurred expense prior to the completion of the contract. If the payment has been made before the work has been performed or expense incurred, it should be regarded as becoming unconditional once work is performed or expense incurred. In that situation, the advance payment is ordinarily made in order to provide a fund from which the payee can meet the cost of performing the work or services or meeting the expenditure incurred or to be incurred before the completion of the contract. Hyundai Heavy Industries Co. Ltd. v Papadopoulos [72] illustrates the point. A shipbuilder agreed to construct a ship under a contract which provided for the payment of instalments of the purchase price during the progress of the work and gave the builder the right to terminate the contract if an instalment was unpaid. The House of Lords unanimously held that the builder, after terminating the contract for failure to pay an instalment, was entitled to recover the price of the instalment from a guarantor. All their Lordships held that the guarantor was liable having regard to the terms of the guarantee. But a majority of their Lordships held that the guarantor was also liable because the buyer itself was still liable to pay the unpaid instalment even though the contract had been terminated. The right to be paid the instalment was an unconditional right which was not affected by the subsequent discharge of the contract. Lord Fraser of Tullybelton's speech [73] makes it plain that the right to the instalment was unconditional because its purpose was to compensate the builder who "was bound to incur considerable expense in carrying out his part of the contract long before the actual sale could take place". It would have been a fortiori the case if the buyer had sought to recover an instalment which it had paid prior to breach. The builder would have had an unconditional right to retain the instalment.

1. [1980] 1 W.L.R. 1129; [1980] 2 All E.R. 29. 2. ibid., at p. 1148; p. 44.

The consideration for the fare did not totally fail

In the present case, the termination of the cruise on the tenth day did not result in a total failure of consideration for the payment of the fare. If the fare had been payable at the end of the cruise, the consideration for the payment, for the purpose of the law of restitution, might possibly have been described as a fourteen day cruise of the South Pacific. But the requirement that the fare be paid in advance makes it impossible, for the purpose of the law of restitution, to construe the consideration in that way.

The commercial purpose which is served by the advance payment of a fare for a cruise of the kind involved in this case is that it contributes to a fund which enables the shipowner to meet the cost of providing the benefits associated with the cruise without the necessity of using its working capital to meet the outgoings involved [74] . Much of that cost is incurred before the ship leaves port; almost all of the cost is incurred before the passenger finally disembarks. Furthermore, the passenger commences to enjoy the benefits of the cruise at or about the time of embarkation. The advance payment of such a fare cannot, therefore, be regarded as a security for the price of the services to be provided by the shipowner. Nor should it be regarded as a payment which is earned only upon completion of the cruise in accordance with the terms of the contract of carriage. Properly characterized, the advance payment of the fare is a reimbursement or prepayment of the cost of providing each of the benefits to be enjoyed by the passenger throughout the cruise.

1. cf. Scandinavian Trading Tanker Co. A.B. v Flota Petrolera Ecuatoriana , [1983] 2 A.C. 694, at pp. 702-703.

The purpose of the advance payment would be negated if the shipowner's right to retain the fare was conditional upon an exact performance of its promise to carry the payee for the duration of the cruise. If that was the basis of the payment, the shipowner would be obliged to refund the fare if the contract was discharged by frustration even though the cruise was almost completed. The proper conclusion, therefore, is that once the passenger commences to enjoy the promised benefits, the right of the shipowner to retain the fare becomes unconditional. If the shipowner fails to fulfil its contractual promise after the passenger has commenced to enjoy the promised benefits, the passenger's remedy is an action for damages for breach of contract. The passenger cannot bring an action for restitution of the payment of the fare: once the passenger commences to receive the promised benefits, he or she receives consideration for the payment.

Accordingly, once Baltic began to provide the promised benefits to Mrs. Dillon, the right of that company to retain the fare became unconditional. The loss which she suffered, in paying for a cruise which was not completed, was recoverable in an action for breach of contract - not in an action for restitution.

In the judgments in the Supreme Court and in the argument in this Court, attention focussed on the question whether the contract of carriage was "an entire contract" [75] . This approach assumed that, if the contract was an entire one, the price of the fare was recoverable and that, if the contract was not an entire one, the price of the fare was not recoverable. But with great respect to the learned judges of the Supreme Court, the issue here was the basis of the advance payment. If no advance payment had been required, and Baltic had sued to recover the whole of the fare notwithstanding the sinking of the " Mikhail Lermontov ", the question whether the contract was an entire one would have had relevance. If the contract was characterized as an entire contract, Baltic would not have been able to recover the price of the fare. But where a payment is made in advance of the completion of a contract, the critical issue is the reason or basis for the payment and not whether the contract was an entire one. A finding that a contract is an entire contract does not necessarily mean that an advance payment is recoverable. Conversely, a finding that a contract is not an entire contract does not necessarily mean that an advance payment is irrecoverable. After discharge of a contract, the recoverability of any payment made before the completion of the contract is dependent on whether the "state of affairs contemplated as the basis or reason for the payment has failed to materialize or, if it did exist, has failed to sustain itself" [76] .

1. cf. Steele v Tardiani (1946), 72 C.L.R. 386, at p. 401. 2. Birks, op. cit., p. 223.

The learned trial judge also thought that the price of the fare was wholly recoverable as money had and received to the use of Mrs. Dillon because whatever benefits she had enjoyed prior to the sinking were "entirely negated by the catastrophe" [77] . Once Baltic had given consideration for the payment, however, its rights to retain the money became unconditional. The subsequent catastrophe could not make Baltic's retention of the money conditional once it had become unconditional.

Mrs. Dillon was not entitled to recover the price of her fare on the basis of restitution. The appeal must be allowed on this point.

During the hearing of this appeal, however, the respondent was given leave to add a notice of contention to the effect that the award of $1,417 should not be disturbed because the money awarded to the plaintiff "as restitution damages should properly have been identified under a different head". I shall postpone discussion of this contention until I deal with the claim for damages for distress and disappointment.

The claim for damages for distress and disappointment

The appeal against the award of damages for distress and disappointment should be dismissed. Under the common law, damages are not recoverable for distress or disappointment arising from a breach of contract unless the distress or disappointment arises from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection or unless the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience. In the present case, it was an implied term of the contract that the fourteen day cruise in the South Pacific would be an enjoyable experience. The sinking of the " Mikhail Lermontov " resulted in a breach of that term. Consequently, the trial judge was correct in awarding damages to Mrs. Dillon for the disappointment which she suffered when the cruise failed to provide the enjoyment which Baltic had promised.

The general rule relating to damages for distress and disappointment

Damages for breach of contract cannot ordinarily be awarded for distress or disappointment arising from that breach. In Hamlin v Great Northern Rly Co. [78] , Pollock C.B. said:

In actions for breaches of contract the damages must be such as are capable of being appreciated or estimated but it may be laid down as a rule, that generally in actions upon contracts no damages can be given which cannot be stated specifically, and that 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. [79] 1. (1856) 1 H. & N. 408, at p. 411 [156 E.R. 1261, at p. 1262]. 2. This passage was cited with approval by Dixon and McTiernan JJ. in Fink v Fink (1946), 74 C.L.R. 127, at pp. 142-143.

In Hamlin, the defendant, in breach of contract, failed to carry the plaintiff to his destination in accordance with the advertised timetable, forcing the plaintiff to obtain overnight accommodation in the course of his journey and to buy a new ticket to resume his journey. The plaintiff sued for breach of contract alleging that, in consequence of the delay, he failed to keep appointments with customers and was detained for longer than he should have been. The Court of Exchequer held that he was entitled only to nominal damages "and such other damages of a pecuniary kind as he may have really sustained as a direct consequence of the breach of contract" [80] .

1. (1856) 1 H. & N., at p. 411 [156 E.R., at p. 1262].

The rule that damages cannot be recovered for distress arising out of a breach of an ordinary contract was substantially confirmed in Addis v Gramophone Co. Ltd. [1] where the House of Lords set aside an award of damages for "the abrupt and oppressive way in which the plaintiff's services were discontinued, and the loss he sustained from the discredit thus thrown upon him" [2] . Lord Loreburn L.C. said [3] "that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment". After the decision in Addis, the general rule was so firmly established in England and Australia that in Fink v Fink [4] Dixon and McTiernan JJ. could say that, in an action for breach of contract, "[r]esentment, disappointment and the loss of esteem of friends are not proper elements".

1. [1909] A.C. 488. 2. ibid., at p. 490. 3. ibid., at p. 491. 4. (1946) 74 C.L.R. 127, at p. 144.

Various explanations of the rationale of this rule have been proffered. None of them is satisfactory. The rationale implicit in Hamlin was that damages for disappointment (or distress) are not awarded because they cannot be assessed accurately. Yet in many actions of tort [5] , damages for distress can be awarded. Although in those actions assessing general damages for distress is a difficult task, courts make such awards "by the exercise of a sound imagination and the practice of the broad axe" [6] . In Addis, however, Lord Atkinson said that [7] :

to apply in their entirety the principles on which damages are measured in tort to cases of damages for breaches of contract would lead to confusion and uncertainty in commercial affairs, while to apply them only in part and in particular cases would create anomalies, lead occasionally to injustice, and make the law a still more "lawless science" than it is said to be. 1. e.g. defamation, malicious prosecution and false imprisonment. 2. Watson, Laidlaw & Co. Ltd. v Pott, Cassels and Williamson (1914), 31 R.P.C. 104, at pp. 117-118, cited by Isaacs J. in Whitfeld v De Lauret & Co. Ltd. (1920), 29 C.L.R. 71, at p. 81. 3. [1909] A.C., at p. 495.

While it can be accepted that not all principles relating to an award of damages in tort ought to be applicable in an action for breach of contract, it is difficult to see why no damages should be awarded for distress or disappointment arising directly from the breach of contract itself. Difficulty of assessment does not stop courts awarding those damages in actions in tort. If the plaintiff is denied recovery for distress or disappointment in a contract case, the award of damages will fail to fulfil the objective of compensating the plaintiff for the harm which he or she has suffered as the result of the defendant's breach.

Another explanation for the general rule is that disappointment and distress arising from breach of contract are not within the contemplation of the parties to ordinary, particularly commercial, contracts [8] . But such an explanation does not accord with everyday experience relating to the making of contracts. The parties to many contracts, including many commercial contracts, are fully aware, when they make them, that breach will result in disappointment and sometimes distress to the innocent party [9] .

1. Brown v Waterloo (Region) Board of Commissioners of Police (1982), 136 D.L.R. (3d) 49, at p. 56. 2. See Watts v Morrow , [1991] 1 W.L.R. 1421, at p. 1445; [1991] 4 All E.R. 937, at pp. 959-960, and cf. Burrows, "Mental distress damages in contract - a decade of change", [1984] Lloyd's Maritime and Commercial Law Quarterly 119, at p. 121.

Treitel contends that the ordinary rule 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" [10] . However, the proposition that "anxiety is an almost inevitable concomitant of expectations based on promises", while generally true, does not explain why the injured party should have to bear the risk of this particular head of damage while being entitled to be compensated for other damage flowing from breach of contract. Furthermore, the proposition that the "party must be deemed to take the risk of it" merely records the result of the rule and is not an explanation of it.

1. Treitel, Law of Contract, 8th ed. (1991), p. 878.

Messrs Greig and Davis contend that to allow damages for distress or disappointment "would lead to an increase in the cost of entering into a contract, without any substantial benefit being derived therefrom" [11] . This conclusion may well be correct. But the learned authors do not develop any argument in support of it. Allowing damages for distress and disappointment would increase the cost of entering into contracts. But it is at least arguable that the cost of meeting such claims does not outweigh the demands of distributive justice in ensuring that individuals are properly compensated for the harm which they suffer by reason of breaches of contracts.

It is difficult to resist the conclusion that the unexpressed [12] basis for the general rule was the instinctive fear of the common law judges that to allow damages for disappointment or distress consequent upon breach of an ordinary contract would be to inflate damage awards in contract cases, particularly in commercial cases where the breach has been accompanied by high handed behaviour. At the same time, it must be acknowledged that the common law judges have admitted significant exceptions to the general rule. Moreover, they have often sought to justify these exceptions by propositions which undermine the general rule itself.

1. But see Hayes v James & Charles Dodd (A Firm) , [1990] 2 All E.R. 815, at p. 823 where Staughton L.J. said that he would not view with enthusiasm the prospect that every shipowner, having successfully claimed unpaid freight or demurrage, would be able to add a claim for mental distress suffered while waiting for his money.

From an early period, the common law allowed damages for injured feelings and wounded pride consequent upon a breach of a promise of marriage [13] . Moreover, soon after the decision in Hamlin, the Court of Exchequer held that damages for "inconveniences and annoyances" could be awarded for breach of contract. In Burton v Pinkerton [14] , the plaintiff had agreed to serve as a seaman on a ship "upon an ordinary commercial voyage" [15] . However, in breach of contract, the defendant placed the ship under the control of a foreign government which was at war, causing the plaintiff to leave the ship at a foreign port. The Court held that the plaintiff was entitled to damages for the inconveniences and annoyances arising from the defendant's breach of contract.

1. Berry v Da Costa (1866), L.R. 1 C.P. 331, at p. 333. 2. (1867) L.R. 2 Ex. 340. 3. ibid., at p. 348.

Nine years after Burton , the Queen's Bench held that a plaintiff was entitled to damages for the inconvenience of having to walk home in the early hours of the morning when a train failed to stop at the station for which he had bought a ticket [16] . Cockburn C.J. said [17] that:

if the jury are satisfied that in the particular instance personal inconvenience or suffering has been occasioned, and that it has been occasioned as the immediate effect of the breach of the contract, I can see no reasonable principle why that should not be compensated for. His Lordship said that Hamlin did not decide that personal inconvenience, however serious, was not to be taken into account as a subject matter of damages. Blackburn J. asserted [18] that in Hamlin there was no inconvenience at all, saying [19] that "sleeping at Grimsby instead of Hull seems really to be nothing". Mellor J. said [1] : that for 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. That is purely sentimental, and not a case where the word inconvenience, as I here use it, would apply. But his Lordship went on to say [2] that: where the inconvenience is real and substantial arising from being obliged to walk home, I cannot see why that should not be capable of being assessed as damages in respect of inconvenience. Some years earlier in Kemp v Sober [3] , Lord Cranworth V.-C. had held that "the feeling of anxiety" was the suffering of damage for the purpose of obtaining an injunction to restrain a breach of covenant not to carry on a business or calling. 1. Hobbs v London & South Western Rly Co. (1875), L.R. 10 Q.B. 111. 2. ibid., at p. 116. 3. (1875) L.R. 10 Q.B., at p. 120. 4. ibid., at pp. 120-121. 5. ibid., at p. 122. 6. ibid., at p. 123. 7. (1851) 1 Sim. (N.S.) 517 [61 E.R. 200].

Notwithstanding the exceptions admitted in these cases, the general rule laid down in Addis was almost automatically applied until the post-war period [4] . Burton and Hobbs seem to have been largely ignored. In Salmond and Williams on Contracts [5] , which was published in 1945, the learned authors went so far as to say that in an action for breach of contract compensatory damages were "given as compensation for and measured by the material loss suffered by the plaintiff" (emphasis added).

1. See, e.g., Groom v Crocker , [1939] 1 K.B. 194 and Fink. 2. p. 579.

In Bailey v Bullock [6] , however, Barry J. distinguished Addis and applied Burton and Hobbs to award damages for "inconvenience and discomfort" where a solicitor in breach of his retainer had failed to obtain possession of the plaintiff's house and, as a result, the plaintiff was compelled to live with his parents-in-law in circumstances of physical inconvenience. Barry J. said [7] that the "inconvenience should have been reasonably contemplated by the defendants as a probable result of their failure to perform their contractual duties".

1. [1950] 2 All E.R. 1167. 2. [1950] 2 All E.R., at p. 1171.

The decision in Bailey was followed in Stedman v Swan Tours [8] where the English Court of Appeal awarded damages for "appreciable inconvenience and discomfort" arising from a breach of contract by the defendants in failing to arrange first class hotel accommodation at a resort. Stedman was relied upon by Zelling J. in Athens-MacDonald Travel Service Pty Ltd v Kazis [9] where the plaintiff was awarded damages for the substantial inconvenience and discomfort which arose during a holiday in Cyprus as the result of the defendant's failure to make the necessary travel arrangements.

1. (1951) 95 Sol. J. 727. 2. [1970] S.A.S.R. 264.

In Jarvis v Swans Tours Ltd. [10] , the Court of Appeal made further inroads to the rule in Addis by making an award of damages for "loss of enjoyment" where the plaintiff's skiing holiday did not measure up to the promises in the defendant's brochure. Lord Denning M.R. thought that Hamlin and Hobbs no longer stated the law accurately. His Lordship said [11] :

In a proper case damages for mental distress can be recovered in contract, just as damages for shock can be recovered in tort. One such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach. He did not further elucidate the meaning of "a proper case". Edmund Davies L.J. said [12] that where a person has paid for: an invigorating and amusing holiday and returns home dejected because his expectations have been largely unfulfilled it would be quite wrong to say that his disappointment must find no reflection in the damages to be awarded. Stephenson L.J. said [13] that: there may be contracts in which the parties contemplate inconvenience on breach which may be described as mental: frustration, annoyance, disappointment; and, as this is such a contract, the damages for breach of it should take such wider inconvenience or discomfort into account. Damages for disappointment have been awarded in other "holiday" cases [14] . 1. [1973] Q.B. 233. 2. ibid., at pp. 237-238. 3. ibid., at p. 239. 4. ibid., at pp. 240-241. 5. Jackson v Horizon Holidays Ltd. , [1975] 1 W.L.R. 1468; [1975] 3 All E.R. 92; Jackson v Chrysler Acceptances , [1978] R.T.R. 474.

The decision in Jarvis was soon extended beyond the area of holiday contracts. At first, the rationale of an award of damages for distress in contract cases was explained as being the contemplation of the parties that the breach might give rise to distress. In Cox v Philips Industries Ltd. [15] , Lawson J. held that damages could be awarded for vexation, frustration and distress if "it was in the contemplation of the parties" that such damage would result from breach. His Lordship awarded damages for the "depression, vexation and frustration" which arose from the defendant's breach of contract in relegating the plaintiff, its employee, to a position of lesser responsibility. In Heywood v Wellers [16] , the Court of Appeal, like Lawson J. in Cox, appeared to regard "the contemplation" of the parties as the basis for awarding damages for distress. The Court awarded the plaintiff damages for the mental distress arising from the failure of her solicitors, in breach of their retainer, to obtain an order restraining a man from molesting her. Although Jarvis and Jackson v Horizon Holidays Ltd. were cited in argument, Lord Denning M.R. said [17] that what the plaintiff had suffered was within the contemplation of the defendants "within the rule in Hadley v Baxendale" [18] . James L.J. [19] cited Jarvis for the proposition that the damages were payable because it was "within the contemplation of the contracting parties that a foreseeable result of a breach of the contract will be to cause vexation, frustration, or distress". Bridge L.J. said [20] that the damages were recoverable because the plaintiff had suffered mental distress which was "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". His Lordship said that a clear distinction could be drawn between mental distress which arose in that situation and mental distress which arose as an incidental consequence of the misconduct of litigation by a solicitor and which was not recoverable.

1. [1976] 1 W.L.R. 638, at p. 644; [1976] 3 All E.R. 161, at p. 166. 2. [1976] Q.B. 446. 3. ibid., at p. 459. 4. (1854) 9 Ex. 341 [156 E.R. 145]. 5. Heywood, [1976] Q.B., at p. 461. 6. ibid., at pp. 463-464.

However, recent English cases have decisively rejected the view that the contemplation of the parties is the basis upon which damages for distress or disappointment are awarded for breach of contract. Instead, they have concluded that such damages are recoverable only when the object of the contract is to provide enjoyment, pleasure or freedom from distress or where the distress is consequent upon the suffering of physical inconvenience.

In Bliss v South East Thames Regional Health Authority [21] , the Court of Appeal expressly rejected the statement of Lawson J. in Cox that damages could be recovered for breach of a contract of employment if distress arising from the breach was within the contemplation of the parties. Dillon L.J., who gave the leading judgment, said [22] :

Modern thinking tends to be that the amount of damages recoverable for a wrong should be the same whether the cause of action is laid in contract or in tort. But in the Addis case Lord Loreburn regarded the rule that damages for injured feelings cannot be recovered in contract for wrongful dismissal as too inveterate to be altered, and Lord James of Hereford supported his concurrence in the speech of Lord Loreburn by reference to his own experience at the Bar.

There are exceptions now recognized where the contract which has been broken was itself a contract to provide peace of mind or freedom from distress: see Jarvis v Swans Tours Ltd. and Heywood v Wellers. Those decisions, do not however cover this present case.

Consequently, the Court of Appeal set aside an award of damages for frustration, vexation and distress arising from the defendant's breach of an employment contract. 1. [1987] I.C.R. 700. 2. ibid., at p. 718.

The approach of Dillon L.J. in Bliss was approved by the Court of Appeal in Hayes v Dodd [23] . Staughton L.J. said [24] :

I am not convinced that it is enough to ask whether mental distress was reasonably foreseeable as a consequence, or even whether it should reasonably have been contemplated as not unlikely to result from a breach of contract. It seems to me that damages for mental distress in contract are, as a matter of policy, limited to certain classes of case. I would broadly follow the classification provided by Dillon L.J. in Bliss v South-East Thames Regional Health Authority : " where the contract which has been broken was itself a contract to provide peace of mind or freedom from distress "

It may be that the class is somewhat wider than that. But it should not, in my judgment, include any case where the object of the contract was not comfort or pleasure, or the relief or [sic] discomfort, but simply carrying on a commercial activity with a view to profit.

In Hayes, the Court of Appeal set aside damages for anguish and vexation arising from the negligence of solicitors who had been retained on a purchase of a commercial property. 1. [1990] 2 All E.R. 815. 2. ibid., at p. 824.

In Watts v Morrow [25] , the Court of Appeal held that "in the case of the ordinary surveyor's contract, damages are only recoverable for distress caused by physical consequences of the breach of contract". Bingham L.J. said [26] that a contract breaker was not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation caused to the innocent party. His Lordship said that the rule was not founded on the assumption that such reactions are not foreseeable but on considerations of policy. However, he said that the rule was not absolute and that 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."

1. [1991] 1 W.L.R. 1421, at p. 1442; [1991] 4 All E.R. 937, at pp. 956-957. 2. ibid., at p. 1445; pp. 959-960.

No uniformity of approach to the question of damages for distress for breach of contract is discernible in the decisions of other courts in the British Commonwealth. Decisions in Australia, Canada and New Zealand are spread along a spectrum from acceptance of Addis to rejection of that decision.

Apart from the decision of Zelling J. in Athens-MacDonald Travel Service Pty Ltd and the decision of the Court of Appeal in the present case, Australian courts have paid little attention to the developments in England in the last forty years concerning the award of damages for distress arising from breach of contract. In Allison v Hewitt [27] and Falko v James McEwan & Co. [28] , Jarvis was distinguished on the basis that it applied to holiday situations and not to ordinary commercial contracts.

1. (1974) 3 D.C.R. (N.S.W.) 193. 2. [1977] V.R. 447.

In Brickhill v Cooke [29] , the New South Wales Court of Appeal, basing itself on Perry v Sidney Phillips & Son [30] , held that damages for inconvenience should be given in an action for negligence arising from the report of an engineer who had been retained to inspect and report to the plaintiff on the condition of a dwelling. However, the decision throws no light on the recovery of damages for inconvenience for breach of contract [31] . Jarvis was applied in another action for tort in Graham v Voigt [32] . In Holt v Biroka Pty Ltd [33] , Jarvis was also applied to an action brought under the Fair Trading Act 1987 NSW but without any real examination of its basis.

1. [1984] 3 N.S.W.L.R. 396. 2. [1982] 1 W.L.R. 1297; [1982] 3 All E.R. 705. 3. See also Campbelltown City Council v Mackay (1989), 15 N.S.W.L.R. 501, at pp. 510-511 where the Court of Appeal again applied Perry to uphold an award of damages for vexation, distress and worry in a negligence action. 4. (1989) 89 A.C.T.R. 11. 5. (1988) 13 N.S.W.L.R. 629.

In Canada, the Supreme Court has taken a view contrary to that taken by the English Court of Appeal in Bliss, Hayes and Watts. In Vorvis v Insurance Corporation of British Columbia [34] , a majority of the Court said that cases such as Jarvis, Cox and Heywood "stand for the proposition that in some contracts the parties may well have contemplated at the time of the contract that a breach in certain circumstances would cause a plaintiff mental distress". Wilson J., with whose judgment L'Heureux-Dubé J. concurred, went much further than the majority. Her Honour said [35] that the absolute rule laid down in Addis and applied by the Supreme Court of Canada in Peso Silver Mines Ltd. (N.P.L.) v Cropper [36] was no longer the law. She said that what binds "the numerous English and Canadian authorities in which damages have been awarded for mental suffering in a variety of different contractual situations" is "the notion that the parties should reasonably have foreseen mental suffering as a consequence of a breach of the contract at the time the contract was entered into".

1. [1989] 1 S.C.R. 1085, at p. 1102; (1989) 58 D.L.R. (4th) 193, at p. 204. 2. ibid., at pp. 1113-1114; p. 212. 3. [1966] S.C.R. 673; (1966) 58 D.L.R. (2d) 1.

In New Zealand, the demise of the Addis rule seems imminent, if it has not already occurred. In Horsburgh v New Zealand Meat Processors Industrial Union of Workers [37] and Hetherington v Faudet [38] , the Court of Appeal indicated that the rule in Addis may require reconsideration. Subsequently, in Whelan v Waitaki Meats Ltd. [39] , Gallen J. held that damages for mental distress were available for breach of an employment contract. Most recently, in Rowlands v Collow [40] , Thomas J. awarded damages to the plaintiff for mental distress and inconvenience suffered as a result of an engineer's breach of contract in relation to the construction of a driveway. His Honour said [41] :

It may therefore be timely for the Courts to reassert in this context the basic principles relating to remoteness of damages. If this is done the question in relation to all contracts is whether mental distress was a reasonably foreseeable consequence of the breach of contract or was within the reasonable contemplation of the parties in respect of any such breach at the time they entered into the contract. With commercial contracts it is most unlikely that such damage will have been foreseeable or within the parties' contemplation; with contracts of a more personal nature, mental distress could well be a foreseeable consequence and within the contemplation of the parties. 1. [1988] 1 N.Z.L.R. 698. 2. [1989] 2 N.Z.L.R. 224. 3. [1991] 2 N.Z.L.R. 74. 4. [1992] 1 N.Z.L.R. 178. 5. ibid., at p. 207.

If the matter were free from authority, the object [42] of an award of damages for breach of contract and the principles of causation [43] and remoteness [44] would require the conclusion that damage for disappointment or distress, resulting from breach of contract, was compensable if it was within the reasonable contemplation of the parties when the contract was made. No doubt in most cases, the disappointment would be so negligible that the damage suffered could be regarded as de minimis and ignored. But in other cases, it seems unreasonable that the party in breach should escape liability even though, at the time of making the contract, that person knew that breach might result in the other party suffering disappointment. Suppose, for example, that an agent had agreed to purchase land on behalf of a principal knowing that, for many years, the principal had desired to purchase the land for the purpose of expanding his or her business. It seems unreasonable that the agent should escape liability for damages for disappointment if, in breach of contract, he or she were to fail to buy the land. Yet not only does the general rule, confirmed in Addis, deny recovery in such a case, but it also seems impossible to bring the case within the exceptions now recognized by the English courts. If in such a case, the innocent party has suffered not only disappointment but distress, the argument for damages for disappointment and distress, as well as any pecuniary loss, seems compelling. However, the rule in Addis has stood for the best part of a century. In this country it has suffered little, if any, inroad by judicial decision. Furthermore, in Fink, two [45] of the three members of the majority accepted the common law rule to be that stated by Pollock C.B. in Hamlin.

1. See The Commonwealth v Amann Aviation Pty Ltd (1991), 174 C.L.R. 64, at pp. 80, 98, 116, 136, 148, 161. 2. See March v Stramare (E. & M. H.) Pty Ltd (1991), 171 C.L.R. 506. 3. See Wenham v Ella (1972), 127 C.L.R. 454, at pp. 471-472; Burns v M.A.N. Automotive (Aust.) Pty Ltd (1986), 161 C.L.R. 653, at p. 667. 4. Dixon and McTiernan JJ.; see (1947) 74 C.L.R., at pp. 142-143.

It is still open to this Court to declare that damages for distress and disappointment in contract cases are not subject to any special rules. However, I do not think that the step should be taken in this case. Counsel for Mrs. Dillon did not argue that the general rule laid down in Hamlin and confirmed in Addis should be rejected. He was content to rely on the modern English decisions. Consequently, the Court did not have the benefit of argument concerning the social and economic consequences of a decision which overturned the rule formulated in Hamlin. On the other hand, having regard to the decisions in Burton and Hobbs , the developments in England, Canada and New Zealand in the last forty years and the requirements of basic principle, this Court should not accept everything that was said by Pollock C.B. in Hamlin or by the House of Lords in Addis.

The application of basic principle concerning the awarding of damages for breach of contract requires an award of damages for distress or disappointment where it is an express or implied term of the contract that the promisor will provide pleasure or enjoyment or personal protection for the promisee. Unless this Court were to refuse to follow Burton, Hobbs and Bailey as well as the decisions in Stedman and Athens-MacDonald Travel Service Pty Ltd, damages must also be recoverable for distress or disappointment consequent upon the suffering of physical inconvenience as the consequence of a breach of contract. Furthermore, because damages for personal injury may be recovered in an action for breach of contract [46] and because psychiatric illness constitutes personal injury [47] , damages for mental distress associated with a psychiatric illness or physical injury must also be recoverable in an action for breach of contract.

1. Woolworths Ltd. v Crotty (1942), 66 C.L.R. 603; Cullen v Trappell (1980), 146 C.L.R. 1. 2. Mount Isa Mines Ltd. v Pusey (1970), 125 C.L.R. 383.

In the result, the Court should not presently reject the general rule enunciated in Hamlin and substantially confirmed in Addis. At the same time, it should recognize that damages for distress or disappointment are recoverable in an action for breach of contract if it arises from breach of an express or implied term that the promisor will provide the promisee with pleasure or enjoyment or personal protection or if it is consequent upon the suffering of physical injury or physical inconvenience. The question whether the general rule enunciated in Hamlin should be overruled can be considered when the Court has heard full argument on the question.

Mrs. Dillon's right to damages for distress and disappointment

The contract between Mrs. Dillon and Baltic was one in which Baltic impliedly promised to provide a pleasurable and enjoyable cruise for fourteen days. Its failure to do so means that it must pay damages for the distress and disappointment suffered by Mrs. Dillon [48] . However, the sum awarded to her was more than twice the sum paid as the price of the fare. When combined with the return of the fare, it was much too high a figure. I agree with the comment of Kirby P. [49] in the Court of Appeal that in the absence of "some exceptional circumstance increasing the sting of the failure to provide the enjoyment and pleasure promised no more than half the sum awarded in this case should be the norm for the ordinary passenger". This sum is, of course, in addition to any damages awarded for the financial loss suffered by a plaintiff in paying for a promise which has not been fulfilled.

1. See Jarvis , [1973] Q.B. 233. 2. (1991) 22 N.S.W.L.R., at p. 31.

This is a convenient place to deal with the contention of Mrs. Dillon that the $1,417 awarded as restitution of the balance of her fare should not be disturbed because that sum was recoverable as general damages. While I agree that general damages were recoverable by Mrs. Dillon for the financial loss which she suffered in paying for a fourteen day cruise which was not completed, nevertheless the notice of contention must be rejected. If Mrs. Dillon retained both the sum of $1,417 and the sum of $5,000, her compensation would be unreasonably excessive. If the appeal is allowed on the restitution issue and dismissed on the distress issue, however, the sum of $5,000 will be fair compensation for the general damage which she suffered over and above the loss of her valuables and personal injuries.

Accordingly, I agree with the orders proposed by the Chief Justice.

The following order was made by consent of the parties on 23 April 1993: