Baltic Shipping Co v Dillon

Baltic Shipping Co v Dillon - [1993] HCA 4 - HCA 1989 case summary — Zoe

[16]

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.

[66]

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.

[110]

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.

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Judgment (143 paragraphs)

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