What happened
The Commonwealth required aerial surveillance of Australia's northern coastline for quarantine and related purposes and had contracted with Skywest Airlines Pty Ltd for this service until 31 March 1987. It decided not to renew Skywest's contract and invited tenders for a three-year replacement. Amann Aviation Pty Ltd was the successful tenderer, and the Commonwealth accepted its tender on 12 March 1987. The parties contemplated a six-month preparatory period for Amann to acquire, fit out and certify 14 specialised aircraft in the United States before commencing operations.
Amann incurred substantial pre-operational expenditure of $854,943 and arranged for the acquisition and fitting out of aircraft at a cost of $5,281,521. By the contractual commencement date of 12 September 1987, Amann had only seven aircraft available, none of which fully complied with the contract specifications (particularly endurance requirements). The Commonwealth had already decided to terminate immediately upon verifying non-compliance. On the afternoon of 12 September 1987, it served a notice purporting to terminate the contract on common law grounds, citing detailed failures in performance that day. Amann elected to accept this as a repudiation on 15 September 1987.
At trial before Beaumont J in the Federal Court (the matter having been remitted from the High Court's original jurisdiction under s 44(1) of the Judiciary Act 1903 (Cth)), his Honour found the notice was ineffective because cl 2.24 of the contract provided an exclusive code for termination. This required the Secretary of the Department of Transport to give a show-cause notice before cancellation. The attempted common-law termination was therefore a repudiation. Beaumont J assessed damages on a lost-profits (expectation) basis at $820,000 (rounded), but discounted this by 50 per cent to reflect the chance that the Commonwealth would have terminated validly under cl 2.24, yielding an award of $410,000. He refused reliance damages for wasted expenditure, declined to value the prospect of renewal, and treated Amann and its associated company C.V.C. Investments Pty Ltd as separate entities despite an indemnity arrangement.
On appeal to the Full Court of the Federal Court (Davies, Sheppard and Burchett JJ), the repudiation finding was upheld. However, the Full Court held that Amann was entitled to reliance damages for expenditure rendered futile by the breach. Davies and Burchett JJ assessed the chance of termination under cl 2.24 at 20 per cent but did not discount the award for it, taking the view that the common law prefers reasonable certainty over speculation. They included the prospect of renewal in assessing whether expenditure would have been recouped, as this was within the contemplation of the parties and made it impossible for the Commonwealth to discharge its onus of showing insufficiency of returns. The difference between aircraft cost ($5,281,521) and resale value ($917,329), plus pre-operational expenditure, termination payments to employees ($143,049) and the forfeited security deposit ($113,000), totalled $5,475,184. Interest under s 51A of the Federal Court of Australia Act 1976 (Cth) brought the judgment to $6,600,207. Sheppard J reached a similar expenditure figure but would have discounted the entire award by 50 per cent for multiple contingencies, including the chance of non-renewal and possible refit costs, awarding approximately $2.7 million plus interest.
The Commonwealth appealed to the High Court, arguing that reliance damages were unavailable absent impossibility of proving loss of profits, that the contract was in any event a losing one, and that the prospect of renewal could not be included because there was no contractual obligation to renew. It further contended that damages should be nominal or heavily discounted for the likelihood of termination under cl 2.24, applying the principle from The Mihalis Angelos that the contract breaker is assumed to act to minimise liability. By majority (with separate concurring reasons), the High Court dismissed the appeal, holding that reliance damages were properly awarded and that the prospect of renewal was relevant. Different views were expressed on the precise onus and the weight to be given to the termination contingency, but all justices agreed the Full Court's orders should stand (with Deane J expressing a view that the award should be reduced by 20 per cent to reflect the chance of termination, though the formal order was dismissal).
Why the court decided this way
The High Court grounded its decision in the fundamental principle from Robinson v Harman that damages aim to place the injured party in the position it would have been in had the contract been performed. Mason CJ and Dawson J (with whose reasons Brennan, Deane, Toohey, Gaudron and McHugh JJ substantially agreed as to the result) explained that expectation damages, reliance damages and damages for wasted expenditure are not discrete categories between which a plaintiff may elect, but simply different manifestations of the Robinson v Harman principle. Where a contract would have been profitable, the plaintiff recovers lost net profit. Where it is impossible or unduly difficult to prove what profits would have been made, or where the contract would not have produced a net profit, the law permits recovery of expenditure reasonably incurred in reliance on the promise, subject to the defendant proving that the expenditure would not have been recouped had the contract been performed.
This approach was justified on two bases. First, it prevents a defendant from profiting by its own wrong: to deny recovery of wasted expenditure simply because profits cannot be proven with precision would encourage repudiation. Second, the law presumes that a rational commercial party would not incur expenditure unless it expected to recoup it; the breach itself often makes it impossible for the plaintiff to prove the counterfactual, so the onus shifts to the defendant (drawing on McRae v Commonwealth Disposals Commission and the reasoning of Learned Hand CJ in L. Albert & Son v Armstrong Rubber Co). In Amann's case, the substantial upfront expenditure on specialised aircraft (with limited resale value) meant that a three-year term alone was unlikely to generate significant profit. The real commercial benefit lay in the advantageous position Amann would occupy at renewal—written-down equipment, trained personnel and established infrastructure—making it difficult for competitors to match its pricing. This prospect was necessarily contemplated by the parties as flowing directly from performance of the original contract, not as an independent collateral benefit. Accordingly, it was relevant to whether Amann's expenditure would have been recouped, and the Commonwealth could not demonstrate otherwise.
The Court distinguished The Mihalis Angelos, where damages were assessed on the basis that a contractual cancellation option would certainly have been exercised. Here, the chance of termination under cl 2.24 (properly construed as requiring the Secretary to act fairly, without actual bias or caprice, after weighing all relevant matters) was assessed at only 20 per cent by the Full Court. Given the Commonwealth's urgent need for continuous surveillance and the practical unavailability of alternatives once Skywest threatened to dispose of its fleet, termination was unlikely. The Court refused to presume that the contract breaker would have acted to minimise its liability in the hypothetical of continued performance; instead, it evaluated the real-world probabilities. Brennan J and Deane J emphasised that the breach itself precluded precise valuation of the commercial advantage of renewal, justifying the reliance measure and placing the onus on the Commonwealth. Toohey and Gaudron JJ reached the same result but with differing emphases on onus and contingencies. The unanimous dismissal of the appeal followed because the Full Court had correctly applied these principles to the facts, and the Commonwealth had failed to discharge the evidentiary burden placed upon it.
Before and after state of the law
Before this decision, Australian law on contract damages was firmly anchored in Robinson v Harman, as affirmed in cases such as Wenham v Ella. Expectation damages were the norm, with reliance damages recognised in limited circumstances, notably McRae v Commonwealth Disposals Commission, where the non-existence of the subject matter made valuation of the promise impossible and justified recovery of wasted expenditure. However, uncertainty remained about the precise boundary between expectation and reliance measures, the role of onus of proof, and whether a plaintiff could "elect" between them (as suggested in English authorities such as Anglia Television Ltd v Reed and Cullinane v British "Rema" Manufacturing Co Ltd). The Mihalis Angelos had introduced a presumption that a contract breaker would exercise options to minimise liability, and Lavarack v Woods of Colchester Ltd had confirmed that a defendant is not liable for failing to confer benefits it had not promised. Canadian and United States authorities (Bowlay Logging Ltd v Domtar Ltd and L. Albert & Son) had placed the onus on the defendant in reliance claims, but Australian law had not clearly adopted this.
This judgment clarified and expanded the availability of reliance damages in Australian law. It confirmed that "election" language is inappropriate; the measure is dictated by what can be proven about the hypothetical of performance. Where proof of profit is difficult (not merely uncertain in amount but impossible to demonstrate at all), reliance damages are not an alternative but the logical application of Robinson v Harman. Critically, the Court held that the onus lies on the defendant to prove non-recoupment, erecting a rebuttable presumption that a commercial party would not incur costs it could not recover. The decision broadened the relevance of contemplated commercial advantages (such as renewal prospects) under Hadley v Baxendale, even absent a contractual obligation, provided they arise from performance itself rather than independent volition. It narrowed the application of the Mihalis Angelos presumption, requiring factual evaluation of contingencies rather than automatic assumption of minimising conduct. After the decision, reliance damages became a more readily available measure in complex commercial contracts involving significant upfront expenditure and uncertain long-term returns, particularly government contracts where renewal is a realistic commercial expectation. Courts must now do the best they can with imperfect evidence, and defendants bear the practical burden of displacing the recoupment presumption.
Key passages with plain-English translation
The joint judgment of Mason CJ and Dawson J contains the core reasoning. At the outset they restate the Robinson v Harman principle: "where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed." In plain English, this means the court tries to give the innocent party the financial outcome it would have enjoyed if the other side had kept its promises—no more, no less.
On reliance damages they explain: "It would be an invitation to the repudiation of contractual obligations if the law were to deny to an innocent plaintiff the right to recoupment by an award of damages of expenditure justifiably incurred for the purpose of discharging contractual obligations simply on the ground that the contract breached would not have been or could not be shown to have been profitable." Translation: If we only awarded damages when profits could be precisely proven, wrongdoers could walk away from contracts that involved heavy upfront spending, knowing the victim could not prove the exact lost profit. That would undermine the whole idea of binding contracts.
Addressing onus of proof, they adopt the presumption from McRae and Learned Hand CJ: "it does not follow that the breach should not throw upon [the defaulting party] the duty of showing that the value of the performance would in fact have been less than the promisee's outlay." Plain English: Because the breach often destroys the very evidence needed to value the contract, fairness requires the wrongdoer to prove the spending would have been wasted anyway. If it cannot, the innocent party recovers the expenditure.
On the renewal prospect: "the prospect of renewal was an important commercial benefit which would then have accrued to the contractor … The corollary is that the parties necessarily contemplated the loss of that prospect as the probable result of a repudiation or fundamental breach." Translation: Everyone involved knew that doing the first contract well would give Amann a huge head start on the next one. Losing that advantage through the breach is therefore something the Commonwealth must compensate.
Brennan J's separate reasons reinforce the point on onus: "the sufficient and necessary justification for shifting the onus to the party in breach … is that the breach of the contract itself makes it impossible to undertake an assessment on the ordinary basis." In plain English, when your own wrongful act prevents the numbers from being worked out, you cannot complain if the court makes you prove the victim would have lost money anyway.
Deane J adds a useful qualification on loss of a chance: damages may be assessed by reference to probabilities or possibilities where precise prediction is impossible, but a plaintiff cannot elect to ignore a less-than-50-per-cent chance simply because it is below the balance-of-probabilities threshold. This explains why the 20 per cent termination risk was not ignored but did not produce a mechanical discount in the majority's view.
What fact patterns trigger this precedent
This precedent is triggered where a plaintiff has incurred substantial reasonable expenditure in preparing for or performing a commercial contract, the defendant's breach makes it difficult or impossible to prove what net profit (if any) would have been earned, and the defendant cannot show that the expenditure would not have been recouped had the contract been performed. Classic triggers include contracts requiring heavy upfront capital outlay on specialised assets with limited alternative use (as with Amann's modified aircraft), government or long-term service contracts where renewal is a realistic commercial expectation arising from performance, and situations where the breach itself destroys or complicates the evidence needed for conventional expectation assessment.
The precedent applies only where the expenditure was incurred in reasonable reliance on the defendant's promise and the contract is not purely aleatory (that is, not one where the very nature of the venture means expenditure may not be recovered). It does not apply where the plaintiff could readily prove expectation loss on the balance of probabilities, or where the defendant proves that even full performance would have left the plaintiff out of pocket by more than the claimed expenditure. Fact patterns involving loss of a commercial advantage that is inherent in performance (written-down assets, established infrastructure, preferred tenderer status) but not the subject of an express promise also engage the reasoning, provided that advantage was within the parties' contemplation as a probable consequence of breach under Hadley v Baxendale. Mere difficulty in calculation is insufficient; there must be genuine uncertainty or impossibility of accurate assessment caused by the breach. The precedent is particularly apt in cases where the plaintiff seeks to recover pre-operational or capital costs that would have been amortised over a longer relationship than the nominal contract term.
How later courts have treated it
Within the source judgment itself, the reasoning is treated as a direct application and extension of McRae and Robinson v Harman, while distinguishing The Mihalis Angelos on the ground that predestined cancellation must be proven as fact, not assumed. The Court treats Lavarack and Abrahams v Herbert Reiach Ltd as confirming that unpromised benefits are not recoverable, yet holds that a contemplated commercial advantage flowing from performance is not in that category. Brennan J's judgment treats the onus shift as justified only where the breach itself precludes ordinary assessment, while Deane J treats the decision as consistent with Malec v J C Hutton Pty Ltd principles for evaluating chances. Toohey J treats the presumption of recoupment as an evidentiary rather than legal onus, and Gaudron J treats the reliance measure as an assumption that yields to contrary proof. The plurality view (Mason CJ and Dawson J) is treated as the leading statement, with the separate reasons converging on the result that reliance damages were correctly awarded without discount for the low-probability termination contingency.
The judgment treats Bowlay Logging Ltd, C.C.C. Films Ltd and L. Albert & Son as persuasive but not binding, adopting their onus reasoning only to the extent it aligns with Australian principles of doing the best the court can with imperfect evidence. It treats Anglia Television Ltd v Reed as incorrectly introducing an election between measures, preferring the unified Robinson v Harman analysis from T.C. Industrial Plant Pty Ltd. Overall, the Court treats earlier authorities as confirming that mere uncertainty of profit does not bar relief, but emphasises that the defendant must be given the opportunity to displace the recoupment presumption with evidence.
Still-open questions
The judgment leaves open the precise weight to be given to the termination contingency under cl 2.24 in future cases. While the 20 per cent chance was not sufficient to warrant discount on these facts, the Court does not prescribe a mathematical formula for when a contingency becomes "likely" enough to affect the award. Different justices expressed varying views (50 per cent at trial, 20 per cent on appeal, Deane J's 20 per cent reduction), indicating that the evaluative judgment remains case-specific and unresolved as a bright-line rule.
The interaction between the recoupment presumption and the separate corporate identities of related entities (Amann and C.V.C.) is not fully settled. Beaumont J treated them as distinct, but the Full Court and High Court took the indemnity into account as a liability incurred in reliance. Future cases involving group structures or indemnities may require further elucidation of when expenditure by one entity is treated as wasted by another.
The judgment does not finally resolve whether reliance damages can ever include preliminary expenditure incurred before contract formation. Anglia Television had allowed it, but the Court here focuses on expenditure after acceptance of the tender. The boundary between recoverable reliance and irrecoverable pre-contractual expenditure remains open.
Finally, the precise standard of proof required to displace the recoupment presumption is not exhaustively defined. The Court endorses the "best estimate" approach from Fink v Fink and Jones v Schiffmann but does not specify whether the defendant must prove non-recoupment on the balance of probabilities or merely adduce some evidence that shifts the practical burden back to the plaintiff. This evidentiary nuance is left for future development.