Relevant principles
26 The parties agreed about the main principles relevant to the assessment of damages for breach of contract but disagreed about their application to the circumstances of this case.
27 The following statements of principle are relevant to the issues which require resolution in the present case:
(1) In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390; [2009] HCA 8 at [3], the High Court said that the ""ruling principle", confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman [[1848] EngR 135; (1848) 1 Exch 850 at 855; 154 ER 363 at 365]:
"The rule of the common law is that 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.""
(2) The same principle has been stated as follows (The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116):
The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e. the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act.
(3) The loss for which compensation is claimed must not be too remote. The remoteness criterion "is determined by reference to the so-called rule in Hadley v Baxendale, according to which a loss caused by a breach of contract is not too remote if it:
…may fairly and reasonably be considered either [as] arising naturally, that is, according to the usual course of things, from such breach of contract itself, or…may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as the probable result of the breach of it"
(Seddon, N C and Ellinghaus, M P. Cheshire and Fifoot's Law of Contract, 9th Australian ed. Sydney: LexisNexis Butterworths, 2008 at [23.34] citing Hadley v Baxendale (1854) 9 Exch 341 at 354; 156 ER 145 at 151).
(4) Further (Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365 - 366):
An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage. The parties need not contemplate the degree or extent of the loss or damage suffered…Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered.
(5) Although damage is not an element of a cause of action for breach of contract, "a plaintiff bears the onus of establishing the extent of his loss or injury on the balance of probabilities. To satisfy the requirements of that rule, a plaintiff must, if he is to recover more than a nominal amount in such an action, affirmatively establish assessable damage, that is to say, loss or injury which is capable of being measured in monetary terms" (Amann Aviation at 118).
(6) However, it "is irrelevant to inquire whether the defendants' default was the dominant, effective or real cause of the plaintiff's loss. If the evidence is suggestive of multiple causation, the inquiry to be made is whether the defendants' default was a cause of the plaintiff's loss…The test of causation poses the question whether the plaintiff's loss would not have been suffered but for the defendants' default. The question is to be answered by applying that test in a practical commonsense way" (Alexander v Cambridge Credit at 315; see also at 350). Hence, the "but for" test is not "the exclusive test of factual causation" (Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55 at [24]).
(7) Where an intervening event arises "the intervention will not have the effect of terminating the defendants' responsibility for the loss caused by it, if the parties should have contemplated at the time of the contract that in the event of the sort of breach which did occur an intervention of that general kind was a serious possibility or a not unlikely occurrence: Koufos v C Czarkinow Ltd [1969] 1 AC 350" (Alexander v Cambridge Credit at 315).
(8) It has also been said that, while the plaintiff has the onus of showing loss caused by the breach, "if the loss in question is the apparent or likely result of the breach, the onus shifts to the contract-breaker to prove that it was not" (Seddon and Ellinghaus at [23.34] citing Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516). Further, in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [148] McHugh J said (albeit in a trade practices context) "(a)rguably, once a plaintiff demonstrates that a breach of duty has occurred that is closely followed by damage, a prima facie causal connection will be established. It is then for the defendant to show that the plaintiff should not recover damages. In the words of Dixon CJ in Watts v Rake [(1960) 108 CLR 158 at 160], it is the defendant who must disentangle, so far as possible, the various contributing factors".
(9) The rule that a "defendant is not liable in damages for not doing that which he or she has not promised to do is necessarily subject to the rule in Hadley v Baxendale. According to Alderson B's renowned formulation, the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach [Hadley v Baxendale (1854) 9 Exch 3, at p 354; 156 ER, at p 151]. Hence, loss of the prospect of securing a renewal of contract may be within the contemplation of parties as probable result of breach" (Amann Aviation at 91 - 92; see also at 102 - 103 and 112).
(10) Accordingly, as was stated in Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 642 - 643 per Deane, Gaudron and McHugh JJ):
When liability has been established and a common law court has to assess damages, its approach to events that allegedly would have occurred, but cannot now occur, or that allegedly might occur, is different from its approach to events which allegedly have occurred. A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability. The adjustment may increase or decrease the amount of damages otherwise to be awarded.…The approach is the same whether it is alleged that the event would have occurred before or might occur after the assessment of damages takes place.
(11) The statement in Malec v JC Hutton has been further explained (Sellars v Adelaide Petroleum NL (1992) 179 CLR 332 at 350) as follows:
In Malec v J C Hutton Pty Ltd, this Court drew a distinction between, on the one hand, proof of historical facts - what has happened - and, on the other hand, proof of future possibilities and past hypothetical situations. The civil standard of proof applies to the first category but not to the second, particularly when it is necessary to determine future possibilities and past hypothetical situations for the purpose of assessing damages.
(12) The general rule is that damages are assessed at the date of breach of contract but "this rule is not universal" and "must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered" (Johnson v Perez (1988) 166 CLR 351 at 355 - 356). This is consistent with the approach that rules which constitute "useful guidance in the ascertainment of damages" should not be treated "as rigid rules of universal application" incapable of being "displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation for a breach of contract without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept" (Wenham v Ella (1972) 127 CLR 454 at 466; see also Amann Aviation at 119).
(13) The general rule that damages are usually assessed at the date of breach of contract does not mean that events that have occurred after that date may never be considered (Wenham v Ella at 473).
(14) Further, "where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages" (Fink v Fink (1946) 74 CLR 127 at 143; see also State of New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 at [72]).