Kay v National Australia Bank Ltd [2010] NSWSC 1116 | Case summary

Peter: Declined to remove the default rate. … Will hold off issuing the default notice for 3 weeks pending settlement. … There will be no consideration for removing default interest rate. …" 28 By letter dated 25 February 2005, NAB wrote to the plaintiffs' solicitors asserting that in "anticipation of the proposed settlement, the Bank [was] prepared to defer commencement of any legal recovery action … until 16 March 2005" and otherwise reserving all of its rights. 29 On 22 March 2005, the plaintiffs wrote to Josam requiring completion on or before 6 April 2005. Josam did not complete. On 13 April 2005, the plaintiffs purported to terminate the contract of sale to Josam and by letter dated 14 April 2005, NAB informed the plaintiffs, because the settlement had not occurred and as a result of, what NAB alleged were, continuing defaults, of NAB's intention to commence legal recovery action. 30 By letter dated 2 May 2005, NAB served a formal demand on each of the plaintiffs for payment to it of the debit balance owing and by which demand it alleged the failure to maintain a credit balance on the particular account. The amount demanded was $106,160.44 made up of the balance of the account, $100 fee for costs of the preparation of the formal demand itself and a further $200 for the expenses apparently associated with NAB's enforcement action thus far. No attempt was made to justify the assertion as to expenses or the costs for the preparation of the demand. 31 On 3 May 2005, a further meeting occurred at which the issue of the penalty interest rates was discussed. Again, NAB refused to alter the interest rate being charged and asserted (as it had continued to do) that it was entitled to charge default interest in accordance with the rates notified in the bank statements and referred to above. 32 By letter dated 12 May 2005, NAB once more served a formal demand on each of the plaintiffs, but this time the demand required repayment of the total amount due under the Facility, being an amount of $1,158,383.13, plus a further $300 for the preparation of the demand and costs and expenses associated with enforcement action. Once more, no attempt was made to justify the $300 or its calculation. 33 On 8 June 2005, Josam commenced proceedings in the Supreme Court against the plaintiffs. At this stage, Josam had lodged caveats on the properties and one of the issues in dispute in the Josam proceedings was the maintenance of those caveats. 34 In the Josam proceedings one or more of the plaintiffs swore an affidavit to the effect that the plaintiffs were paying 20% interest to the NAB and that the properties could be refinanced at lower interest rates if the caveats were removed. The caveats remained. 35 Another issue in the Josam proceedings was an alleged failure on the part of the plaintiffs to provide a construction certificate, which, it seems, was a condition precedent to the settlement of the contract of sale. On 4 July 2005, the plaintiffs filed a defence in the Josam proceedings alleging that they had advised Josam to inspect the construction certificate at the Council. 36 On 6 July 2005, Mr Inak, on behalf of the plaintiffs, spoke with officers of NAB, NAB's note of which records that the refinancing of the loan was proceeding but had been delayed due to the Josam proceedings and the existence of the caveats. 37 On 6 July 2005, a director of Josam swore an affidavit to the effect that Josam was in possession of finance sufficient to complete the purchase of the property. 38 On 19 July 2005, ICC Home Loans Bankstown (ABN: 49 108 396 621) wrote to the NAB officer (Mr Peter Hatter), by facsimile, advising that refinance had been approved in principle and that this approval was subject to valuation and the removal of the caveat. The author of the letter opined that the "matter will be concluded and settled within 28 days of this letter". 39 On 23 August 2005, a settlement conference occurred between Josam and the plaintiffs and on 27 August 2005 the plaintiffs wrote to NAB advising that settlement, in relation to the purchase by Josam, was to occur by 30 September 2005, in accordance with the outcome of the settlement conference. The foregoing letter requested NAB to defer any legal action until after 30 September 2005. 40 Prior to 30 September 2005, it became clear that Josam required some delay in the settlement. Initially there was a delay until 6 October 2005, then until 11 October 2005. On 17 November 2005, the plaintiffs were advised that the Josam proceedings had been stood over for further call-over to be held on 15 March 2006. On 22 December 2005, Josam's solicitors wrote to the plaintiffs enclosing a draft deed of settlement. 41 On 17 January 2006, the plaintiffs wrote to NAB asking it to agree to a letter that it was to send to Josam. That letter, which, in turn, enclosed a deed of settlement, proposed a simultaneous exchange by a third party at a purchase price of $1,555,000 (plus GST), withdrawal of the caveats, a bank cheque of $75,000 to the plaintiffs' solicitors from Josam, and, amongst other things, an executed notice of discontinuance of the Josam proceedings. 42 By letter dated 19 January 2006, NAB responded that, because it was not a party to the negotiations or the sale, it was not for it to agree or otherwise to the contents of the letter, but that the bank would attend the proposed settlement and discharge its mortgage, subject to full clearance of the plaintiffs' indebtedness. By this stage NAB were in possession of the properties. No payout figure was provided. 43 On 31 March 2006, the plaintiffs requested NAB to extend the date for refinancing to 28 April 2006. On 4 April 2006, the plaintiffs, once more, complained that the interest rates being charged by NAB were "exorbitant", but acknowledged that it would be paid "under protest". 44 On 20 April 2006, the properties failed to sell at auction. 45 By letter dated 3 May 2006, NAB's officer wrote to the plaintiffs in a letter that is, or seems to be, somewhat unusual. The letter purports to recite an acknowledgement of the plaintiffs that "the default interest rate was being charged in terms of contractual arrangements". Other than a note that the plaintiffs had not paid interest on their loan accounts for quite some time, there seems to be no other purpose for the letter. The letter of 3 May 2006 purports to be a response to the complaint of 4 April 2006. The acknowledgement, to which the letter of 3 May 2006 refers, purports to be an acknowledgment made at a meeting between the plaintiffs and NAB of 3 May 2005. 46 Each of the plaintiffs assert that at the meeting in or about 3 May 2005 there was no acknowledgment of any contractual right of NAB to charge the default interest rates in question. The Court accepts the evidence of the plaintiffs in this regard. Each of the plaintiffs displayed honesty and accuracy, as well as a genuine attempt to inform the Court of all that was recalled. 47 The Court finds that, at the meeting on 3 May 2005, NAB asserted a contractual right to charge the higher default interest rates. That was (and albeit to a slightly lesser extent, still is) the view of NAB. The plaintiffs, on advice, assumed that NAB were aware of the contract and were not prepared to contest the assertion of NAB as to the default interest rate that was applicable. To the extent that such an acknowledgment by the plaintiffs was an acceptance of the underlying contractual right, the letter of 3 May 2006 accurately reflects the conversation. But, out of context, it is misleading. The Court will return to this issue a little later. 48 On 19 May 2006, OFM Capital (hereinafter "OFM") informed Lighthouse Financial Investments Pty Ltd (hereinafter "Lighthouse") that OFM: "is willing to consider providing a construction finance facility with a maximum limit equivalent to 80% of 'on completion' valuation exclusive of GST comprising first mortgage facility limited to 66.67% of 'on completion' valuation exclusive of GST; and the balance of the required finance made up of second mortgage facility." 49 The pricing structure for the aforesaid construction finance facility was a first mortgage facility base rate (variable 90 day bank bills) which was at that time 5.87% per annum and a margin of 3.75% per annum and the second mortgage facility also on a 90 day bank bill rate (also then 5.87%) and also with a margin of 3.75% plus an additional 25% per annum risk fee. 50 On 24 May 2006, OFM wrote again to Lighthouse with a finance structure that included, it seems, the development costs. That structure had an assumed funding basis of $3,416,350, of which the land cost was $1,350,000 (the amount that NAB asserted was owed to it), construction costs of $1,811,850 and the cost of money at $254,500. The underlying assumption was that the construction would take approximately 12 months and that the loan term was 15 months, being 12 months to construct and 3 months to sell and pay back the loan. One condition that was immediately problematic was that the first drawdown (which, presumably, would be used to resolve the debt with NAB) could be no more than 80% of the "as is" land value (i.e. the value before construction), which would be less than the amount that NAB asserted remained owing to it. That shortfall was required to be met by the plaintiffs. 51 By letter dated 25 May 2006, the plaintiffs again complained about the default interest rate. This time, however, their solicitor attached a copy of the Facility Agreement signed on behalf of NAB on 8 July 2003, some terms of which are recited above. Further, the solicitor asserted that the plaintiffs were refinancing and were prepared to pay the principal amount ($1,150,000) plus 5.65% plus a default rate of 4%. The Court, taking a commercial view of the proposal, assumes that the 4% default rate was not applicable for the period during which the plaintiffs were not in default. The relevant period asserted in that letter was, therefore presumably, from no earlier than 11 or 14 July 2004. 52 By letter dated 30 May 2006, NAB responded to the foregoing letter dated 25 May 2006. NAB asserted that, using the Facility Agreement, the default rate should be 13.65% per annum and the payout figure as at 15 June 2006 would be $1,413,202.50. The precise basis, upon which the rate of 13.65% was derived, is unclear from the terms of the letter. 53 On 30 May 2006, the plaintiffs amended the defence in the Josam proceedings. On 2 June 2006, the plaintiffs filed a cross-claim in the Josam proceedings, seeking declarations as to the validity of the termination of the contract of sale. 54 On 3 July 2006, a mortgage broker reported of a meeting with one or more of the plaintiffs in a letter to McGrath Capital Pty Ltd (hereinafter "McGrath"), which recounted, presumably on advice from one or more of the plaintiffs, that the plaintiffs had a facility with NAB that required a payout of $1.35 million, while the valuation on the site (which may be more than three months' old) was at $1.55 million. Mr Inak provided the information given to McGrath at a conference with the mortgage broker. 55 By letter dated 3 July 2006, McGrath wrote to the mortgage broker providing a "preliminary outline" of terms upon which it would be prepared to provide finance. Those terms were intended to finance the development project and the satisfaction of the debt to NAB. McGrath was prepared to lend a total of $3,530,000, of which $1,354,375 was for the purpose of refinancing the loan with NAB. These figures, and the total facility, was based on a total loan equivalent to 85% of Gross Realisation net of GST, of which 70% was on a first mortgage and 15% on a second mortgage. 56 On 6 July 2006, the plaintiffs purported to accept the proposal from McGrath by completing an application therefor. Each of the plaintiffs signed a statement of personal circumstances, which cumulatively disclosed net assets greater than the shortfall, if any, between the amount available under the proposal to lend 85% and the total cost of the project. 57 On 13 July 2006, the Josam proceedings were adjourned after the Court (comprised of his Honour Justice Campbell) was informed that the properties were to be sold. 58 On 6 September 2006, the plaintiffs (or two of them on behalf of all of them) met with an officer of NAB. The NAB file note, which is in evidence, records that the officer of NAB "had received a copy of the original loan contract from [the plaintiffs'] solicitor and it appears the Bank had in fact charged default interest at a higher rate than stated in the loan contract". NAB apologised and informed the plaintiffs that, as a consequence, there had been a net interest refund of approximately $136,000. It seems that, notwithstanding that the contract documents emanated from NAB, NAB did not have on the plaintiffs' file a copy of the original contract documents and, during the whole of the dispute about interest rates, had at no stage referred to the contract documents. The Court has already noted the evidence, which it accepts, that, notwithstanding the foregoing, NAB had represented that it was entitled, under the contract (which it had not for that purpose examined), to charge the interest rates about which the complaint had been made. 59 The meeting on 6 September 2006 also discussed a means by which the plaintiffs could obtain finance from another bank, or lender, to complete the development and the bank would agree to a proposal to forego some part of the amount necessary to discharge the mortgage with it until a later time. This proposal emanated from NAB. 60 On 18 September 2006, the Josam proceedings were settled. On 21 September 2006, as a result of the settlement, Josam discontinued the proceedings. 61 The proposal from NAB to forego the repayment of some part of the amounts owing was not accepted, nor it seems, the subject of further discussion between the parties. On 3 October 2006, NAB sent the revised account statements to the plaintiffs, disclosing the lower interest deductions calculated by it and on 13 November 2007 NAB sold the land. The proper construction of the contract 62 The parties are in dispute as to the rate of interest that may be charged under the contract. Central to that dispute is the contention of NAB that the indicative letter formed part of the contract, or, more accurately, that the terms of the contract were required to be understood in the context of the indicative letter and bearing in mind its terms. 63 The indicative letter, expressly, makes clear it is not a contractual document and does not purport to be an offer that may be accepted. Nor is it anywhere described as part of the offer. The Facility Agreement does not refer to it in such terms or in any relevant way. Further, the Facility Agreement (including, in this regard, the General Terms) does not at any stage referred to the indicative letter. NAB, in sending the Facility Agreement, expressly referred to the Facility Agreement as the "contract document", the signing of which gave rise to a binding obligation. Moreover, the Facility Agreement makes specific provision for those terms that may be varied, or were indicative only, by marking such terms with an asterisk. There was no such marking on the interest rate that had been prescribed in the Facility Agreement. 64 On the other hand, the indicative letter was a letter approving a loan in principle only and subject to formal offer and acceptance. The Facility Agreement was drafted and executed on 8 July 2003 and other than the charges purportedly recorded by NAB on the plaintiffs' bank statements, there is no evidence of a movement in interest rates that would account for the difference between 5.65% (the amount recorded in the Facility Agreement) and 5.85% (the interest rate charged). 65 The agreement between the parties was an agreement, as evidenced by the Facility Agreement, for a fixed interest rate commencing at the start of the loan amount term requiring the payment of interest only. As a consequence, and given that the disclosure date is the date upon which the Facility Agreement was provided to the plaintiffs and the settlement date is the date of the drawdown of the loan money, clause 11.4 of the General Terms, consistently with the terms of the Facility Agreement, provides (see clause 11.4(b) of the General Terms) that the agreement made before the settlement date is the rate by which the parties are bound and which will be charged to the plaintiffs. 66 In other words, at or shortly after the disclosure date, the parties agreed on an interest rate of 5.65% and that was an agreement made on or before the settlement date. By operation of clause 11.4(b) of the General Terms, it is that agreed interest rate that is applicable to the fixed interest loan. 67 The fact that the indicative letter suggested (or expressed) the view that interest rates would vary is of little or no consequence. First, the indicative letter is not a contractual document. The Facility Agreement, recited above, in its "offer" refers as a contractual document only to the Facility Agreement (and by reference the General Terms). Second, the indicative letter itself makes clear that it is not a contractual document. Third, that the interest rates may be the subject of variation is a self-fulfilling statement of no moment. The interest rates did vary. They moved from a proposed 5.89% in the indicative letter to 5.65% in the Facility Agreement. 68 Further, clause 11.4(a) of the General Terms does not apply to the agreement between the parties, in this case, as it is applicable only to loans requiring the repayment of principal and interest. The alternative envisaged by the General Terms to the operation of 5.65% interest is an interest rate set by NAB on the settlement date, because there is no agreement as to the rate fixed during the loan period. 69 The other aspect that is relevant to the determination of the issues between the parties is what, under the contract, is intended to occur at the conclusion of the loan term. NAB submits that the full amount of principal, together with any unpaid interest, was due and payable at the conclusion of the 12 months. It is that view that occasioned NAB requiring settlement, and charging default rates, at the conclusion of the year. 70 There are two aspects to this part of the dispute. First, the term of the loan commences on the settlement date, which is defined as the date upon which the money (or any part of it) is lent. Relevantly, that was either 11 or 14 July 2003 and the initial loan term expired on 10 or 13 July 2004. Second, the section of the Facility Agreement that referred to interest rate fixed the rate for a "period of 1 years [sic] from the settlement date". The interest rate is not fixed for the entirety of the agreement, or the entirety of the loan period. Third, the loan amount term is defined as "1 years [sic]", but is not defined or described as 1 year only, or words to that effect. Fourth, the General Terms, while specifying that a fixed rate loan period may not extend beyond the end of the loan amount term (clause 11.1), also provides that unless otherwise agreed the loan amount automatically converts to the variable interest rate at the conclusion of the fixed rate period (clause 11.6). More importantly, the Facility Agreement expressly deals with the situation after the end of the loan term. As a consequence, for the purpose of clause 11.6 of the General Terms, the parties have otherwise agreed. 71 The Facility Agreement provides that at the end of the first fixed rate period (i.e. after the 1 year described in the Facility Agreement) and each subsequent fixed rate period, the loan automatically continues at a fixed rate for another period of the same length as the first. The fixed rate that is applicable is the rate offered by NAB for a loan of the same type at the time that the agreement is renewed. The evidence before the Court is that interest rates were at 5.89% at the date of the indicative letter. There is no evidence of a decrease in interest rates between that date and the date of the Facility Agreement. There is evidence of a decrease in interest rates from 5.89% to 5.85% on 11 July 2003. The next movement was that interest rates rose to 6.95% on 31 August 2005. Thus, at the first and second renewal of the loan term, there had been no relevant increase in interest rates and the agreed 5.65% would apply until, at least, 11 or 13 July 2006. Any renewal that occurred on 14 July 2006 would, it seems, be at an interest rate of 6.99% per annum, being 0.2% lower than the advertised rate, which is the rate for a loan of the type of this account, as initially agreed. No account has been taken in the foregoing of any default. 72 If there were any default, then, in accordance with the Facility Agreement, an additional 4% per annum could be charged. The Court will deal with default shortly. 73 As a consequence of the foregoing, NAB was, and is, in breach of the contract with the plaintiffs. Further, notwithstanding the reimbursement of some of the interest payments, the amount reimbursed was not calculated on the basis of the correct construction of the contract between the parties. NAB is required to recalculate the amount owing. Were the plaintiffs in default? 74 There is no suggestion that during the first year of the loan the principal sum owing ever rose above the amount initially drawn down. Therefore, the amount of interest charged must have been paid. Further, as a consequence of the finding as to the proper construction of the contract and the amount of interest that could be charged thereunder, the plaintiffs had paid more than they were required to have paid under the contract. There is no claim that NAB should be required to pay interest to the plaintiffs for the money it improperly withheld. 75 From day one of the contract, NAB was in breach (or more accurately when it first debited interest at the end of the first month). NAB continued in breach for the duration of the contract. The rate of interest was an essential term of the contract or NAB's conduct was a sufficiently serious breach of an intermediate term. In either alternative, the plaintiffs had a right to elect either to rescind the contract (and sue for damages), or continue the contract on foot and sue for damages arising from the breach. 76 When, eventually, the plaintiffs were in default by refusing to pay interest at the rates being charged by NAB, that refusal was a direct consequence of the breach by NAB and the dispute between the parties as to the payments to which NAB was entitled. It is, in those circumstances, inappropriate, and inconsistent with the terms of the contract between the parties, to refer to the plaintiffs as being in default. It follows that NAB should never have applied the default rate and any calculation based upon the applicability of the default rate is, by virtue of the proper construction of the contract and the facts as the Court has found them, incorrect. If there ever were a period during which the default rate were to apply, NAB were entitled, for that period, only to charge an additional 4% to the otherwise applicable interest rate. Hadley v Baxendale 77 A general principle and purpose of damages for breach of contract is to restore the plaintiff, so far as one can, to the same position as the plaintiff would have been if the contract could have been performed. Ordinarily, such a purpose is not concerned with consequential profit or loss arising from the breach. I will return to this in more detail later. Thus, where goods are bought and sold and not delivered, the damages are the difference between the contracted price of the goods and the replacement cost or market value. Whether or not the goods were to be on-sold at an exorbitant profit is generally irrelevant in the determination of damages. 78 The foregoing does not affect the principle that the plaintiff is to be put in the same position as if the contract had been performed. However, the issues associated with the remoteness of damage must qualify the principle relating to the assessment of damage. It is this latter qualification that is central to the dispute between the parties before the Court in the current matter. 79 Remoteness of damage in contract is, as a matter of principle, well settled. However, it often causes difficulties in application. The principle of remoteness is governed by the well-known passage in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145. In Hadley v Baxendale, Baron Alderson stated the principle (at 355; 152) in the following terms: "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." 80 Under what has been described as the first limb of damages in Hadley v Baxendale, supra, general damages are applicable and are usually described as that which naturally flows from the contract itself. In that sense, the terms of the contract define the limits of the damages that arise. Ordinarily, a case involving money lending and overcharging of interest rates would result in the damages being confined to the return of the interest that was overcharged. Such damage arises as a natural consequence of the terms of the contract itself. 81 The rationale for such an approach is obvious. If money lender A breaches its contract and declines to lend money on the terms contracted, borrower B is capable of obtaining the finance from another money lender, presumably forthwith, and the damage is the additional cost of the finance, if any. In such circumstances, it is unnecessary to investigate what B was to have done with the money once obtained. B can obtain any extraordinary profit by procuring the finance from another source and obtaining in damages the difference between the cost of the finance as contracted and as otherwise obtained. 82 The exception is where the parties to the contract contemplate losses that would probably result from a breach, or a particular breach. In that case, the contemplated losses of that kind are a special damage that overtakes (or adds to) the simple calculation that would otherwise apply. This is often referred to as the second limb of Hadley v Baxendale. Although there is much force in the argument that there are not two limbs, it is unnecessary for the Court to involve itself in that debate. Whatever be the basis for the calculation of damage, or defining the damage that flows from a particular breach, the plaintiff bears the onus of proving that a loss has been incurred. Otherwise, only nominal damages would be granted. 83 As is conceded by Mr Rowe, NAB were aware that the plaintiffs were seeking to finance the purchase of the relevant properties, the grant of a development approval and either a subsequent sale or development by the plaintiffs. The plaintiffs informed NAB of these matters. The cost of the finance was a fundamental criterion to both the plaintiffs and NAB. NAB, for its part, considered it essential (and important to it) that it was competitive in the provision of finance for the plaintiffs. From the plaintiffs' perspective, the cost of the finance was an essential, and probably the most essential, element in their scheme to obtain a profit by re selling or developing the properties. 84 In those circumstances, the inability of the plaintiffs (if that be proved to be so) to resell or to develop the properties because of the breach by NAB must give rise to the kind of loss that the parties contemplated would arise from such a breach. There does not need to be an express acceptance of the risk of damages of that kind in the terms of the contract. It has been said: "The basis of the defendant's liability... is his implied undertaking to the plaintiff to bear it. His actual knowledge of the special circumstances is relevant as one of the factors from which his understanding can be implied. The second factor is also necessary, viz., that he should have acquired this knowledge from the plaintiff, or at least that he should know that the plaintiff knew that he was possessed of it at the time the contract was entered into and so could reasonably foresee at that time that an enhanced loss was liable to result from a breach. Where both these factors are present, the defendant's conduct in entering into the contract without disclaiming liability for the enhanced loss which he can foresee gives rise to the implication that he undertakes to bear it." ( Robophone Facilities Limited v Blank [1966] 1 WLR 1428 at 1448, per Diplock LJ; see also Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310, 363-364, per McHugh J.) 85 Central to the consideration of all parties in entering into the loan agreements was that the money obtained would be utilised in the manner already outlined. If NAB were, by breach, to prevent the utilisation of the money to facilitate the development (in whole or in part), then the loss that arises from the inability to use the money in that way must be a loss contemplated by the parties and arising from the breach. 86 Further, the plaintiffs claim damages under the Trade Practices Act. To the extent that a contravention of the Trade Practices Act is established, different tests for the remoteness of damage may arise. 87 The evidence before the Court, as already stated, discloses that NAB represented that it was entitled to charge the interest rate that it was charging under the contract between it and the plaintiffs. That representation was false and misleading. Further, NAB had no reasonable basis for that representation. 88 There is evidence to suggest that the terms of the contract were not on the file. That alone would suggest NAB had no basis for the representation that it made. But NAB was the author of the contract and, as a corporation, had actual or ostensible knowledge of the terms of the contract. There is no evidence that NAB does not have, or did not have prior to 25 May 2006, a copy of the contract. That the contract was not placed on the file does not mean that NAB does not have a copy of the contract. Whatever be the position, it had engaged in misleading and deceptive conduct as to its rights under the contract. 89 The plaintiffs and/or their agents relied upon the representation by NAB of its rights under the contract, as a consequence of which the plaintiffs did not, for some substantial period of time, dispute the amount being deducted or move to rescind the contract or sue for its breach. If the plaintiffs were able to prove loss arising from their inability (if that be the case) to re sell or to develop the properties, such loss arises from the misrepresentation. "Remoteness" and "causation", which are necessarily interrelated, may have quite different implications under the Trade Practices Act than under contract. Because of the conclusion to which the Court has arrived in relation to the second limb of Hadley v Baxendale, it is unnecessary to develop this aspect any further. Was there a loss? 90 Before dealing with the existence or otherwise of a loss and the award of damages, it is appropriate to recite somewhat trite principles relating to the award of damages in contract. Some have already been stated in simple terms. A breach of contract brings about damages and, even in the case where no loss is occasioned, nominal damages will be awarded. Nevertheless, generally damages are compensatory and not a process which is intended to punish or deter: Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1 at 6-7. 91 Further, where loss is sustained and damages are awarded, contractual damages are intended to place the innocent contractual party in the same situation as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850; (1848) 154 ER 363 at 365, per Parke B; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1992) 174 CLR 64 at 80; and the award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance: Commonwealth v Amann Aviation Pty Ltd, supra. 92 Lastly in terms of principles, it is necessary to discuss "loss of chance" damages, which, ultimately, is the major claim of the plaintiffs. Loss of chance damages are awarded for the loss of the opportunity to engage in events that may or may not have occurred, referred to as hypothetical events. It matters not whether the occurrence of the event is at the election or discretion of the plaintiffs or the defendants, the event is still hypothetical, but there must be a basis upon which the Court can hold that the event would or might happen. Notwithstanding earlier dicta to slightly different effect, the High Court has determined that the approach to loss of chance damages in contract ought to be the same as it is in tort. 93 In Commonwealth v Amann Aviation Pty Ltd, supra, the damages of the respondent were based upon the chance of obtaining a commercial benefit, being the extension or renewal of a contract with the Commonwealth. The High Court dealt with loss of chance damages again in Sellars v Adelaide Petrolium N.L. [1994] HCA 4; (1994) 179 CLR 332. The last mentioned matter was a matter which dealt with a claim for misleading and deceptive conduct. 94 In Sellars, supra, the Court (Mason CJ, Dawson, Toohey and Gaudron JJ), at 350, said: "In Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, 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.

Kay v National Australia Bank Ltd

At a glance

Court

Decision date

Before

Source

Judgment (40 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (10)