Young v Chief Executive Officer [2023] HCA 31 | Case summary

Young v Chief Executive Officer [2023] HCA 31 | Case summary | Zoe

Ms Young was the tenant of residential premises at Ltyentye Apurte, also known as Santa Teresa, an Aboriginal community approximately 85 kilometres from Alice Springs. The Chief Executive Officer (Housing) ("the CEO"), a corporation sole established under the Housing Act 1982 (NT), was the landlord. For 68 months, the premises had no back door in the doorframe.
The written form of tenancy agreement between the CEO and Ms Young was not in accordance with s 19(1) of the Act in that it did not contain terms to the effect of each term specified by the Act to be a term of a tenancy agreement. The consequence was that, for the purposes of the Act, the tenancy agreement between the CEO and Ms Young was taken by s 19(4) of the Act to be the prescribed tenancy agreement set out in Sch 2 to the Residential Tenancies Regulations 2000 (NT). As required by s 49(1) of the Act, cl 12(1) of the prescribed tenancy agreement provided that "[t]he landlord will take reasonable steps to provide and maintain the locks and other security devices that are necessary to ensure the premises and ancillary property are reasonably secure".
Ms Young applied to the Tribunal for an order under s 122(1) of the Act that the CEO compensate her for loss or damage she claimed to have suffered because of non-compliance by the CEO with the tenancy agreement. Her application included a claim to be compensated for loss or damage by way of distress and disappointment due to the insecurity she felt because of the CEO's failure to provide a back door in compliance with the term of the tenancy agreement imposed by s 49(1) of the Act.
Taking the view that an external door is not "a security device" within the meaning of s 49(1) of the Act, the Tribunal found no breach of the term of the tenancy agreement specified in that sub-section and on that basis dismissed the application for compensation for non-compliance with it[1].
On appeal on a question of law to the Supreme Court of the Northern Territory under s 141 of the Northern Territory Civil and Administrative Tribunal Act 2014 (NT), the CEO conceded that an external door is a security device within the meaning of s 49(1) of the Act, that having a back door was necessary to ensure that the premises were reasonably secure, and that the CEO had failed to comply with the term of the tenancy agreement specified in s 49(1) of the Act[2].
Accepting that concession, Blokland J set aside so much of the decision of the Tribunal as had dismissed the application for compensation for non-compliance with the term specified in s 49(1) of the Act. Going on to assess compensation for non-compliance with that term herself, Blokland J substituted an order that the CEO pay compensation to Ms Young in the sum of $10,200 in respect of loss or damage identified as "distress and disappointment due to the failure to provide a premises which was secure"[3].
On further appeal to the Court of Appeal of the Supreme Court of the Northern Territory under s 51 of the Supreme Court Act 1979 (NT), the Court of Appeal, constituted by Grant CJ, Southwood and Barr JJ, set aside the order made by Blokland J that the CEO pay compensation to Ms Young. The Court of Appeal construed s 122(1) of the Act as importing principles of remoteness that limit the assessment of damages for breach of contract at common law[4] and took the view that those principles operated to exclude compensation for distress or disappointment arising from non-compliance with a term of the tenancy agreement other than in consequence of physical inconvenience[5].
The Court of Appeal recorded that no issue was raised before it as to whether the order made by Blokland J was within the jurisdiction of the Supreme Court on an appeal on a question of law under s 141 of the Northern Territory Civil and Administrative Tribunal Act[6]. Nor has any such issue been raised in this Court[7].
Pursuant to a grant of special leave[8], the appeal to this Court from the decision of the Court of Appeal has been argued on two logically alternative grounds. The first ground is to the effect that the Court of Appeal erred in construing s 122 of the Act to import common law principles of remoteness. The second ground is to the effect that the Court of Appeal erred as to the content and application of those common law principles.
The appeal is to be allowed on the first ground, with the consequence that the second ground does not arise for consideration.

There is no dispute that the "loss or damage" to which reference is made in s 122(1) can extend to non-economic loss and can include non-economic loss in the form of disappointment or distress suffered by a landlord or a tenant as "a normal, rational reaction of an unimpaired mind"[13]. There is also no dispute that disappointment or distress of that nature is not "physical injury, pain or suffering" so that an order for compensation in respect of disappointment or distress of that nature is not precluded by s 122(5)(a)[14].
The Court of Appeal took the view that the principles of remoteness applicable to the assessment of damages for breach of contract at common law are imported into s 122(1) by the reference in s 122(1) to "loss or damage suffered by the applicant ... because" in its application to a circumstance referred to in s 122(1)(a) where "the other party has failed to comply with the agreement"[15].
On the appeal to this Court, the CEO sought to support the Court of Appeal's construction of s 122(1) by reference to the overall design of the Act by which certain obligations, including that specified in s 49(1), are made terms of a tenancy agreement and thereby become enforceable in contract at common law. The CEO argued that s 122(1) follows through with that legislative design by incorporating the common law concerning both breach of contract and recoverability of damages for breach of contract subject only to "modification" of the common law concerning recoverability of damages by s 122(3) and (5). According to the CEO, s 120 confirms incorporation of the common law concerning recoverability of damages into s 122(1). Section 120's singling out of common law rules about mitigation for application to a breach of a tenancy agreement, according to the CEO, is to be understood as being for the avoidance of doubt.
The reasoning of the Court of Appeal and the argument of the CEO correctly accepted that: (1) the language of s 122(1) must be construed and applied purposively within the context of the Act[16]; and (2) the statutory language requires an applicant to establish a causal connection between a breach of the tenancy agreement and compensable loss or damage, which may require consideration of issues of the kind that would be addressed in the assessment of damages at common law under the rubric of remoteness[17].
The reasoning of the Court of Appeal and the argument of the CEO were also correct to the extent that they identified the design of the Act as being to provide for the application of the general law of contract, by making certain obligations terms of a tenancy agreement so as thereby to become enforceable contractual obligations carrying "full contractual liability for breach"[18]. Whether the main purpose of that element of the legislative design was to improve the understanding of landlords and tenants of their rights and obligations in relation to residential tenancies by requiring those obligations to be recorded in the terms of tenancy agreements or to ensure that landlords and tenants are provided with contractual mechanisms for enforcing their rights under tenancy agreements need not be explored.
Breach of an obligation made a term of a tenancy agreement, such as the obligation specified in s 49(1), would be remediable in the original jurisdiction of the Supreme Court either in an application for equitable relief or in an action for damages at common law. The assessment of damages in any such action at common law would be governed by common law principles of remoteness. The assessment of damages in any such action would also be governed by s 120, which operates to remove any doubt that common law principles about mitigation of loss or damage on breach of a contract are applicable to a breach of a tenancy agreement[19].
Where the reasoning of the Court of Appeal and the argument of the CEO went too far was in postulating a further element of the design of the Act to be that the measure of compensation capable of being ordered by the Tribunal under s 122 of the Act for breach of a term of a tenancy agreement is confined by reference to the measure of damages that could be ordered by a court for breach of that term of that tenancy agreement in a common law action for breach of contract. Statutory compensation under s 122 is rather to be seen as an alternative, and likely more accessible, remedy to common law damages for breach of a tenancy agreement.
It is consonant with the legislative objective of ensuring that landlords and tenants are provided with suitable mechanisms for enforcing their rights under tenancy agreements to recognise that s 122 leaves such remedies as may be available to landlords and tenants at common law or in equity untouched and provides an additional mechanism by which landlords and tenants can obtain from the Tribunal statutory compensation the measure of which is provided by the Act itself. Double recovery is avoided by the requirement of s 122(3)(c) that any money that may have been recovered by way of compensation must be taken into account by the Tribunal in determining whether to order compensation under s 122(1).
The language and structure of s 122(1)(a) provides no basis for differentiating in principle between the evaluative judgment to be made by the Tribunal in determining the existence and extent of compensable loss or damage suffered by an applicant because the other party has failed to comply with an obligation imposed as a term of a tenancy agreement, on the one hand, and the evaluative judgment to be made by the Tribunal in determining the existence and extent of compensable loss or damage suffered by an applicant because the other party has failed to comply with an obligation imposed directly by force of the Act in relation to a tenancy agreement, on the other hand. To adapt language drawn from judicial descriptions of the evaluative judgments required to be made in determining statutory compensation in other statutory contexts[20], the task of the Tribunal in each case is to arrive at a measure of compensation which conforms to the purposes of the Act and to the justice and equity of the case, having regard to the nature and purpose of the particular obligation with which there has been failure to comply and taking into account each of the mandatory considerations specified in s 122(3).
In the case of an obligation specified by the Act to be a term of a tenancy agreement, just as in the case of an obligation imposed directly by force of the Act in relation to a tenancy agreement, the nature and purpose of the particular obligation falls to be determined by reference to principles of statutory interpretation.
In the case of an obligation imposed by a bespoke term of a tenancy agreement, the nature and purpose of the particular obligation falls to be determined by reference to common law principles of contractual interpretation applicable within a context[21] which, critically, includes the Act itself. Although the Act contemplates that landlords and tenants might enter into written tenancy agreements containing terms additional to those specified by or under the Act to be a term of a tenancy agreement, s 20 makes clear that any such term can have legal effect only to the extent to which that term is not inconsistent with the Act.
The only difference in the application of s 122(1)(a) as between a case where the other party has failed to comply with an obligation imposed as a term of a tenancy agreement and a case where the other party has failed to comply with an obligation imposed directly by force of the Act is that the mandatory consideration specified in s 122(3)(e), in terms of whether an action was taken by an applicant for compensation to mitigate the loss or damage, is hardened by s 120 in a case of a failure to comply with an obligation imposed as a term of a tenancy agreement into a rule that the applicant for compensation must mitigate his or her loss or damage in the same way as if the applicant were a plaintiff in a common law action for damages for breach of contract.

This appeal concerns the manner in which compensation for loss or damage should be quantified under s 122 of the Residential Tenancies Act 1999 (NT) for a breach of a term of a residential tenancy agreement requiring the landlord to take various security precautions to ensure that the premises are reasonably secure. The Supreme Court of the Northern Territory overturned the conclusion of the Northern Territory Civil and Administrative Tribunal ("the Tribunal"), finding that the respondent landlord breached that term by failing, for years, to ensure that there was a back door installed in the external doorway of the premises leased to the first appellant, Ms Young. The Supreme Court made orders including for payment of compensation to Ms Young of $10,200 for disappointment and distress caused by that breach. The Court of Appeal of the Supreme Court of the Northern Territory allowed the respondent landlord's appeal, concluding that the central object of a residential tenancy agreement was not to provide pleasure, entertainment, or relaxation, and therefore compensation for disappointment and distress was not available unless it was consequential upon physical inconvenience suffered by Ms Young.
The first issue that arises is whether compensation for loss or damage under s 122 incorporates the common law limits on recovering compensation or damages for breach of contract. If it does, the second issue is whether, absent personal injury, those common law limits preclude Ms Young from recovering compensation for disappointment and distress unless it is consequent upon physical inconvenience.
The first issue arises from Ms Young's submission that an award of compensation under s 122(1) of the Residential Tenancies Act contains no limitations on recovery, other than causation, for loss or damage suffered because of a failure to comply with the tenancy agreement. In other words, so long as loss or damage was caused by the breach, the availability of compensation under s 122(1) was not limited by reference to notions of scope of duty or remoteness. That submission should not be accepted. There are limits on recoverable compensation under s 122(1) which are incorporated in the concept of "compensation", its award "for loss or damage", and the requirement that the loss or damage arise "because ... the other party has failed to comply with the agreement".
At every stage in this litigation, the parties accepted that if any principles limiting the recovery of damages did apply to the assessment of compensation under s 122, then those principles would be common law principles[22]. No party to this appeal sought to depart from that approach. The parties were right not to contemplate that the rules that limit recoverable damages in s 122(1) of the Residential Tenancies Act were some unique, unspecified, and uncertain statutory rules. The model adopted by the Residential Tenancies Act included the creation of terms that were to become part of tenancy agreements, presupposing the operation of general contract law rules. But even if the Residential Tenancies Act were to be taken to have silently permitted the creation by the Tribunal of a new regime for "compensation" and "loss or damage", it is hard to see why any newly created regime by the Tribunal should be informed by anything other than the common law rules that have been developed incrementally over centuries. The Tribunal need not engage in an exercise of developing new rules to limit the recoverability of compensation under the Residential Tenancies Act for breach of a contractual obligation in a tenancy agreement.
As to the second issue, the common law rules concerning limitation of recovery of compensation or damages for breach of contract preclude recovery of damages for disappointment and distress where that disappointment and distress is not consequential upon physical injury or physical inconvenience. That is, damages for disappointment and distress are not available at common law unless an object of the contract, or the specific term that is breached, was concerned with the promisee's state of mind. The relevant contract term breached in this case, with its focus upon the safety and security of the premises, had an object which included providing the tenant with security and peace of mind. The appeal should therefore be allowed.

The first appellant, Ms Young, is an Aboriginal woman, resident of a remote Aboriginal community in the town of Ltyentye Apurte/Santa Teresa, approximately 85 kilometres from Alice Springs, in the Northern Territory of Australia. She is one of 70 applicants who brought applications in the Tribunal concerning alleged breaches of the Residential Tenancies Act by their landlord, the Chief Executive Officer (Housing)[23].
The second appellant, the estate of Mr Conway, was treated by the parties before this Court as having the same material interest as Ms Young in this appeal. Mr Conway was also a resident of Ltyentye Apurte/Santa Teresa and was also one of the applicants before the Tribunal. The circumstances of his application before the Tribunal were not the subject of submissions in this Court.
At the time of Ms Young's tenancy agreement with the Chief Executive Officer (Housing), she was 71 years old. She spoke little English and did not read English. Her first language was Eastern Arrernte. The Chief Executive Officer (Housing) is a statutory body corporate sole with functions and powers to assist in the provision of residential housing including by lease[24].
Ms Young's tenancy was found to have commenced on 13 November 2011[25]. Her written tenancy agreement was found to be invalid, so the tenancy was a prescribed tenancy under s 19(4) of the Residential Tenancies Act[26]. The terms of the tenancy included rent of $184 to be paid per week and the terms set out in Sch 2 to the Residential Tenancies Regulations 2000 (NT)[27].
The premises leased to Ms Young were alleged to be defective in numerous respects[28]. One respect was that for several years from the time that her tenancy commenced, the Chief Executive Officer (Housing) had failed to provide Ms Young with a back door. The absence of a back door was a significant impairment of security in circumstances where, as Ms Young described, roaming wild horses may have bent a fence around the property, and where a snake may have entered the house through a gap that was left between the door and the doorframe following the eventual installation of a back door by the Chief Executive Officer (Housing)[29]. Ms Young was "an elderly woman who was left vulnerable to proven animal intruders and potentially human intruders"[30].
On 22 January 2016, a solicitor acting for Ms Young wrote to the Chief Executive Officer (Housing) saying that there had been no back door on the premises and that, although a mesh-steel door had been installed by Ms Young, a new door was required. More than six weeks later, in late March 2016, the Chief Executive Officer (Housing) installed a new back door[31].
In the Tribunal, Ms Young sought orders for repairs to be made to the premises, as well as a payment of compensation under s 122(1) of the Residential Tenancies Act. The Chief Executive Officer (Housing) was ordered to: refund rent of $4,735.80 for 540 days during which the premises were uninhabitable due to the lack of an air-conditioner; pay $4,000 in damages for distress arising from the associated physical inconvenience from the lack of an air-conditioner; and pay $200 in damages for the breach of its duty to repair Ms Young's stove for a period of 170 days[32]. None of these matters was an issue on appeal to this Court. The relevant issue concerned the Tribunal's decision in relation to the failure by the Chief Executive Officer (Housing) to install a back door.
The Tribunal held that by leasing a premises without a back door, the Chief Executive Officer (Housing) did not breach its obligation under s 48(1) of the Residential Tenancies Act to ensure that the premises were "habitable"[33]. The Tribunal also considered whether the failure to provide a back door amounted to a breach of a term of the tenancy agreement created by s 49(1) of the Residential Tenancies Act, which provides:

Ms Young appealed to the Court of Appeal from the third sentence of the compound order, asserting the inadequacy of the award of $10,200 in compensation. Her appeal in relation to quantum has not yet been heard.
The Chief Executive Officer (Housing) also appealed to the Court of Appeal, including from the order to pay compensation of $10,200. The Court of Appeal allowed the appeal. The Court of Appeal held that s 122 of the Residential Tenancies Act should follow the approach to remoteness of damage for breach of contract. The Court of Appeal held that compensation under that section was therefore not available for disappointment and distress which is not consequential upon physical inconvenience, because a residential tenancy agreement is not a contract whose object is to provide enjoyment, relaxation or freedom from molestation[42].
The orders made by the Court of Appeal erroneously included an order (Order 5) setting aside the whole of Order 5 of Blokland J. At the commencement of the oral hearing in this Court, orders were made to correct that error, which had resulted in the accidental dismissal of Ms Young's claim for breach of the obligation created by s 49(1) of the Residential Tenancies Act, and to leave extant Ms Young's pending appeal in the Court of Appeal concerning the quantification of damages for that breach.
Order 5 of the Court of Appeal purported to follow from Order 4, which was expressed as follows: "The appeal is allowed on the ground asserting that the Supreme Court erred in finding that the tenancy agreement was an agreement whose object was to provide enjoyment, relaxation or freedom from molestation" (and was therefore one for which damages could be recovered for disappointment and distress caused by the breach independently of any physical inconvenience). As Order 4 was expressed only to concern a ground of appeal, not the appeal itself, it was, strictly, no order at all. Rather, Order 4 was in the nature of a declaration that the $10,200 award of compensation for disappointment and distress by Blokland J should be considered in Ms Young's forthcoming appeal to the Court of Appeal as damages which are consequential only upon physical inconvenience. In other words, Ms Young would be entitled to compensation for disappointment and distress arising from physical inconvenience - for example, from extra cleaning occasioned by not having a back door - but not the disappointment and distress from feelings of insecurity.
A related question on this appeal is, therefore, whether Order 4 should also be set aside so that it can be recognised that compensation for disappointment and distress following a breach of s 49(1) of the Residential Tenancies Act can be awarded independently of physical inconvenience.

Section 122(1) contemplates a variety of different types of "compensation for loss or damage suffered by the applicant". Plainly, the same rules of "compensation" will not apply to all types of "loss or damage". For instance, there is a vast difference between "compensation for loss or damage" arising from s 122(1)(a) and s 122(1)(b). A claim under s 122(1)(a) for failure to comply with the tenancy agreement is a claim for compensation for loss or damage for a breach of contract. A claim under s 122(1)(a) for failure to comply with an obligation under the Residential Tenancies Act relating to the tenancy agreement is a claim for compensation for loss or damage for breach of a statutory obligation. And a claim under s 122(1)(b) for recovery of an overpayment is a claim for restitution.
Although the three types of claim are all contained within s 122, the Residential Tenancies Act plainly manifests an intention that they be treated differently. For instance, throughout the Residential Tenancies Act, some obligations are created as "a term of a tenancy agreement"[43], others are created as statutory civil duties or statutory offences[44], and some are created both as terms of the tenancy agreement and as statutory offences[45].
The three different types of claim are also governed by different rules in s 122. For instance, it is well established that the remedy of restitution of an overpayment is of a different nature from the remedy of damages[46]. In particular, a "claim for restitution is a liquidated demand which, by contrast to an unliquidated claim for damages, may provide easier and quicker recovery including by way of summary judgment"[47]. It is also well established that, although "analogies may be helpful", it is "wrong to approach the operation of ... provisions" that deal with remedies for breach of a statutory obligation (such as s 82 of the Trade Practices Act 1974 (Cth), now s 236 of the Australian Consumer Law[48]) "by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law"[49]. By contrast, where a statutory remedy of "compensation for loss or damage" arises because of a failure to comply with a tenancy agreement, there is no analogy that needs to be drawn with a breach of contract. The breach is a breach of contract.
This appeal is concerned only with the rules that govern a claim for compensation under s 122(1)(a) for loss or damage suffered because of a failure to comply with the tenancy agreement. The relevant "term of a tenancy agreement" alleged to have been breached is that created and required by s 49(1) of the Residential Tenancies Act, concerning the obligation of a landlord to ensure the premises and ancillary property are reasonably secure.

The default position in s 122 of the Residential Tenancies Act is to adopt general contract law rules in respect of a claim for compensation for loss or damage suffered because of a failure to comply with the tenancy agreement. In some instances this is done expressly. For instance, s 120 of the Residential Tenancies Act provides that "[t]he rules of the law of contract about mitigation of loss or damage on breach of a contract apply to a breach of a tenancy agreement". In other instances it is done by implication. For instance, the Residential Tenancies Act stipulates procedures for termination following a breach of the agreement[50], but makes little provision for the rules for determining whether there has been a "fail[ure] to comply with the agreement"[51] or which parties are privy to the agreement. Those rules must be the general contract law rules concerning breach and privity. And just as the general contract law rules concerning breach are implicit in the requirement of a "fail[ure] to comply with the agreement", so too the general contract law rules concerning compensation are implicit in the meaning of "loss or damage" suffered because of a breach of the tenancy agreement.
It is notable that s 122 uses the same expression, "loss or damage", as s 120. The same concept must mean the same thing in each provision when dealing with a breach of a tenancy agreement[52]. It would be nonsense for s 122 to employ the general contract law meaning of "loss or damage" for the purpose of applying rules of mitigation for a breach of the tenancy agreement but to employ another, unstated, meaning of "loss or damage" for other rules concerning compensation for breach of the tenancy agreement.
A further indication that a consistent application of all general contract law rules to "loss or damage" was intended is the fact that the general contract law rules relating to mitigation are not independent of other general contract law rules concerning the calculation of loss or damage, particularly the rules associated with causation. Although causation was once described in this Court as a concept of "common sense"[53], it has since, and repeatedly, been emphasised that the concept of common sense should be eschewed when applying the principles of causation[54]. In the law of contract, the principles related to causation begin with a counterfactual, or "but for", test. Other general contract law rules that are related to causation include the rules concerning mitigation, remoteness of damage, and scope of duty.
For instance, this Court has held that the rule of mitigation that a plaintiff cannot usually recover for avoided loss can be equally described as a rule that is concerned with the principles of calculating compensation[55]. In that sense, rules of mitigation have been said to be rules of causation[56]. Hence, in the present case, when Blokland J correctly held that Ms Young had mitigated her damage by installing a temporary door[57], the consequent reduction in compensation could have been described as either the application of the general contract law rules concerning mitigation of loss or the application of principles concerned with the calculation of compensation.
Similarly, concepts of remoteness of damage and scope of duty are related to causation. In broad terms, loss or damage becomes too remote when the causal or contributing connection between the breach and the loss becomes too weak[58]. The strength of connection is generally assessed by reference to the two limbs of the "single principle" in Hadley v Baxendale[59]. Similarly, the scope of duty limit concerns "the kind of damage to B which A is under a duty to prevent" which has "a sufficient causal connection with the subject matter of the duty"[60].
The need to establish causation and the associated concepts (of remoteness, mitigation, and scope of duty) are all encapsulated within the requirements in s 122 that: (i) the award be one of "compensation"; (ii) the compensation be for "loss or damage"; and (iii) the loss or damage be suffered "because" of the failure to comply with the tenancy agreement. The subordinating conjunction, "because", indicates that causation or contribution must be established in the same way as the word "by" in the former s 82 of the Trade Practices Act[61] required proof of a "counterfactual ... to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct"[62]. This use of "because" thus provides a link between references to the concepts of "compensation" and "loss or damage". None of these concepts can be divorced from their general contract law meaning, which - as explained above - includes the general contract law limits on recovering damages for the consequences of a breach of contract.
Yet another indication that s 122 is based upon general contract law rules concerning causation and loss or damage is that where there is an intention to depart from those general rules, then such express provision is made. Hence, s 122(2) requires notice of a claim to be given. Section 122(3) makes the award of compensation subject to a discretion, which is to be exercised having regard to a list of considerations. And s 122(5)(a) prohibits the Tribunal from making an order for the payment of compensation in respect of "death, physical injury, pain or suffering".
No provision abolishes the general contract law rules of remoteness of damage or scope of duty. This is unsurprising. Ms Young's submission that s 122(1) contemplates the imposition upon a landlord or a tenant of a liability that is unlimited by any requirement of reasonable knowledge or foresight of the consequences suffered and without regard to the scope of the duty undertaken by the landlord or the tenant must be rejected.
Nor does any provision suggest that the general contract law rules of remoteness or scope of duty, refined and developed over nearly two centuries, are somehow intended to be amended and replaced with a fresh start. Even if s 122 somehow contemplated that the Tribunal could, if it wished, start afresh with the rules of remoteness and scope of duty and reinvent the wheel, the existing general contract law rules would surely be, at least, "of great assistance"[63]. The most obvious rules for the Tribunal to adopt when considering the principles governing compensation for loss or damage would be the general contract law rules developed by the common law.

It was common ground on this appeal that the general contract law restriction upon the availability of damages for disappointment and distress which is not consequent upon physical inconvenience was stated by this Court in Baltic Shipping Co v Dillon[64]. In Baltic Shipping, Mrs Dillon purchased a 14-day cruise on a vessel which sank after ten days. One issue in that appeal in this Court was whether Mrs Dillon could recover for disappointment and distress that she suffered from the breach of contract by Baltic Shipping Co.
In Baltic Shipping, all members of the Court held that Mrs Dillon could recover $5,000 for her disappointment and distress, irrespective of the extent to which it was consequent upon physical inconvenience and personal injury that she suffered. As Mason CJ explained, the general contract law rule that had excluded such recovery was a rule that rested upon "flimsy policy foundations and conceptually [was] at odds with the fundamental [compensation] principle governing the recovery of damages"[65]. Nevertheless, apart from breaches of contract causing personal injury, the Court restricted the recovery of damages for disappointment and distress to two categories[66]. The first was where the disappointment and distress was consequent upon physical inconvenience caused by the breach of contract. These are modest damages that reflect the inevitable mental element consequential upon the physical inconvenience suffered[67]. For instance, in Hobbs v London and South Western Railway Co[68], the plaintiff could recover for the "suffering" associated with the personal inconvenience of having to walk four to five miles on a cold wet night when, in breach of contract, the train did not stop at the promised station. The usual considerations of remoteness of damage still applied, so that the plaintiff could not recover for the consequences of medical expenses and loss of assistance in his business when his wife caught a cold.
The second category where the Court in Baltic Shipping recognised damages for disappointment and distress for breach of contract was where the disappointment and distress was not too remote and was within the scope of the duty assumed by the promisor. Although Mason CJ accepted the "obvious" merits of an approach which treated damages for disappointment and distress by reference only to the usual considerations of remoteness of damage, his Honour held that unless physical inconvenience was suffered, a further restriction should be recognised[69]:

The decision in Baltic Shipping concerned a claim for damages for disappointment and distress where the breach of contract was essentially concerned with all of Mrs Dillon's promised rights. The contract in that case was for "what in essence was a 'pleasure cruise'"[77]. From the time that the ship sank, on the tenth day of the cruise, Mrs Dillon lost the benefit of the "fruit of the contract"[78]. In those circumstances, the damages that she sought for disappointment and distress were concerned with the disappointment and distress that arose from the loss of the benefit of all her contractual rights. The scope of the duty of Baltic Shipping Co required a focus upon the contract as a whole.
By contrast, where a claim is brought for the breach of a particular contractual provision, damages for disappointment and distress can be recovered only if an object of that particular obligation was the provision of enjoyment, relaxation or freedom from molestation. As Brennan J said in Baltic Shipping[79], "[t]o ascertain whether the obtaining of peace of mind is the object of a contract or, more accurately, an object of a contract, reference is made to its terms, express or implied". Where the disappointment and distress arises from a repudiation of all the essential terms of the contract, then the focus will be upon whether those terms, express or implied, have the requisite object. But where the disappointment and distress arises from the breach of a particular term, then it is the object of that term that is relevant. That is not to say, however, that the purpose of other provisions, as well as the contract as a whole, will not be relevant in construing the particular term in context and identifying its object.
This distinction can be illustrated by reference to the well-known case of Ruxley Electronics and Construction Ltd v Forsyth[80]. In that case, if the contract had been not only to construct a residential pool to a particular depth, but also to build a separate commercial apartment block, there would have been no difference in the result. The object of the particular obligation relating to the depth of the pool (amenity, convenience, and the satisfaction of personal preference), and the builder's consequent assumption of risk, would have been unaffected by whatever might have been provided in the other terms of the contract. As Lord Steyn said in Farley v Skinner in response to a submission that it was not sufficient that only "a major or important part of the contract was to give pleasure, relaxation and peace of mind": "[i]t is difficult to see what the principled justification for such a limitation might be"[81].

Young v Chief Executive Officer

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