Discuss about the Commonwealth vs Amann Pty Ltd.
Amann Aviation Pvt. Ltd. was a company which signed a contract with the Commonwealth of Australia for the purpose of providing in-flight coastal surveillance for the next three years. It was mentioned in the contract that if the company will fail to perform as desired and in compliance with the conditions mentioned in the contract, the Commonwealth will have the power to provide a notice to the Amann Aviation to explain the reason behind its failure and to provide a reason to the Commonwealth and Management not to cancel the contract with the aviation company.
In order to fulfill the contract, Amann aviation did a lot of expenditure and purchased aircraft also for this purpose (Swarb, 2015). Despite giving a good start to the work under contract, Amann aviation did not have sufficient number of aircrafts in order to fulfill the contract. When the time to fulfill the contract and to initiate the performance came, it was analyzed that Amann aviation was not in a condition to fulfill obligations relevant to the contract because of certain deficiencies in the aircraft. Due to this reason, the Commonwealth served a notice to the company to show cause behind its non-compliance with the contract. The allegation of Amann aviation was that the show-cause notice served by the Commonwealth was the denial of the contract and on this basis, Amann aviation terminated the contract with the commonwealth. The company sued Commonwealth for wrongful termination of the contract and required damages caused due to breach of contract done by Commonwealth with the company as Amann aviation had done a lot of expenditure in preparing aircraft for the fulfillment of the contract. Thus, for the purpose of legal issues, Amann aviation was the Plaintiff and Commonwealth was the Defendant (AustLII, 1991).
Issues and Relevant law
The courts are required to follow certain rules and regulations while awarding for the purpose of damages. In case of awarding damages for the purpose of a breach, which is also known as un-liquidated damages, the court considers various aspects.
One of which is Compensation principle according to which, the court has to compensate the aggrieved party in such a manner so as to put it in the same position as it would be in the situation when no breach had occurred. For this purpose, there are three ways which are followed by the court i.e. expectation damages, reliance damages and loss of damages.
In providing expectation damages, the court considers the benefit which has been received by the aggrieved party in case of fulfillment of the contract (Waugh, 2017). Thus, the compensation awarded in this case is the total sum which would have been received by the aggrieved party for which the contract was made.
In case of considering reliance damages to be paid, the court assesses the damages on the basis of the costs suffered by the aggrieved party because an assessment of actual loss to the aggrieved party is impossible. In this condition, a court considers 'Loss of chance' as a form of compensation through which worthiness of the chance if provided to the aggrieved party to fulfill the contract is evaluated. It can also be done even in the conditions if the chance provided was based on the contingent conditions and are difficult to be assessed (Legal vision, 2015). It becomes the duty of the court in such a case to compensate the aggrieved party for the loss at least up to the extent that it has suffered in the preparation of the contract.
Damages for the purpose of loss of chance is awarded when a contract is breached due to which the aggrieved party might have lost a beneficial opportunity. In this situation, the plaintiff is compensated for the purpose of losing an opportunity to achieve benefits which have monetary value and the assessment of the damages is also not possible. If the opportunity was based on contingent conditions management, then also, the plaintiff should be compensated for the damages incurred due to lost opportunities (Australian Contract Law, 2013).
Arguments of the Parties and Analysis
Amann aviation had appealed to the Full Court of the Federal Court that the company was entitled to receive higher compensation than that was awarded by the Federal Court and should not be provided only with one- half of the costs of damages caused due to wasted expenditure. On the other hand Commonwealth cross-appealed on the basis that judgment should be in its favor and if it is not possible, the compensation awarded to the company should be nominal only (Richardson & Hadfield, 1999).
It was stated that in a situation, where the aggrieved party has done a lot of expenditure for the purpose of fulfillment of the contract or for accomplishment of the desired performance, however, it is impossible to assess the value of the benefits which would have been received by the aggrieved party on the accomplishment of the performance by the defendant in accordance with the contract, it can be taken into the consideration of the justice that the aggrieved party should rely on an assumption that the worth of benefits received by the aggrieved party should at least be equal to the total loss which has been suffered by the aggrieved party or plaintiff in performing and taking the most possible actions which would have been practically essential for the procurement and performance of the contract (Winterton, 2017). The assumption of the damages to be compensated enables the recovery by the plaintiff which is in general, known as 'reliance damages', i.e. the damages equal to the loss of expenditure which has been rationally acquired on the basis of the assumption that the contractual assurance of the defendant would be honored. The presumption will be disproved if it is established that the plaintiff would not have derived any kind of financial benefits or other benefits through the performance of contract or any kind of financial or other kinds of benefits through future performances and would not have been sufficiently in value to compensate the expenditure done by the plaintiff. Moreover, even in a situation, in which it is established that the plaintiff would have acquired a loss, if the contract had been performed completely, reliance damages can be recovered with respect to the wasted expenditure to such an extent that the net expenditure incurred in past goes beyond the actual loss given, that to such an extent, the expenditure would have been recovered if the breach of contract had not taken place (Kuklik, 2016). The foundation of an award considering reliance damages is essential as a reaction to the denial or breach of contract, specifically to bring the plaintiff in the same situation with regard to the damages as if the denial or breach had not occurred within the contract.
In the case of Commonwealth of Australia v Amann Aviation Pvt. Ltd (1991), Judges Chief Justice Mason CJ and Judge Dawson explained that the award of damages for the breach of contract defends the expectations of the plaintiff in case of receiving the benefits through the performance of the defendant and that expectation arises out and is created by the contract. Therefore, damages for the purpose of breach of contract are known as 'expectation damages'. Generally, during the regular business transactions, a party which supplies certain goods or services enters into a contract in order to gain profits (Mitchell & Voon, 2000). Thus, expectation damages Management are usually expressed as the damages caused due to loss of profits. Judges pointed out that if the performance of a contract would have resulted in favor of the Plaintiff, while it does not provide profit, even then the recovering costs incurred due to the actions taken in the course of performing contractual obligations, the Plaintiff would be entitled to recuperate the damages in a similar manner and up to the amount equal to the profits that would have been gained if the contract had been performed in a usual manner. In the conditions, in which it is not possible for the Plaintiff or the aggrieved party to exhibit that to what extent had the performance of the contract would have provided the profit to the Plaintiff, it will depend upon the Plaintiff to recover the expenditure incurred and the damages in such a case are known as reliance damages or damages caused due to the expenditure which was of no use after the breach of contract (Finnane, 2013).
In this case, the respondents had signed a contract with the defendants i.e. Commonwealth to provide them with the air surveillance for three years. The Commonwealth wrongfully rebutted the contract for which Amann aviation sued it to compensate for the damages. Amann aviation was permissible to recover the damages which were assessed by mentioning its expenditure which was done on the project and later on wasted i.e. also known as reliance loss. However, it was analyzed that there was an opportunity with the Commonwealth to cancel the contract on the basis of available resources with the Amann aviation prior to the initiation of the preparation but the contract was rebutted long after the preparation started. The trial judges assessed the opportunity of the occurrence to be as 50% and reduced the amount of the compensation to be granted to Amman in accordance with the damages incurred by the company. However, the decision of the majority judges of the Full Court of the Federal Court concluded that there was only a 20% chance of cancellation of the contract as a result of which, Amann aviation should receive 80% of the compensation for the damages caused to waste of the expenditure done by the company for the fulfillment of the contract. The decision of the Full Court was confirmed on appeal to the High Court as well.
The decision of the judges was that reliance damages are a rough calculation of the expectation benefits. Reliance damages were considered by the court in this case because appropriate expected benefit was impossible to be assessed in this case. However, the trial judge had given a decision in favor of Amann aviation but the compensation assigned was fairly low due to which Amann appealed to the higher courts.
Judge Beaumont of Federal Court delivered judgment in favor of Amann aviation and ordered the Commonwealth to pay one- half of the costs incurred by the company as the actual damage assessed by the court was $410,000. The judgment of the Full Court was also in favor of the Amann aviation and ordered the Commonwealth to pay the company a sum of $600,207 and to pay 90% of the costs incurred by Amann aviation of the proceedings in the trial court.
It was affirmed by the court that in the case where a plaintiff has laid himself open to the expenditure either for fulfilling the contract or to accomplish its performance, however, it has become impossible or complicated to establish the assessment of benefits which has been received by the plaintiff would in case of performance of contract with the defendant, considerations regarding the justice state that the plaintiff might presume the value of those benefits should at least be equal to the total loss which has been or would have been incurred by the plaintiff in performing the duties which were reasonably essential for the purpose of acquiring and performing the contract. It can be explained in a manner that it is secured to presume that the expected benefit should at least cover all the expenses incurred by the aggrieved party in the preparations to fulfill the requirements of the contract.
Therefore, at last, the decision was in favor of Amann aviation and the company was awarded the compensation of much higher amount as desired by the company. The appeal by the Commonwealth against the decision and the amount charged upon was dismissed. The decision of the court was on the basis of reliance damages because it was impossible to quantify a number of benefits which would have been achieved by Amman if the contract would have been continued in its original form.
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