Breach Of Contract By Billy Bob: Can Paddy Claim Damages?

Background

Questions:

Paddy Periwinkle owns a prawn trawler, and has a licence to catch prawns which he obtained through the government department NT Fisheries.  He pays his licence fee yearly, and was therefore allowed to catch prawns up to a specific quota.  Paddy then sells the prawns to retailers throughout the Northern Territory and some to the southern fish-markets.

In 2015 a new crew-member joined: Ashely Adams.  Ashley was an experienced fisherman and deckhand, as he has been working in the industry for 30 years.  He was always looking to make a quick buck.

Ashley told Paddy that, as part of their by-catch (the marine-life caught in the nets by accident), if they caught any dugongs he had a friend he could sell them to.  Ashley said he could sell one for $1,000, and he would give Paddy $400.  Paddy knew dugongs were a protected species, but given that they would be dead by the time they were pulled up in the nets, he decided to make the deal.  5 dugongs were pulled up in a 3-week period. 

While at sea, the main freezer on the trawler started malfunctioning, compromising all the frozen prawns.  Paddy took the trawler back to the coastal town of Nhulunbuy, and sold the prawns he had.  Ashley took the 5 dugongs away, and then Paddy had a mechanic look at the freezer.  Billy Bob (the mechanic) said it was the compressor, and the trawler needed a new one.  Paddy bought a new compressor ($2,000) and had it installed ($1,500), and re-gassed ($1,500).  He was in port for a week, losing approximately $10,000 in profit.  A week later at sea, the freezer malfunctioned again, so Paddy returned.

Paddy got Arthur, a new mechanic, to look at it more closely.  It was not the compressor, but a faulty valve that was letting the gas escape.  The repair cost was $200.  In two hours they were back at sea, and the freezer is working perfectly.

1. Can Paddy make a claim against Billy Bob for his monetary losses? Explain why or why not, referring to the cause of action and what the outcome is likely to be.

2. Ashley gave Paddy $1,000 for his share in the illegal dugong sales. Paddy’s maths tells him he was owed $2,000.  Can Paddy make a claim against Ashley?  Explain why or why not, referring to the cause of action and what the outcome is likely to be.

Under the common law of Australia, an implied promise is contained in a contract of service that reasonable care and diligence will be taken care of in performing the agreed services.  If a breach of contract takes place, then the remedy available under the common law is: damages. Breach of contract can be part of a commercial transaction or a corporate. Howsoever, damages provided under common law are applicable to both. Damages means that monetary compensation, which is awarded in a civil action by the court to a person, who has been injured or suffered loss due to the wrongful behavior of the other party.

Can Paddy claim damages against Billy Bob?

In National Foods Milk Ltd v McMahon Milk Pty Ltd (No. 2) [2009] VSC 150 at [22-25]:

It was held that common rule provides that it must be ensured by the court that if a person suffers loss on account of breach of contract, he is put in the same place, as far as possible through money in the form of damages, where he would have been, if the breach of contract had not taken place (Arthur, 2010).

The following are the elements, which must be established for claiming damages for breach of a contract:

1. The contract must have been breached.
2. Cause of action, means the plaintiff must have suffered a loss due to defendant’s action.
3. The loss suffered must not be remote.
4. The conduct of the plaintiff must have been reasonable for mitigation of loss.

For the first 3 elements, the burden of proof lies on the plaintiff, while of 4^th one lies on the defendant.

1. Breach of contract: For claiming damages, it is necessary: first, there existed a contract between the two parties and the performance in a particular way or in a particular time must have been provided in express or implied terms and second, the breach of contract took place either in terms of time or in terms of an agreed standard.

2. Cause of action: It means that loss caused must have been a result of the breach of contract.

3. Remoteness: It implies that there must be a proximate link between breach of contract by one party and the loss suffered by the other. It is not necessary that the particular loss was foreseeable, it is sufficient that loss of that kind was.

4. Plaintiff’s conduct: It implies that the plaintiff himself must not be at fault and should have taken reasonable measures for protecting the loss, else he cannot claim damages.

1. Breach of contract: In the given case, a contract definitely existed between Paddy and Billy Bob, as money for repair was supposed to be paid by Paddy for the repair of his trawler’s freezer. Moreover, when repair services of Billy Bob were hired, it was implicit that he will exercise due diligence and care in the same and will provide the freezer in a perfect state after repair. Having charged a huge sum of $5000 for repair for the replacement of a wrong part of the freezer, Billy Bob failed to provide the amount of agreed standard of services and hence made a breach of contract. Paddy will be entitled to expectation damages to cover what Paddy expected to gain from the contract and the consequential damages compensate Paddy for indirect loss, apart from the contractual loss, meaning thereby loss incurred in business due to breach.

In Gates v City Mutual Life Association, Society Ltd (1986) 160 CLR 1:

The court held that in breach of contract, plaintiff is entitled to damages not only for the reliance loss (actual loss suffered due to relying on the contract), but also for the expected loss (estimated loss of business due to breach) (Damages. Consequential Damages. Notice, 1920).

2. Cause of action: It is clear from the facts of the case, the loss of Paddy arose naturally from the breach of contract by Billy Bob. If Billy Bob had provided the satisfactory and correct repair services, the freezer would not have stopped functioning again in a week and Paddy would not have suffered monetary loss.

EH March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515:

In this case, Mason CJ said that it is the tradition of common law that determining the cause of a specific occurrence is a matter of fact depending on the facts of each case and must be ascertained by applying common sense to the circumstances of each case (Mitchell, 2011).

3. Remoteness: Again, the facts clearly prove beyond doubt that the Paddy’s loss was the direct result of the breach of contract by Billy Bob with regard to his repair services, hired by Paddy.

Hadley v Baxendale (1854) 9 Exch 341 at 354:

Held that a loss can be recovered if it can be reasonably regarded that loss occurred as a natural course or arose in the ordinary course of things, that took place due to breach of contract (Coloma, 2008).

Elements to Establish a Claim for Damages for Breach of Contract

4. Plaintiff’s conduct: In the given case, Paddy took adequate measures by remaining in port for a week and making enough expenses for the repair done by Billy Bob, so that the freezer worked properly in the future and the future loss could be protected. Thus, Paddy took all steps for mitigating the loss and is thus entitled to damages.

As per the discussion and relevant case laws, given above, it can be concluded that all the elements required for a claim of damages under Australian law exist and hence Paddy is entitled to claim the monetary loss suffered by him on account of breach of contract made by Billy Bob. Thus, the likely outcome of the case is that Paddy will succeed in his claim for the expectation damages in business of $ 10,000 and the consequential damages of $ 5000 in the court.

The general principles of law of contract in Australia assume that all contracts are valid, until and unless it is proved otherwise. Oral contracts are as much enforceable as written contracts, if the following conditions of a valid contract exist:

1. Offer as well as acceptance: there must be a definite offer along with a valid acceptance. Acceptance should have been clearly communicated to the offerer.

2. Consideration: There must be me something which must be exchanged between the parties for the value. It is the price paid by one party for the fulfillment of the promise by the other party.

3. Intention: There must exist intention of both parties to enter into a legal agreement and, usually, a consideration is enough proof of such intention.

4. Capacity: Both the parties are competent to enter into a contract if the parties are not minor, drunk or mentally retarded.

5. Certainty: The contract must be clear and certain, so that the rights and obligations of both the parties are easily ascertained and can be enforced (Bloom, 2013).

In the given case, Ashley made an offer of payment of $ 400 for every dugong, caught by Paddy and Paddy agreed to the same. Thus, the condition of offer and acceptance was fulfilled. Secondly, $ 400 was the price paid by Ashley in exchange for the promise fulfilled by Paddy. Thus, there existed a valid consideration too, and this consideration proves that both of them had the intention to enter into a legally binding contract. Thirdly, it is evident from the facts that Paddy and Ashley were major and were capable of entering into contract and hence in other words, had the capacity to enter into a contract. Fourthly, the terms and the contractual obligations of the contract were clear and certain.

Thus, all the necessary elements required for a valid contract exist and hence a valid contract was entered into between Paddy and Ashley.  Moreover,  Ashley paid only half of the total amount to Paddy, which was due according to the terms of the contract. Thus, as discussed in solution 1, a breach of contract was made by Ashley. Thus, a cause of action arises and Paddy can sue Ashley for breach of contract and may claim for the specific performance of the contract, which means strict compliance with the contract and may thus claim for the rest of the amount (Specific Performance of Contract: Contract Unenforcible, 1918). The following case laws can be referred:

In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd & Anor [2008] NSW CA 190: The court held that usually in cases, the Australian courts recognize the principles of common laws with regard to contracts and in case of oral contracts the terms of the contract are determined according to the various facts and circumstances of a case.

Paddy is likely to succeed in the court in his case of specific performance of the contract and is likely to receive the rest $ 1000 from Ashley.   

References:

Arthur, J. (2010). Damages and Equitable Compensation in a Commercial Setting. 1st ed. [ebook] Available at: https://www.gordonandjackson.com.au/uploads/documents/seminar-papers/Damages_and_Equitable_Compensation_-_John_Arthur.pdf [Accessed 1 Feb. 2015].

Bloom, H. (2013). Contracts In Australia. [online] Harrybloom.com.au. Available at: https://harrybloom.com.au/contracts-in-australia/ [Accessed 1 Feb. 2015].

Coloma, G. (2008). Damages for Breach of Contract, Impossibility of Performance and Legal Enforceability. Review of Law & Economics, 4(1).

Damages. Consequential Damages. Notice. (1920). The Yale Law Journal, 29(3), p.354.

Mitchell, T. (2011). CONTRACTUAL BREACH: CONSEQUENCES AND MONETARY REMEDIES. 1st ed. [ebook] Available at: https://travismitchellbarrister.files.wordpress.com/2013/04/travis_mitchell_contractual-breach-consequences.pdf [Accessed 1 Feb. 2015].

Specific Performance of Contract: Contract Unenforcible. (1918). Michigan Law Review, 16(3), p.206.