Commonwealth of Australia v Amann Aviation Pty Limited

[1991] HCATrans 40

A	.J, AUSTRALIA I.!"
--'>>;->)~~~1....t.:.

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S95 of 1990

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

Appellant

and

AMANN AVIATION PTY LIMITED

Respondent

MASON CJ
BRENNAN J
DEANE J

DAWSON J

TOOHEY J
GAUDRON J

McHUGH J

Amann(2) 91 14/2/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 14 FEBRUARY 1991, AT 10.21 AM

(Continued from 13/2/91)

Copyright in the High Court of Australia

MASON CJ:	Yes, Mr Bainton.
MR BAINTON:	Your Honours, towards the close of my learned

friend's argument, Your Honour Mr Justice Brennan,

I think it was, asked a question that remained

unanswered during the day. It was, "When did the

Commonwealth decide to cancel a contract and why?".

I think I can provide that information to

Your Honours now. There are findings on that

question. Mr Justice Davies deals with it at

page 861. Towards the bottom of the page, he said:

By August 1987, it was plain to the

Commonwealth that, on 12 September 1987, Amann would not have in Australia all the aircraft

it was contracted to provide and that the

aircraft which it had would not, in all

respects, comply with the tender

specifications. The Commonwealth then had it

in mind that when, on 12 September 1987, Amann

failed to meet the terms of the contract, the

Commonwealth would give notice on that date

terminating the contract. Skywest was advised

of the Commonwealth's intentions and held

itself in readiness to continue coastal

surveillance. Skywest had indeed threatened

the Commonwealth that, unless the Commonwealth

took this action, Skywest would disband its

fleet leaving the Commonwealth without

adequate coastal surveillance.

Mr Justice Sheppard, at 891, beginning about

line 9, came to the same conclusion. He said:

At this point I should say that the evidence in this case gives rise to an inference that either the Commonwealth itself or the

Secretary had decided, well in advance of

12 September 1987, to terminate this contract

on the first day of operations irrespective of

the many indications which were available to

support the view that the contractor's state

of readiness did not warrant this extreme

course.

And Mr Justice Burchett, at 908, very much to the

same effect. Beginning at line 9, he said:

On 12 September 1987, the appellant commenced

coast watch flights, having received from the

Commonwealth a programme of what was required

for that day, and for ensuing days. But the appellant did not then have all its aircraft

ready to perform the task, nor did any of its

planes then comply in every respect ..... It had
been apparent for some considerable time that

this would be so, and there is no doubt the

Amann(2) 92 14/2/91

Commonwealth had already decided to give

immediate notice of termination of the

contract upon its verifying the inevitable
event. Skywest had threatened that, unless
the Commonwealth acted in this way, it would
dispose of its own planes (which, however,
also fell short of the standard set by the

contractual specifications), leaving the

Commonwealth entirely dependent on the

appellant.

Your Honours, I cannot point to all of the evidence

because Your Honours are not the beneficiaries of
very much of the evidence that was available to the

Federal Court but there are two documents in the

appeal books which would at least have played some

part in the reaching of those conclusions and they

are at page 364 and 366.

TOOHEY J: 

Mr Bainton, does the fact that the members of

the Full Court dealt with the matter in the way
that they did suggest there was no finding by the

trial judge on that point?

MR BAINTON:  I think that is correct, Your Honour. I have

to confess I did not reread Mr Justice Beaumont's decision last night to check on that but I do not

think he made any finding on that question.	It
certainly, in argument before the Full Court,
occupied some time because I have a distinct

recollection of taking Their Honours through a lot

of material at a length which produced, at least

initially, some impatience from the bench, and

these two letters were certainly among the material
but they were not the entirety of it.

The first is a letter of 11 August 1987 from Skywest. It is the paragraph beginning at about

line 23 and what follows and the obvious sting in

the last sentence of the letter. The next letter

is the Commonwealth's response of 12 August at

page 366 and it is really the last paragraph of

that when read with the earlier letter. There is a

distinct threat in the letter of 11 August and an

acknowledgement of it. I cannot say that that is

all the material that the Full Court had but they

certainly had that and those two letters alone

would almost justify the findings.

BRENNAN J:  Do you regard those findings as material to the

second ground of appeal of the appellant?

MR BAINTON:  Yes, they are substantially material to the

second ground of appeal and, of course, to the

extent that my learned friend wanted to try and use

Mihalis Angelos on the first ground, they are

relevant to that too. Their relevance is this,

Amann(2) 93 14/2/91

that it must have been apparent to the Commonwealth that if Skywest did not get its contract renewed on

the 12th or 13th they were going. So the

Commonwealth had to take action on the 12th if it wanted to keep Skywest with its fleet available in

case of need. If they departed the same and disposed of their aircraft, Amann Aviation's

position would have remained virtually impregnable.

At the conclusion of the day, yesterday, I had

put to Your Honours that on Mr Justice Beaumont's
approach to the assessment of damages, that is to
say, looking purely at a three year contract,

paying no regard at all to the possibility of

renewal as being lost by reason of the breach of

the contract, he arrived at a profit figure. And

if one made to that the three adjustments that the

Federal Court thought needed to be made anyway, you

got to the figure of $1,930,091 that I mentioned

yesterday. If one adds to that that what was

really lost when the contract was repudiated and

cancelled was the benefit of the actual

remuneration that would have been derived under the

contract and the benefit of the high probability of

renewal. One had then to value that high

probability of renewal and that introduced such a

degree of uncertainty that it justified the course, in any event, that the Federal Court took of saying

it is an appropriate case for reliance damages.

However, the Federal Court did not, in fact,

approach it simply in that way. They did not agree

with the approach that Mr Justice Beaumont took of

assuming a three year hiring fee of $3,390,000.

They took the view that the circumstances in which

eve acquired the aircraft entitled it to be

indemnified by Amann, and as a consequence it was

appropriate to regard eve as the legal owner of

virtually holding the aircraft on trust. That is

not the language they use, but I think it is the concept. For Amann, ergo, they thought, you did not take into account in trying to assess profits a

hiring fee, but you would necessarily have to

consider depreciation.

McHUGH J:  Does not this question of depreciation raise a

real problem, because the depreciation figure is

very low, is it not?

MR BAINTON:  Your Honour, it raises two problems. The first

one is that all that is known for certain is that

on 12 September 1987, or thereabouts, when the

contract was cancelled, the net market value of
these aircraft was $907,000 or $917,000, whatever

the figure is. It is an undisputed figure.

Amann(2) 94 14/2/91

That tells you nothing reliably as to what

their value would have been at the end of a three year contract in which they had been used for the coast watch operation, particularly in

circumstances where you know the Commonwealth wants

to continue its coast watch and where there is a
probability that these aircraft might be used for

the purpose of the coast watch operation.

It would not be right, as the Federal Court

said, in our submission quite correctly, to assume
that at the end of the contract, had it been

carried out in accordance with its terms, that the

aircraft would only have been worth $917,000. So

that approach by the Federal Court introduced two

additional elements of uncertainty into the

quantification of damages. The first element was: what would the aircraft have been worth at the end

of the three-year contract; so how much
depreciation should you take into account if you
are looking to a profit calculation in the

traditional way? And they could not answer that

because the information, ex hypothesi almost, was

not available.

The second element of uncertainty that it

added was, more or less, a development of the one

that would have arisen anyway on

Mr Justice Beaumont's approach; that is, hiring fee

and treat eve as owning the aircraft, because

again, if part of the loss is the loss of the

opportunity for a renewal contract, you have to try

and make some calculations as to what Amann might

have derived by way of profit from that. You would

be looking, there, not to a hiring charge on

Mr Justice Beaumont's approach, but again to a

depreciation element. You would not even know your opening figure for aircraft values, because that is

the same as the closing figure at the end of the
three years. Nor would you be able to do any more
than take a sheer guess at what the aircraft would

be worth at the end of the next three years if it

was to be a three year contract.

Now, having got themselves to that point, and

I will come to the passages in the judgment shortly, they, in effect said, "It is clear to

us" - it was the view of each of them - "that this
is not an appropriate case to assess damages on the
base of loss of profits, we cannot. Therefore, it

is appropriate to give the contractor reliance

damages, that is to say, to give him back what he

has actually spent in getting himself ready to

perform the contract.

DEANE J:  Was eve a subsidiary of Amann?

Amann(2) 95 14/2/91

MR BAINTON:  No, eve held shares in Amann, but Amann was not

a wholly-owned subsidiary of eve at that stage.	I
had better check that, I think that is correct.
Yes, I am told it is. Now, can I come - - -

McHUGH J:	Was there some suggestion that eve was merely holding these aircraft so that the Commonwealth
Trading Bank could take them over and lease them to
Amann?

MR BAINTON: That appears as a possibility from

Mr Justice Beaumont's judgment.	I cannot tell
Your Honour what the evidence about it was.	What

the evidence did disclose is that eve, which at

least had money available to it, entered into the

contract of purchase with the American supplier and

refitter of these aircraft. It also indicated that

the companies have minuted an agreement, in effect,

that Amann was to indemnify. I cannot tell

Your Honour now, I will have it looked for, whether

there was actually any evidence as to whether it

was to go to the Commonwealth Bank or whether that

was simply discussed as one possible way of

financing Amann.

The actual findings in the Full Court on this

indemnity question in Mr Justice Burchett's

judgment at page 952 - it is quite obvious from

internal evidence in these three judgments that

Mr Justice Burchett wrote his first and then
Mr Justice Sheppard wrote his and Mr Justice Davies wrote his last, and when I refer to them I will

refer to them in that order for that reason.

Mr Justice Burchett dealt with it at page 952. At about point 6 of the page, he said:

Another aspect of the calculation of

damages is more controversial. At the trial,

the appellant submitted that, in addition to

its other pre-contract expenditure, it was

entitled to claim the sum of $5,650,000.00,

the cost of the acquisition of the aircraft

with their sophisticated and specialized

equipment, less their agreed net value of
$917,329.00 - the great difference being

accounted for by the fact that there was no

work in Australia (and relatively little

overseas, for that matter) for which aircraft
of this kind, so equipped, were suitable,

other than the coastal surveillance covered by

the contract.

And then the figure was corrected.

His Honour rejected this claim on the ground

that the expense of acquisition of the

Amann(2) 96 14/2/91

aircraft had not been borne by the appellant

but by an associated company, C.V.C.

Investments Pty Limited. Having refused to

allow the cost of the aircraft to be taken

into account in the calculation of the

appellant's damages, His Honour made no

provision for depreciation in calculating the

net profit which the appellant would have

earned. Instead, he took into account an

amount of $3,390,000.00 which he described as

"interest or hiring fee", being the amount

which he considered the appellant would have

had to pay, over the period of the contract,

to c.v.c. Investments Pty Limited in order to

secure the use of the aircraft. This approach

is perfectly consistent. If the cost of

acquisition is not treated as an expense, in

the case of specialized equipment acquired

only for the purposes of the contract, because

the equipment is treated as not the

appellant's, neither should the appellant be

charged with depreciation. On the other hand,

if His Honour erred in disallowing the cost of

acquisition of the aircraft, because it was a

liability which the appellant had already

incurred, then a calculation of profit without

provision for depreciation (that is, for

recoupment over a period of the capital

expenditure required to enable the gross

profit to be earned) would be impossible to
justify. However, counsel for each of the

parties sought to have it both ways.

Which I suppose is not uncommon.

There was evidence, reflected in a note

to the balance sheet of the appellant as at

19 September 1987, that the appellant had

agreed to indemnify c.v.c. Investments Pty

Limited against any loss resulting from the provision of the aircraft and equipment to the

appellant. That there was such an agreement

certain supplementary reasons which are	seems to have been accepted by his Honour in
annexed as appendix 5 to his reasons for
judgment. The probabilities strongly support
the appellant on this issue, since the
aircraft were purchased "in the name of C.V.C.
Investments Pty Limited" (to quote the
directors' minutes ..... ), as part of an
arrangement for bridging finance to enable the appellant to proceed with the obtaining of the
aircraft to carry out the contract. It seems
most unlikely that it was ever intended
C.V.C. Investments Pty Limited should become
the owner of the aircraft, except as a means of financing their ultimate acquisition by the

Amann(2) 97 14/2/91

appellant. There is no reason for rejecting

the evidence that the arrangement included an

indemnity given by the appellant ..... Indeed, a

request to provide bridging finance in this

particular way could be expected to involve

such an indemnity by implication of

law ..... The evidence should be accepted,

applying the principles stated in Warren v

Coombes.

And then this is perhaps the explanation to the question which Your Honour Justice McHugh asked:

(The Commonwealth itself submitted the

agreement for bridging finance was intended to

be replaced by a lease-finance arrangement

under which title would pass to the

Commonwealth Bank, and the aircraft would be

leased to - and ultimately acquired at

residual values by - the appellant.) It

follows that this liability of the appellant

would have to be taken into account in some
way (such as by a depreciation allowance) in

the calculation of the profit which the
appellant expected to earn under the contract,

and also that the liability to

c.v.c. Investments Pty Limited would have to

be taken into account in any calculation of
damages based upon the proposition that the
breach of the contract by the Commonwealth had

resulted in expenditure, which the appellant

had incurred, becoming futile.

McHUGH J:  The words "and also that the liability to c.v.c.

would have to be taken into account" raise some

problems, do they not, because there was no

liability, was there? Is there any evidence that

C.V.C. would call on them to indemnify?

MR BAINTON:  The evidence was that there was an agreement

between the two companies that they would

indemnify.

McHUGH J:  There may be an agreement, but that does not take you very far.

MR BAINTON: Well, it is one of the difficulties, of course,

in working out all these matters.

McHUGH J:  There is no challenge to these findings?

MR BAINTON:  There is no challenge to these findings. The

fact that no call had been made by 12 September,

the first day of operations, is probably not

surprising in the light of what had been going on

over the past few weeks.

Amann(2) 98 14/2/91

McHUGH J: But what would be more surprising is there was no

call made after or at any time to the date of

trial.

MR BAINTON:  I do not know what the evidence, if any, on

that question was, Your Honour.

TOOHEY J:  I am not clear, Mr Bainton, what aspect of the

appellant's argument you are seeking to meet by this detailed reference to the arrangement with

c.v.c.

MR BAINTON:  I am seeking to meet the submission that it was

quite plain that this was a losing contract.

McHUGH J:	A losing contract?
MR BAINTON:	Yes. That is the foundation of the appellant's

argument. If he does not make that good he is not
going to get, with respect, anywhere. Whether or

not it was a losing contract has got to depend at

least on two things: one, beyond any possibility

of argument to the contrary, one would think, what

do you bring into account by way of some charge for

operating, to use a neutral word, the aircraft? Is

it to be a hiring fee - Mr Justice Beaumont thought

it was and still got to a profit - or is it to be

depreciation?

The Full Court thought it was to be

depreciation but they could not work it out because

of all these problems. Therefore, they went on to

say, reliance damages. When you add to that, as we

submit you should, they also had to value in

monetary terms the chance of renewal, the

difficulty compounded itself. It is for that

reason that I am seeking to take this Court in some

detail through this material.

DEANE J:  Except on one approach, is not your position

stronger if it be the fact that disregarding

intangible benefits this was a losing contract?	I
would have thought if you are looking at a reliance

situation that that was a stronger position from

your point of view than if it was a contract which

would have made ascertainable financial profits and

had some intangible side benefits.

MR BAINTON: Well, if the law is as we are ultimately going

to submit it is, yes. If the law is, as my learned
friend has been submitting it is, no, is I think

the answer to Your Honour's question.

BRENNAN J:  By that do you mean it is only if it is a

profitable contract that reliance damages can be

awarded?

Amann(2) 99 14/2/91

MR BAINTON: No, Your Honour, I do not mean that. Let me

assume for the moment that the law which seems by

now to be reasonably well settled in America is the

law in Australia. The American law seems to have

taken the approach that if you cannot with

sufficient certainty quantify the profit, even if

you think there would have been one, it is open to

a plaintiff to elect to take reliance damages. If

he does, the onus shifts to the contract breaker to

establish that, in any event, he would not have been able to get all that because he would have

lost money on the contract.

If one could show that he would not have lost

money under the contract, but you do not know how

much, that makes it impossible for the contract

breaker to discharge the onus of showing that you

would have lost it in any event. It is for that

reason that I sought to answer Mr Justice Deane the

way I did. It is suggested, of course, by the

appellant that that is not the law in Australia.

If one knew the answer to that question,

Mr Justice Deane's question would be much easier to

answer.

At the moment both are in issue, as it were.

But for the reason that I have just put to

Your Honour Mr Justice Brennan the party who has

had the contract broken is better off if he can

show that on the probabilities there would have

been a profit component in it even though he cannot

show how much it was because, in that event, he

gets the full amount of his expenditure as reliance

damages. It cannot be cut down.

If Your Honour Mr Justice McHugh wants to find

where the documented agreement between the

companies as to the indemnity was, it is reproduced

in appendix 5 to Mr Justice Beaumont's judgment and

it is at page 823 in the appeal book.

If I can just continue for a moment with what

Mr Justice Burchett had to say on this indemnity

question, he continues at the middle of page 955.

He says:

There was remarkably little evidence

bearing on the appropriate rate to allow for

depreciation. Such direct evidence as there

was supports an allowance of 10% per annum.

Subject to the impact of the considerations to

be mentioned in the next paragraph, the

valuation evidence suggests that a very low

figure would be appropriate, since it

proceeded upon the assumption that it was

unnecessary to distinguish between the value

of the aircraft at the date of the breach and

Amann(2) 100 14/2/91

the value of the aircraft at the date of their

valuation in June 1988, and also that their

selling price would not vary over the ensuing

24 months, which it was estimated would be

required to dispose of such a large number of

planes of this type. Certainly, it would be

wrong simply to accept the residual value in a

proposed lease-finance agreement as a measure

of depreciation, for that sum is not required

to be fixed by reference to the factors which

should determine the amount of an allowance

for depreciation in the accounts of the
appellant.

But the difficulty raised by the question of depreciation, in this case, is much more

fundamental than the relatively mundane problem

of fixing a rate. The difficulty is inherent

(three years of operations), it required a vast expenditure on highly specialized equipment, as well as on the setting up of bases, a great proportion of which, as the valuation evidence convincingly demonstrated, could never be

in the features of a very individual contract.

recovered unless further coast watch contracts

were obtained. Failing a further contract,

what would be required to show a profit would

be amortization of over 80% of the cost of the

aircraft in three years. Plainly, the parties

did not contemplate that.	The arithmetic of
the contract is conclusive.	What made the

contract a commercial venture, though quite

prospect of renewal at the end of three years.	apparently one not without risk, was the the aircraft required for their performance,
would confer a great advantage, in any
tendering process in three years' time, upon an operator with the appropriate experience, organization, aircraft and other equipment. The events which led to the present case, and
the ultimate triumph of the former contractor,
only serve to underline what was in any event
obvious. Had the appellant succeeded in
replacing that contractor, it would have been
in an extremely strong position.

Then he turns to the prospect of renewal, to the

views he took as to indemnity and the difficulties

that gave rise to.

Mr Justice Davies wrote substantially to the

same effect at pages 880 to 882. He begins:

The next issue is whether Amann incurred expenditure on the aircraft.

Amann(2) 101 14/2/91

And then he goes to the same set of facts.	And his
ultimate conclusion, at the bottom of 881:

A court should not be slow to infer or imply

an obligation to indemnify when one party

places himself in a position of jeopardy at

the request of and for the benefit of another.

He cites the authorities.

Then, Mr Justice Sheppard, at the foot of

page 894:

In relation to the cost of the acquisition of

the aircraft, I agree with the other judges in their conclusion that the contractor was bound

to indemnify eve Investments -

and he seems to have contemplated that the

Commonwealth Bank may well have been financing it.

The next step that I would seek to take

Your Honours to is the approach of the Full Court

to the likelihood of renewal. Mr Justice Burchett

dealt with it at page 956 and it is part of the

passage that I read to the Court a few moments ago,

beginning at about line 17.

McHUGH J:  Your case really comes down to this, does not it,

Mr Bainton, that if it had been possible to

determine what the profit would have been from the renewed contract, then damages for that would have

been included in your assessment of damages?

MR BAINTON:  Yes, adding that on the approach of the

Full Court you could not even determine with

any appropriate certainty the profits for the first
three years, because of this depreciation problem,
but subject to that addition - - -

McHUGH J: But am I right in thinking that it is fundamental

to the structure of your argument that you would

have had a claim against the Commonwealth in

respect of the profits for the renewed contract if

they could have been calculated?

MR BAINTON:  I think the answer to that, Your Honour, is,

"No", although I get a great deal of assistance

from that, or at least, I submit I do. If you

approach the matter on the basis of the

Federal Court's approach, that is to say, you take

into account something by way of depreciation or

amortization, instead of the $3,390,000 hiring fee

that Mr Justice Beaumont assumed, you immediately

are confronted with the difficulty of knowing what

that amount ought to be. You cannot even calculate that, so even without the question of.the chance of

Amann(2) 102 14/2/91

renewal, it would be appropriate to award reliance

damages subject only to the Commonwealth showing,

if it could show, that - and again leaving out the

chance of renewal - we would have inevitably lost

money.

McHUGH J: Yes.

MR BAINTON:  Now, the chance of renewal, we rely on in two

ways: one - as did the Federal Court - it simply

and of necessity increased the uncertainty of

calculation and secondly, if you take it into

account, the Commonwealth could not and did not get

anywhere towards showing that we would have lost

money anyway.

McHUGH J:  On the first contract?

MR BAINTON:  Yes, even on the first contract. One can test

it perhaps in this fashion, to use an

expression whom I think it was again

Mr Justice Brennan, a person in business who has a

satisfactory business relationship with a number of

clients usually builds up what is called

"goodwill", which is simply no more than the

probability that those people are going to keep

resorting to him. This is a somewhat more

specialized situation, but the probability that the

Commonwealth would resort, at the end of three

years, to the existing contractor if he performed
through the three years, would have to be high,
apart from anything else, because he had the

appropriate fleet, and nobody else did, and he

could probably quote a lower rate because he had

already started to depreciate his aircraft, and

things of that nature.

Let me assume the contract had gone for two

and a half years, say, and for some reason Amann

wanted to put it up for sale, anybody contemplating

coming to buy it would look at two things, in the

ordinary way of commerce anyway.	He would look to
see how much was going to come in after he

purchased under the contract and what it was going
to cost him, and he would asses the value of the
probability that he was going to get another

contract, and he would pay something for it.

How much he would pay would depend upon his

analysis of the situation after two and a half

years on my example of satisfactory performance.

That is something you cannot do with any sort of

precision when the contract is broken and cancelled

on day 1, 2 or 3, which is another way of
describing the uncertainty involved in calculating

the loss to Amann of being deprived of this

contract so close to its beginning.

Amann(2) 103 14/2/91

McHUGH J:	I think it is put against you that you are valuing the contract and not the breach.
MR BAINTON:	That does not say very much though as to the

reality of the situation, does it, with respect?	I
realize Your Honour is not putting it to me, but
when you say you are valuing the contract, surely you must mean you are valuing the benefit to the
contractor of his contract. The benefit of a
contract is the position in which it puts the
contractor to earn money.	The obvious benefit is

he earns the actual payments for which the contract

provides, but it does not stop there.

McHUGH J: Supposing at the end of 1990 as a result of this contract if it continued on, the respondents would

have had a high probability of obtaining a

profitable contract with the Indonesian Government

to start 1990. Would the Commonwealth have to pay

damages on that basis?

MR BAINTON:	The strict answer to that - - -
McHUGH J:	- - - must be "Yes", is it not?
MR BAINTON:	- - - would have to be "Yes" if you could

establish it with the appropriate degree of

certainty. That would not be much more difficult

in most cases and, of course, it does not arise
here. There was no suggestion of that sort of

thing.

TOOHEY J: Well, there was in a sense because there was a

claim for the loss of the opportunity to secure
another Commonwealth contract, was there not -

another surveillance contract?

MR BAINTON:	A renewal?
TOOHEY J:	No.
MR BAINTON:	No, I do not think there was any other

Commonwealth surveillance contract.

TOOHEY J: Well, look at page 839, line 4. Is the sector 50

referred to there part of the original contract?

MR BAINTON:  I assume what Your Honour says is right. That

is some other contract.

TOOHEY J: That is how I read it, but I was not sure.

MR BAINTON:  I am told, Your Honours, but I cannot tell you

what it was. But there was some evidence at the

trial that that was not available anyway to Amann.

Amann(2) 104 14/2/91

TOOHEY J: That matter was not pursued, but at some stage

apparently there was raised the prospect of not

only renewal of contract, but of entering into a

different contract.

MR BAINTON: It would seem so from this, but I know nothing

about what the facts are.

DEANE J:  Mr Bainton, it would be true to say though, would

it not, that if one assumes against your client

that there would be no renewal and if one also
assumes that the new contractor, whoever it might

be, would not be interested in buying any planes or

other equipment or bases from your client, then on

the basis of all those adverse assumptions, it

would have been a loss contract?

MR BAINTON: Well, Your Honour, the only answer I can give

to that is that it would depend upon what the

aircraft were worth at the end of it.

DEANE J:  What I was suggesting was that on the agreed

facts, if you cannot use them yourself and the new

contractor three years down the line was not

interested, the inference would seem to be they

were worth the $900,000 plus figure.

MR BAINTON:  And if there was no other contract available

somewhere else for the same sort of thing, I think

the answer to that has to be yes,

in those circumstances.

DEANE J:	But why do you not, instead of talking about what you would have earned under the new contract, talk
about the intangible benefits of the contract?
MR BAINTON:	Your Honour, is there a difference?

DEANE J: Well I do not know, because the moment you start

talking about what you would have earned under a

contract to be negotiated, you have passed beyond what you got under the contract. The benefit you

got under the contract was the commercial position

that it put you in.

MR BAINTON:  And that is something that you have got to

value if you are going to award damages for the loss of it and you cannot. That is perhaps the

simplest way of putting the argument. The reason

why I have been seeking to go a bit further is the

reason I gave to Mr Justice Brennan a while ago.	I
am in a sense meeting an argument, although it is
perhaps a straw doll that is set up, that we would
have lost in any event, by seeking to show that the
probabilities are that we would not.

Amann(2) 105 14/2/91

BRENNAN J:  But if you adopt the concept to which

Justice Deane referred, then that might be your surest way to establishing that the contract was profitable, because you are able to demonstrate,

are you not, that at the end - this is taking Mr Grieve's figures - of your three year period you

would have had a viable coast-watching operation,

with a written-down capital value of something of

the order of $2 million and a prospect of putting

that to account was worth far more than the

prospect of establishing a new coast-watching

venture of a capitalization of over $6 million.

MR BAINTON:  The answer to that is yes, we probably were in

a far better position, but we cannot quantify how

much.

BRENNAN J:  You cannot demonstrate much more, can you, than

the notion that you are in an advantageous

commercial position at the end of three years, had

the contract been performed.

MR BAINTON:  From a primary argument, that is as far as I

need to go, yes.

BRENNAN J: Well you have to carry it a little further, do

you not, to establish that that would have carried

you out of the loss figures on Mr Grieve's schedule

into the profit.

MR BAINTON: In our submission, I do not have to establish

that, but it is an advantage to me if I can.

BRENNAN J:  I appreciate that, but it comes to the legal

point that you want to argue later.

MR BAINTON:	Yes.
BRENNAN J:	But assuming against you, that you do not get

reliance damages unless you could prove that you

would have derived enough to cover them anyhow, by

way of profit.

MR BAINTON: Well if I were to make that assumption, I would

answer Your Honour yes.

BRENNAN J: Then you would have to make good this other

assumption that the commercial value of the

contract, if performed, would have taken you into

profit.

MR BAINTON:  Would in all probability, at any rate, have

taken it, yes.

BRENNAN J:  In all probability have taken it into profit.

Amann(2)	106	14/2/91
MR BAINTON:	Yes.	If that is the way the proposition of law

is to be put, that is the consequence certainly.

McHUGH J:  I am sorry, Mr Bainton. following you. I just have not been

I thought what you were putting was

that it was sufficient for your purposes to show

that you could not determine whether or not you

would have made a loss on the three year contract

and that then enabled you to have reliance damages

unless the Commonwealth showed what the net result

would have been.

MR BAINTON:  Yes, but then I was going, perhaps

unnecessarily, a step further and saying the

Commonwealth could not possibly show that anyway

because of the matters I have just been raising and

that Justice Brennan just raised. They did not and

could not which puts us in, we would submit, the

position of maintaining every dollar of the amount

of the verdict, if that is the right term for it,

that the Full Court determined.

McHUGH J: But it does not matter if you would make a loss,

does it?

MR BAINTON:  Unless they can prove how much, no, it does

not, but I, perhaps for more abundant caution,

wanted to nail the lid on that argument as tightly

as I could, that they cannot show it. The

probabilities are we would have made a profit

overall but how much is impossible to work out.

TOOHEY J:	You did have a claim for goodwill, did you not, which was rejected? There was a claim for loss of
goodwill which was rejected, I think by reason of
the approach which the trial judge took?
MR BAINTON:	Yes, I think it was.
TOOHEY J:	There was a substantial $20 million claim, was

there not, if you look at pages 836 and 837?

MR BAINTON:  Yes, there was. I have to confess I was never

able to understand the basis for that. It

certainly was not put to the Full Court, but

Mr Justice Beaumont's judgment records that there

was such a claim, that he did not think it was

appropriate to award damages for it which, on his

approach to the way you worked out a profit figure

is probably a conclusion with which one would find

it difficult to argue.

McHUGH J:  Why can you not work out the result of the

contract by deleting the $3.3 million hiring fee

and substituting instead the 10 per cent

depreciation figure over the three year period of

time?

Amann(2) 107 14/2/91

MR BAINTON:  If one is compiling a set of annual accounts

at the end of year one you must apply some

depreciation rate.	What it is is a matter of
judgment.	The exercise here was not to do that.

It was to calculate, if you could, the profit for

the whole period of the contract. A critical

ingredient in that in this case was what the

aircraft would have been worth at the end of the

thing, not what they might have been written down

to for accounting purposes but what they were

really worth, because at the end of the contract

Amann would have received in cash the

$17 million-odd and still had aircraft worth

X dollars.

You have to compare that with the costs and

all the other items and see whether the comparison

is positive or negative. You cannot do that until

you know what they are worth at the end of year

three and that was an impossible thing to know at

the time of cancellation or at the time of the

trial, because it assumes they have been in use and

are still in use at the end.

McHUGH J:  I appreciate that, but if you were trying to

work out what the profit on the contract was at the

end of three years, do you contend that you would
have had to bring in on the debit side, ultimately
anyway, the difference between the capital outgoing

and the value of the aircraft?

MR BAINTON:  The simple calculation was the one Your Honour

Justice Dawson put to my learned friend, I think it

was yesterday morning. You work out the money that

the contractor spent and what he gets back for it.

He gets back money, $17 million-odd in this case,

and he has still got his aeroplanes. Query: what

are the aeroplanes worth? Until you know that you

cannot compare the two to derive a profit or loss

figure.

McHUGH J:

But does not that really mean that you would only

know what the aeroplanes were worth if you knew

what happened in relation to the renewed contract?

Supposing the contract had not been renewed at all

then the profit you would get would be different.

MR BAINTON: That would be the principal element of

uncertainty, yes. But to forecast three years down

the track whether there would or would not be any

other use for these aircraft or they would or would

not have a different value from the value they had

at the date of breach, is sheer guesswork. You can

sometimes reach conclusions on a question of that

matter from general experience but everybody

conceded it was a unique contract with unique

aircraft. You could make an intelligent guess at

Amann(2) 108 14/2/91

it but you could never work it out with any

reasonable degree of certainty that you had got the right figure, with or without the renewal. Whether or not there would be renewal is the major element

of uncertainty, I agree, but not the only one.

DEANE J:  Mr Bainton, can I interrupt yet again and take you

right back to your alternative schedule - or not to

yours, to the other side's alternative schedule.

If, as I understand the evidence, money had to be

borrowed from the Commonwealth Bank or from

somewhere to finance the purchase of these
aircraft, if one disregards eve and attributes

depreciation direct, as it were, why is it not

correct to provide for both depreciation and the

borrowing costs because - - -

MR BAINTON: It would.

DEANE J: Well, in that case, if you accept a figure of

20 per cent as the interest rate, which

Justice Beaumont seemed to accept, why is not that

$3,390,000 rightly there?

MR BAINTON:  He did not accept that as an appropriate

interest rate; he accepted it as an appropriate

hiring fee to somebody who was going to own and be

depreciating the aircraft.

DEANE J: Well, let us change from hiring fee to interest

rate 1987 to 1990, surely 20 per cent would be

pretty close to the mark as an interest rate to be

paid by somebody who borrowed money secured on

aircraft?

MR BAINTON:  I do not know what the evidence about it was

but I do not think the interest rate in those years

was that high. It became high later.

DEANE J: Well, even if it is 15 per cent for such a thing,

what is obvious, is it not, is that you cannot

simply delete the $3,390,000?

MR BAINTON:	No, you cannot. There is no doubt about that.
DEANE J:	You have got to put in
MR BAINTON:	You have got to put in two things to replace

it. You have got to put in an interest financing

charge and a depreciation charge but neither this

Court nor the Federal Court had evidence on either

of those matters.

DEANE J:  I follow that, but I thought - I had simply

deleted the $3,390,000.

Amann(2)	109	14/2/91
MR BAINTON:	No, not in the alternative schedule.	You have

to delete it but you have got to replace it with

something. But what the something is, we do not

know.	You do have to delete it from the first
schedule.	Or if you do not delete it you have got

to know what it is.

DEANE J:  But if a 20 per cent interest rate was seen as

fairly close to the mark - I am not saying it is -

borrowing costs would be $3,390,000.

MR BAINTON:  Yes, and it would be depreciation on top of

that - - -

DEANE J: That answers my question.

MR BAINTON: - - - which would certainly affect the sort of

calculation that Mr Justice Beaumont did.	I am
sorry, that is perhaps unfair to His Honour;	he
did not do it on that basis at all.	But if you are

going to compile an appropriate alternative

schedule, you have to bring in capital expenditure

on the aircraft, borrowing costs, depreciation on

the aircraft as items to be taken into account as

debits. I do not disagree with that for one

moment; it is obviously so.

BRENNAN J: But surely you would not take depreciation and

interest in in place of the borrowing costs and the

alternative schedule is produced, because if you

did that you would be providing for depreciation

twice in arriving at the overall loss.

MR BAINTON:  I do not think you would, Your Honour. Let me

take a simple -

BRENNAN J:  You take the capital figure; you take the

residual value; you take one from the other; is
that not depreciation? Why would you take the
capital figure add depreciation, take away the

residual value and end up with your net loss? It

seems to me to be doing it twice.

MR BAINTON:  I am sorry, I thought Your Honour was talking

about something slightly different. Can I try and

get it clear in my mind what Your Honour is putting

to me? What I was, I thought, conceding, rather
than saying, but perhaps not answering

Your Honour's question: if somebody has to borrow

money to buy plant and equipment, his expenditure

includes his borrowing costs; it includes his
depreciation or amortization. That is all I was

seeking to say.

BRENNAN J: Well, so long as one understands what is to be

inserted in lieu of borrowing costs ~n the

alternative schedule is only interest, then I have

Amann(2) 110 14/2/91

no difficulty with that view, but if you want to

put in interest and depreciation at 10 per cent as
well, you are going to put in there $5 million,
less residual value of four, and then take away

the receipts at the end again.

MR BAINTON:  I am sorry; I follow what Your Honour is

putting. No, I am not suggesting that. I am

simply suggesting if you set out to compile a set

of accounts, you do not compile them in any way

like this alternative schedule, but if you are

going to do it, somebody who borrows money for

capital equipment has got to provide for the

interest and he has got to provide for amortization

or depreciation, but not in the way that this

document does.

DEANE J: While we are on it, Mr Bainton, what I had in mind

- I see Mr Justice Beaumont seemed to indicate

about 20 per cent was what His Honour said in the

last paragraph on page 830, where he said lease

finance would be about 17 per cent per annum to the

lender, and you have to make an allowance for the

guarantee in relation to residual liability. He

seems to there be thinking in terms of an overall

thing of about 20 per cent.

MR BAINTON: Well, he appears to, but I think he is talking

about lease finance in the sense that one has got

to know it in recent years where it provides for a

residual which is the ultimate payout figure at the

end of the lease, which is a complicating factor.

DEANE J:	Yes, that is undoubtedly so, yes.
MR BAINTON:	I am afraid all we have is whatever the judges

have said about it and not any of the actual

evidence. Your Honour, I had started to deal with

the views taken in the Federal Court of the

likelihood of renewal. I had indicated where

Mr Justice Burchett dealt with it.
Mr Justice Davies deals with it first at 873, at

line 10. He said:

The trial Judge calculated a small

profit ..... Any substantial profit lay in

future extensions, for the position of a

contract was strong, as Skywest demonstrated.

Future extensions of the contract were not only in the contemplation of both parties but probable. Amann's expenditure had therefore

been directed in part to the chance of making

a profit in the future.

And then he says that entitles him to rely reliance

damages.

Amann(2) 111 14/2/91

At 874, line 24, he, in effect, repeats the

same view:

As future extensions to the contract must be

taken into account, being within the

contemplation of the parties -

In other words, he is saying that it satisfies the

second test in Hadley v Baxendale, it was something

the parties contemplated as a likely consequence of

the contract.

And, again, at 879 to 880, towards the bottom

of the page, three lines from the bottom, he says:

I am of the view that damages should be

assessed on the footing that, had the

Commonwealth not repudiated the contract, in

breach of its obligations, Amann would have

completed the contract and been in a

favourable position for future contracts.

And then he goes on to the Mihalis Angelos question.

Mr Justice Sheppard, at 893, about the middle

of the page, says:

I am satisfied that this is a case where

the damages which the contractor is entitled

to recover should be based on its expenditure,

particularly the amounts it expended in the
acquisition of aircraft and in relation to

other matters before the time to commence operations had arrived. In this regard I

agree with what B'urchett J has written about

"reliance damages" and I have nothing to add -

that is the passage that I read to Your Honours

earlier in Mr Justice Burchett's judgment.

At 895, line 16, he says:

The probabilities are that, if 12 September

1987 had passed uneventfully, the contractor's

position would have continued to strengthen

almost on a daily basis.

Then he goes on to say why and over the page he adds, towards the top of 896, line 2:

As all this became clear to Skywest, it would

soon, as it had threatened to do, have

departed the scene, leaving the field to the

contractor alone. By then its position would,

from a practical point of view, have been

virtually impregnable.

Amann(2) 112 14/2/91

And then, at 897, he comes back to the subject at

line 10. He says:

for the reasons given by Burchett J, I think

it likely that the contract would have been

renewed.

And he repeats the same thing at 901, line 15.	He
says:

it would next have been appropriate to award

the contractor a further figure for the loss

of the probability (some might prefer strong

possibility) that the contract would be

renewed upon the expiration of the original

one.

The two uncertainties, the depreciation factor and

the quantification of the damages for the loss of

that chance, led each of those judges to approach
the assessment of damages on the reliance basis.

Mr Justice Burchett deals with it at 939 through

to 958.

Rather than stand here and read it because all

the other judges read it and agreed with it, is it

enough that I simply indicate that is where it is to be found? There is one passage, however, that

does deserve a little emphasis - it is 941. He

deals with the argument that was put to this Court

by my learned friend yesterday morning. At line 13

he says:

It was then urged on behalf of the

Commonwealth that the contract, if fully

performed, would have proved unprofitable.	On
this footing, it was said the appellant was

entitled to no damages for the loss of its

rights under that contract. But the idea that

a contractor, who, had it not been for the

other party's breach, might have recouped a

great part of his initial expenditure, would

suffer no loss upon termination of a contract

simply because performance would not

ultimately have yielded a profit, or would

have left some small part of the initial

expenditure unrecouped, can only be described

as Gilbertian. The fallacy in the argument is

to ignore the effect of the partial

performance of the contract which had already occurred, and to look at the matter (contrary

to the fact) as if the contract had been

cancelled at its inception. To look at it

that way echoes a now thoroughly exploded

heresy - see Johnson v Agnew. The applicable

principle is that "damages are normally

measured by reference to the circumstances at

Arnann(2) 113 14/2/91

the date of the breach of contract". A

plaintiff is generally entitled to be put "in

the position in which he would have been but

for the breach". In Foran v Wight Brennan J.

referred to "damages for the loss of the

benefit to which, had the contract been

performed (the aggrieved party) would have

been entitled". Had the contract been

performed, even if a profit had not on balance

been achieved, the appellant would have

obtained the benefit of recoupment of at least

part of the huge amounts it had incurred.

Then he goes on to develop in much greater detail

his reasons for what is, in effect, there a summary

of his view.

Mr Justice Davies deals with this question at

pages 873 to 874. He said at line 4:

The trial Judge assessed damages on the basis of loss of profits. But these were

hypothetical. Amann had tendered a low price,

no doubt to become the successful contractor.

Taking the cost and the value of the aircraft, absent the contract, into account, Amann could

not, in my view, have made a significant

profit from a contract limited to three years.

The trial Judge calculated a small profit.

Any substantial profit lay in future

extensions, for the position of a contractor

was strong.

Then he goes on in the passage I earlier read to

give the reasons for that. He returns to it at

page 879, three lines from the bottom:

I am of the view that damages should be

assessed on the footing that, had the

Commonwealth not repudiated the contract, in

breach of its obligations, Amann would have

completed the contract and been in a

favourable position for future contracts. No

discount should be allowed for the possibility
that, had the Commonwealth not repudiated the
contract, events may have turned out
otherwise. It was the Commonwealth's
repudiation which brought the contract to an

end and rendered futile Arnann's expenditure
and liabilities incurred.

Mr Justice Sheppard's reasons for his approach are

at pages 893 to 894.	I should probably begin at
the top of the page:

I next come to the question of damages.

In my opinion, this is not a case for any

Arnann(2) 114 14/2/91

award of damages based on loss of profits. I

am of that opinion because a proper projection

of the likely outcome of the contract required the taking into account of depreciation of the

aircraft. If they are depreciated at 10 per

cent per annum, which was the rate mentioned

in the evidence, that is enough to absorb any

profit that might otherwise have been

made ..... the discretion of the primary Judge

has miscarried.

He goes on:

I am satisfied that this is a case where

the damages which the contractor is entitled

to recover should be based on its expenditure,

particularly the amounts it expended in the
acquisition of aircraft and in relation to

other matters before the time to commence operations had arrived. In this regard I

agree with what Burchett J. has written about

"reliance damages" and I have nothing to add

to what he has said.

is
The substance, I think, that they all - this - the relevant passage is the quite lengthy

one at page 939 through to page 958, each of the

other judges concurred in it.	We are in that
aspect of it.

Can I come, rather belatedly I have to

confess, to our outline of submissions.	The
primary submission we put is that in
paragraph 4(a).	I think I have in substance dealt
with everything in the earlier paragraphs.	The

utility of paragraph 4(a) is simply that it will

indicate to Your Honours where in the appeal book

the actual terms of the written contract can be

found. They have probably been sufficiently

discussed for present purposes. The second step is that the Federal Court found that this put Amann in

a very favourable position and the conclusion that

we would seek to have drawn - it is really a

conclusion as to fact, rather than law - is that

the repudiation of the contract by the Commonwealth

caused Amann to lose, first, the revenue that it

would have earned under the contract, less if you

are quantifying damages, obviously, the cost of earning it, and secondly it was deprived of the value of the very favourable opportunity that it

had to get the next coast watch contract.

Where the circumstances are such that

everybody assumed, and quite correctly beyond any

doubt, that coast watch would be an indefinitely

continuing operation, you have step one in the

Amann(2) 115 14/2/91

drawing of this factual inference made quite easy.

You know there is going to be another coast watch

contract. You could probably assume that the

Commonwealth, in accordance with normal practice,

would call tenders for it. You would know that

Amann was there with a fleet of aircrafts suitable

for coast watch. You would know on the evidence

that was given before Mr Justice Beaumont that if

Skywest carried out its threat, and it probably

would if it did not get the new contract, to

disband its fleet of aircraft, it would be unlikely

that there would be anybody else at the end of

three years in a position to tender at the same

price that Amann would have been able to tender at,

because it would have to equip itself with a

completely new fleet of aircraft, whereas Amann had

a suitable fleet, the cost of which is partly

recouped by the first three years of operation.

There is, of course, no certainty about the matter, but if one is looking at probabilities, the

probability of Amann getting that contract is

strong and therefore, in commercial terms, in our

submission, valuable. That is, as I say, a factual

decision that has to be reached. The three judges

in the Federal Court all reached it without the

slightest difficulty. Having reached that, the

loss of that is part of the loss flowing from

cancellation of the contract, in our submission,

provided therefore it meets the legal tests of

Hadley v Baxendale, and nobody has suggested in

this case that this possibility was not

foreseeable. Any other possible tests as to

remoteness - causation certainly cannot arise, the

breach is clear - then in our submission, a fact-

finding tribunal is entitled to take that into

account.

If it takes it into account it is obliged to assess a figure if it can. If he cannot, then the

next step follows, in our submission, that it is

entitled on the law to award reliance damages.	The
alternative submission, as we put it in the

document, is possibly not a true alternative on

reflection.

The problem of assessing damages for breach of

contract one talks about in the abstract but the

reality is you have to know what the contract is,

what the breach was, and what, in fact, was the

consequence of the breach in any particular case.

One thing that can be said, in our submission with

reasonable certainty, is that you do not confine

damages to a loss which only arises if it is

something that the contract requires to be

performed but is not performed by reason of the

breach.

Amann(2) 116 14/2/91

The first of the two cases that we cited there

is a very clear example of it. That was a case

where an employee had a contract of employment for

a period. The plaintiff was employed as a

hairdresser's assistant at a weekly wage and

commission on takings. He was wrongfully dismissed and in his claim for damages for wrongful dismissal

he claimed not only the salary and takings but he

said, "Look, if I'd been employed here I'd have got

a lot of tips or gratuities. I lost the

opportunity to get those tips or gratuities which I

certainly was not getting out of the contract

directly but getting out of the fact that I was

employed as the hairdresser, and they should be

taken into account".

McHUGH J: But they are earnings joined, of course, to the

contract. It is different when you are seeking to

rely on earnings after the contract would end.

MR BAINTON:  Yes, it is in fact different, but the question

is whether it is, with respect, different as a

matter of legal concept. What you are getting in

both cases is compensation for lost opportunity.

The opportunity which is clearly lost is the

amount, in this case, of wages and so forth that

would have been paid under the contract. The

other opportunity fairly clearly lost in this case

was the fact that there would have been gratuities

during the performance of the contract. What was

lost therefore was the opportunity of both of those

advantages.

True in that case they were advantages that

would have come during the subsistence of the

actual contract but in this case the advantage that

we seek to have added on of renewal is an advantage

that accrues during the period of the contract. It

is lost because of the cancellation of the

contract. It is something which would not have

fructified, if that is the term, until after the

end of the term, but it is there because it arises

during the period of the contract because of the	contract. It was the contract that put Amann in
the position, assuming performance, of course, to
get the renewal. It was the contract here that put
the hairdresser - - -

McHUGH J:  Why would you impute to the parties that the

Commonwealth would be liable for damages that you

might suffer because the contract was not renewed?

MR BAINTON: Well, Your Honour, that is not the way we put

it, although - perhaps another way of describing it

- what we say that we lost was the valuable chance

of getting that renewal.

Arnann(2) 117 14/2/91

McHUGH J:  But the question is, was that your risk or was it

the Commonwealth's risk?

MR BAINTON:  I am not quite sure what Your Honour means by

that?

McHUGH J: Well, in the sense that if you had asked the

parties, at the commencement of this contract or
the day before, whether the Commonwealth's damages

for breach of contract would extend to damages

flowing from earnings that you would have earned

under the second contract, you would think the

Commonwealth would say, "No, that is entirely at

your risk".

MR BAINTON: Well, that is not, with respect, the right

question. No doubt if one raises that question,

one is always going to get that answer from the one

person that one puts it to. The question is really

a remoteness question. It is the second rule in

Hadley v Baxendale. What you should ask, with

respect, is whether the parties would have foreseen
that performance of the contract would put the

contractor in the favourable position that we say

he would have been in. And, therefore, if the

contract was wrongly cancelled or repudiated by the opportunity. All of the judges below thought there

was a clear answer to that and, in our submission,
there is. That must have been something in the

particular facts of this case that was plainly

foreseeable.

If you then go on to say, "Well, are you going

to agree to pay damages for it?", you are

obviously going to get a rejection of the question.

But if you ask the proper question, in our

submission, the answer would be as it is plainly

foreseeable.

TOOHEY J: But does the prospect of renewal play any greater

part in this case, Mr Bainton, other than to

provide some sort of an answer to the

Commonwealth's contention that this was a lost

contract or that it could not be demonstrated that

the plaintiff would have recouped the expenditure

it had incurred?

MR BAINTON:  It plays two parts. That is one of them. The

other is that it increases the element of

uncertainty if you need to increase it that one

needs to establish to have the reliance basis of

damages.

TOOHEY J:  I thought that was perhaps wrapped in the proposition I put to you.

Amann(2) 118 14/2/91

MR BAINTON: Then, if it is, the answer is yes. That is its

sole relevance. If one could perhaps be allowed to

develop the paragraph S(a) argument a little bit further. If one looks at Chaplin v Hicks, which

everybody cites, what the plaintiff there was

entitled to have the contractor do were a number of

things. One of them was to come for an interview

for selection and so forth and that was what was

breached. It was that provision. Now, had it not
been breached, the plaintiff would have found

herself in a position where she was among a

minority of people - by minority I mean a small

number - from whom somebody, not the contracting

party, was going to make a choice.

Now, what happened in Chaplin v Hicks was

breach by the entrepreneur of his promise - implied
promise, really - to give adequate notice of the

time and place of the interview; deprived the

plaintiff of the chance of competing with others.
The contractor really finished all he contracted to
do or would have finished had he given proper

notice of the interview and conducted the

interview.	What Miss Hicks must have lost was
that.

The consequence of losing that is that her

chance of competing with others before a different

jury, as it were, were lost. It flowed, in that

sense, from breach of the contract. It is a true

lost-opportunity situation and no different, in our

submission, in principle from what we are seeking

to put here, that our contract with the

Commonwealth, among other things, put us in the

position which was valuable to us, of getting a

renewal. If that cannot be taken into account, it

would follow, in our submission, that Chaplin v

Hicks was wrongly decided.

TOOHEY J: Except that here you are not asking the Court to

include some figure, as it were, by way of damages

for lost opportunity.

MR BAINTON:  I am using it for a different purpose and it is

the purpose that Your Honour put to me a while ago.

Maybe I am labouring the obvious, at that stage,

but if one gets to that stage, and our submission

is as to the law accept it, that that is the end of

the case. But while Your Honours have got

Chaplin v Hicks, one of the cases relied upon in

the judgments, the old case of the East India
captain - Richardson v Mellish.

My learned friend yesterday sought to distinguish that by saying the reason why, in that

case, the opportunity for the second contract arose

is pretty clear; it was a settled Eas~ India

Amann(2) 119 14/2/91

practice, and he sought to distinguish it from this

situation. In our submission, that case is

relevant, not because there renewal was highly

probably for some particular reason, but simply

because it was found to be highly probably.	The
relevant consideration is a finding of the
necessary degree of probability of renewal.	The

reason does not matter in the slightest, in our submission. You can assume that the reason for

renewal in any contract is going to be different

from the reason in any other. All that they were

deciding there was that the conclusion of fact that

the renewal was highly probable was something that

could be taken into account in calculating loss,

and it is no different, in our submission, from the

present situation.

Can I come now to paragraph S(c)? I will come

back to (b).

BRENNAN J: Are you coming back to (b)?

MR BAINTON:  I am going to come back to (b) after (c). What

I wanted to do was show Your Honour how the

American law developed. It started to develop in
America in the last century, in fact, and it has

become well-settled law, and McRae, when looks at

it, although they did not cite the American cases,

is simply an application in this Court of what, by

then, was received and accepted American doctrine.

Can I start with the restatement? Your Honours, I

trust, have a copy of it; it was lodged. It is

section 349; it is the second edition of the

American Law Institute's Restatement; the

proposition of law is put this way: the heading is:

Damages Based on Reliance Interest.

They say:

As an alternative to the measure of damages

stated in S346, the injured party has a right

to damages based on his reliance interest,

including expenditures made in preparation for

performance or in performance, less any loss

that the party in breach can prove with

reasonable certainty the injured party would

have suffered had the contract been performed.

And then there is the comment:

Loss in value and cost or other loss avoided are key components of contract damages. See

s 347 -

which is the section that is dealing with the more

normal measure of damages:

Amann(2) 120 14/2/91

If the injured party was to supply services

such as erecting a building, for example, the

difference between loss in value of the other

party's performance and the cost or other loss

avoided by the injured party will be equal to

the cost of the injured party's expenditures

in reliance, up to the time of breach, plus

the profit that would have been made had the

contract been full performed. That is the normal measure.

To the extent that "overhead" costs are fixed

costs, they are not included in the cost of

expenditures in reliance for this purpose. Under the rule stated in this Section, the injured party may, if he chooses, ignore the

element of profit and recover as damages his

expenditures in reliance. He may choose to do

this if he cannot prove his profit with

reasonable certainty. He may also choose to

do this in the case of a losing contract, one

under which he would have had a loss rather

than a profit. In that case, however, it is

open to the party in breach to prove the

amount of the loss, to the extent that he can

do so with reasonable certainty under the

standard stated ins 352 -

that is the onus section -

and have it subtracted from the injured

party's damages.

In other words, the Americans have got to the stage

of saying if you cannot properly prove, on the
ordinary basis, you may have reliance damages; in

addition you may have reliance damages simply by

choosing to do so but if you do that they can be

cut down by the other side saying you would not

have got it back in any event. We, in this case,

need only to take the first of those two steps but

England now they are prepared to adopt both of	some of the English cases seem to indicate that in
those American propositions.

The development of this in America can be seen

from the cases that Corbin cites, in section 1031. Your Honours should have a copy of that section in

the 1964 edition of Corbin and the 1989 supplement
dealing with the same section. There is not, in

the supplement, anything that in any way alters

what is said in the 1964 edition. It simply

updates the reference to decided cases. Corbin

states it this way - the heading is:

Amann(2) 121 14/2/91

Recovery of Expenditures in Preparation and

Part Performance

It is often very difficult to estimate

the amount of profits that have been prevented
by the breach of contract not only because of
uncertainty in the happening of various
contingencies, but also because of difficulty
in determining the money value of a promised
performance or the cost of completion by the

plaintiff. There is usually little

difficulty, however, in proving what has

already been expended by the plaintiff prior

to the date of breach by way of preparation

and part-performance. The fact that profits

are too uncertain for recovery does not
prevent a judgment in favour of the plaintiff

for the amount of his expenditures. This rule

has been recognized and applied many times by

the courts -

and footnote 17 starts to list them. Before I come

to any of those, can I go on with the text. On the

next page it continues:

and it has been stated as an alternative

measure of recovery by -

then we have to go over two pages -

the American Law Institute, with certain
limitations that will also be discussed

herein.

Then over on the next page:

It is to be remembered that recoverable

damages are not restricted to the profits that

would have been made by full performance.

They include losses as well; but expenditures by the plaintiff in part performance or in preparation therefor are not losses caused by

the breach of the contract. Instead, they are

an outlay caused by the making of the

contract. In general, such expenditures are

incurred before the breach takes place; and
if they are incurred after the breach, the

plaintiff is sometimes denied any

reimbursement for them in accordance with the
rule concerning avoidable consequences.

Expenditures in preparation and part

performance are recoverable as an alternative

measure of gains prevented especially when

other measures fail.

Such expenditures are normally fully

reimbursed either directly or indirectly by

Amann(2) 122 14/2/91

the performance promised by the defendant;

and even though not mentioned they are

included in any judgment for damages measured
by the contract price less the cost of
completion of the plaintiff's unfinished work.

A judgment for such expenditures, therefore,

is a judgment for a portion of the value

promised by the defendant, the receipt of

which by the plaintiff is prevented by his

breach.

They go on over the page to give an illustration:

If two parties have contracted to submit

an existing dispute to arbitration, it is

practically impossible to determine the amount

of harm that has been done by a repudiation of
the contract. If one party repudiates such a
contract after the other has employed counsel,

taken depositions, and paid witnesses -

I assume that is a reference to witness expenses -

the amounts reasonably expended in this manner

can be recovered as damages after subtracting

the value to the injured party, in subsequent

litigation or otherwise, of the service,

depositions and information received as a

result of his expenditures.

Then over the page they go on to refer to what is

described as "a principle well discussed by

Justice Pitney". Your Honour, before I come to

that because we have for Your Honours, a copy of

that case, can I come to some of the footnotes that

I have passed over. On the third of the copied

pages there is a reference in the second column to

a decision in 1891, Rogers v Davidson. That seems

to be the earliest of the cases that is actually

referred to in any detail which applies this

principle. The footnote reads -

where the defendant had prevented the

plaintiff from performing a contract for

cutting and sawing timber, the evidence as to

prospective profits having been so uncertain

as to be withdrawn from the jury's

consideration, the following instruction was

sustained:  "We think that the true measure of

damage in this case is compensation; not for

anticipated gains, not for profit the

plaintiff hoped to make, or might be able to
prove that he could have made out of this

contract, but simply compensation for his

actual loss by reason of the preparations he

made for the carrying out of his contract;

that is, the procuring of the mill, the

Amann(2) 123 14/2/91

conveying of it to the land, the erecting of

the mill, with the preparation of a proper
building for receiving it; and the other
preparations that he made by way of procuring
teams and other means for carrying out his
contract; and then, when prevented from
carrying it out, his expense of taking down
and hauling away the mill machinery and the

depreciation of that machinery; the provision

he had made for the maintaining of his hands

during the fall and winter; the provision he

had made for the maintaining his teams during

that time in carrying out his contract."

That is the principle and that is the direction

that was upheld in Rogers v Davidson in 1891.

The next case cited is a 1959 case and

Your Honour, rather than reading it,

Mississippi Valley Generating Co. applies it very

clearly. They then refer in footnote 18 to what is

said in section 333 of the restatement which would

have been then, I think, the first edition of the
restatement:

The amount of the plaintiff's expenditure, reasonably made in performance of the contract or in necessary preparation therefor, is included in compensatory damages, with the

following limitations:

(a)	Such expenditures are not recoverable in
excess of the full contract price promised by the defendant.

That is not material here.

(b) Expenditures in preparation are not

recoverable unless they can fairly be

regarded as part of the cost of

performance in estimating profit and

loss.
(c)	Instalments of the contract price already received and the value of materials on
hand that would have been consumed in
completion must be deducted.
(d)	If full performance would have resulted
in a net loss to the plaintiff, the amount of this loss must be deducted, the
burden of proof being on the defendant.

And then they go on to cite some cases as to the

application of that rule.

Amann(2) 124 14/2/91

BRENNAN J:  Mr Bainton, that first qualification, "Such

expenditures are not recoverable in excess of the

full contract price promised by the defendant",

that seems to suggest that the measure of damages

might be different in the United States, is it,

because I would not have thought that under our law

one looked at the liability of the contract breaker

under the contract to be a cap upon the measure of

the loss suffered by the plaintiff.

MR BAINTON:  They seem to be saying - this has got nothing

to do with renewals of course - you can recover

expenditure, but not beyond the total amount that

you would have got under the contract, had it been

completed in the ordinary way, which seems to be

sensible enough, that is paragraph (a), because you know beyond any doubt, on those facts, that had the

contract not been cancelled, but properly

performed, all he would have got was X dollars.	If
therefore he says he spenT X plus Y, he was never

going to get any Y anyway. It proves itself. The

difference between (a) and (d) in these

qualifications, that (d) applies where it is not

self-evident, as it is in (a), that what you are

asking for is more than you could have possibly

have got under the contract. Where it is not

self-evident like that, the onus is on the

defendant to establish it.

So, what they are saying is, this situation

would not have arisen, Mr defendant, but for your

breach of contract. It is fair therefore that the
plaintiff should get back what he has expended,

unless you can show that he would not have got some

of it back. That is the proposition stated

essentially as the Americans have adopted it. That

it is no different, with respect, from the

statement that this Court made in McRae's case.

I was going to take Your Honour to a judgment

of Mr Justice Pitney, which is frequently cited.

It is Holt v United Security Life Insurance.	It is
a judgment of the Court of Errors and Appeals of
New Jersey in 1909.	The headnote sums it up and

the three relevant paragraphs of the headnote are

those numbered 7, 8 and 9.

MASON CJ:  We do not seem to have a copy of that.

MR BAINTON:  I am sorry, I thought Your Honours did. see that Your Honours get one. I will

The footnote to

Corbin cites some of the headnote, but may I just

read those paragraphs and then indicate where in

the judgments Your Honours might look when we have

provided one. Headnote numbered 7 says:

Amann(2) 125 14/2/91

Where one party to an agreement repudiates his

obligation in toto in advance of the time for

performance, the injured party, instead of

rescinding the contract so as to put it to an

end as if it had never been made, may treat it

as ended merely for purposes of further

performance, and hold the wrongdoer liable for

damages sustained by reason of the

repudiation.

MASON CJ:  I would not have thought it was necessary to read

that proposition out to us.

MR BAINTON: Well, Your Honour, if that was all there was,

it would not have been. It then follows on:

Losses directly incurred, as well as gains

prevented, may furnish a legitimate basis for

compensation to the party injured by

repudiation of an agreement.

And, 9:

Where the profits prevents by repudiation of

an agreement cannot be recovered by reason of

the want of definite proof, expenditures
fairly incurred by the injured party in

preparation for performance, or in part

performance of the agreement, form a proper

subject for consideration, where the party

injured, while relying upon his contract,

makes the expenditures in anticipation of the

advantages that will come to him from

completed performance.

I really read paragraph 7 because the

Americans, at that stage, apparently had not got to the analysis of the effect of breach of contract

that the House of Lords took us to in the early

1980s. This was back in 1909. They are saying, in

effect, if a contract is repudiated and the wronged

way of restoration to himself of what he has spent party sues he can elect to take his compensation by in anticipation of performance.

This was not a case where the qualification of

"unless you can prove" had any relevance.

Your Honours, I will see that that is reported and

given to Your Honours.

The other American case that deals with this

in some detail and more recently is the judgment

written by Judge Learned Hand in L. Albert & Son v

Armstrong Rubber Co.

MASON CJ: Well, the relevant passage of that judgment is

set out at page 948 of the appeal book, is it not?

Arnann(2)	126	14/2/91
MR BAINTON:	It is, but not completely in full.	At

page 189, against the marginal figures 13 to 15,

the full citation begins. It is the second part of

that that is set out in the judgment. The first

part explains the facts and how it has got there.

The Canadian law seems to have developed in

the same direction.	The Canadian cases, I regret
to say, are not in the written document.	The

principal case is the Bowlay Logging case that my

learned friend went to yesterday. That in fact was

affirmed, not reversed on appeal. The decision on

appeal is reported in 135 DLR (3d) 179, but that

decision does not discuss these principles.

The decision at first instance set the

principles and for a particular reason awarded a

small amount. There was an appeal against that and

it was simply upheld.	So Your Honours will get no
assistance in fact from looking at the appeal.	The
principle has been applied since in Sunshine
Vacation Villas Limited v Hudsons Bay,

(1984) 13 DLR (4th) 93, the relevant passage begins

at page 98.	I cannot say there is any great
exposition.	It simply applies the principle and
relies on - - -

MASON CJ:  That is sufficient then for our purposes.

MR BAINTON:  I think it is, Your Honour. It relies on

Bowlay Logging. There is another case that does the same, Reg v Canamerican Auto Lease and Rental

Limited, (1987) 37 DLR (4th) 591, and the

principles are applied at pages 608 to 609 but

without any discussion that goes beyond Bowlay

Logging. Mr Dowdy reminds me that the copy from

Corbin on Contracts, 1964, on page 199, as a

footnote, sets out the relevant passage from

Mr Justice Pitney's judgment in the Holt v United

Security case. It starts off by saying:

The fundamental and cardinal principle -

of the measure of damages -

is that the injured party shall have

compensation for that which he has directly

lost by reason of the act of the other party -

which is the general rule here, and then it says:

But where the profits are not capable of ascertainment, or are remote and speculative,

and therefore not proper to be adopted as a legal measure of damage, it does not follow

that the injured party is remediless. In the

present case, the plaintiff appears to have

Arnann(2) 127 14/2/91

made no effort to prove the value of the

contract nor the profits that he lost by

reason of its repudiation.	The reason is
obvious -

special contract. Then he goes on to refer to the

terms of the contract. It was a very unusual

contract. It was a contract with an insurance

company to advance the money to build a block of

apartments to be repaid only on the maturity of a

policy on the life of two people.	Then the
passages in the second column:

"But the suggestion that he ought to have been limited to nominal damages, because he

might have elsewhere procured the money wherewith to complete the building, and presumably at no greater cost than under the

agreement with the defendant, is, we think,

entirely inadmissible, among other reasons,

because there was nothing in the evidence to

show, nor can we without evidence presume, the

existence of a market in which money may be

procured upon like terms ..... and, besides, the

existence of the mortgages in the hands of the

defendant and undischarged upon record

presumptively constituted a practical obstacle

in the way of Chapman procuring the money

elsewhere on any terms. Losses directly

incurred, as well as gains prevented, may
furnish a legitimate basis for compensation to

the injured party. And, among such immediate

losses, expenditures fairly incurred in

preparation for performance, or in part
performance, of the agreement, where such

expenditures are not otherwise reimbursed,

form a proper subject for consideration where

the party injured, while relying upon his

contract, makes such expenditures in

anticipation of the advantage that will come

to him from completed performance. But, where

one party repudiates, and thus prevents the

other from gaining the contemplated profit, it
is not, we think, to be presumed in favor of
the wrongdoer (in the absence of evidence)

that complete performance of the agreement

would not have resulted in, at least,

reimbursing the injured party for his outlay

fairly made in part performance of it.

Ordinarily, the performance of agreements

results in advantage to both parties over and

above that with which they part in the course
of its performance; otherwise there would

soon be an end of contracting. And it seems

to us, upon general principles of justice

that, if he who, by repudiation, has prevented

performance, asserts that the other party

Amann(2) 128 14/2/91

would not even have regained his outlay, the

wrongdoer ought, at least, to be put upon his

proof."

I will see that Your Honours get a full copy of

that judgment. Can I come now to McRae, 84 CLR

377.

MASON CJ:  What point do you want to make about McRae?

MR BAINTON: Simply that without really saying so, it

applies the American principle here. It was a case

where they said, "It is impossible to prove the

loss that on ordinary principles would have

resulted from this contract." The reason why it is

impossible is it is hard to value a ship that did

not exist and therefore hard to determine what its

salvage rights would be. The reason why it was

hard or impossible in McRae was, of course, vastly

different from this case but the reasons are

relevant. It is the fact that it could not be

established that led the Court to say, as it did,

"Well, in that case, you can get back your outlay

unless it can be established" - and in that case it

obviously could not -"that you would not have

recovered the outlay if the contract had been fully

performed.". That, Your Honours, is at 412

onwards. It is put precisely at the bottom of

page 414 over to 415.

It is, in different words, in our submission,

the statement of the rule in the same way as the

Americans have developed it prior to 1951.	The
English cases, consecutively, Cullinane -

MASON CJ: Again, we were taken to them yesterday.

MR BAINTON:  Your Honours were taken to it yesterday. They

state the principle. I would have to say I would have a considerable difficulty in supporting some of the reasoning in Cullinane's case. The judges

in the majority seem to have thought profit was the
same as cash flow.	But be that as it may, the

English courts have, in effect, said, for the reasons given in those three cases, that if you

cannot establish the usual measure of damages for

breach of contract, that is to say you cannot show with any appropriate degree of certainty what your

profit would have been, you can recover what you have spent unless it can be established that you would not have recovered it or some part of it.

That seems now to be accepted in England. There is an article in the Oxford Law Journal which

deals at some length with some of these matters.

It is cited in Mr Justice Burchett's judgment.

Your Honours have been supplied with a copy of it.

Amann(2) 129 14/2/91

The author is an academic, Mark Owen. It is

headed:

Some aspects of the recovery of Reliance

Damages in the Law of Contract.

At page 399 there is a subheading:

Reliance Damages and Bad Bargains.

I do not wish to read it to Your Honours.

Your Honours may get some assistance out of it. It

refers to McRae.

MASON CJ:	What page did you refer to?
MR BAINTON:	The article begins at page 393, but it is not

until you get to page 399 where there is a

subheading:

Reliance Damages and Bad Bargains -

that Your Honours would find anything that we would
think would be of any conceivable assistance here.

From there on Your Honours may - - -

BRENNAN J:	What is the volume of this -
MR BAINTON:	It is the Oxford Journal of Legal Studies,

volume 4, number 3, and it is 1984. There is a

reference to McRae at page 407 and some discussion

that follows that. Your Honours may find it of

some interest. It discusses a lot of the cases up

until 1984. The courts of New Zealand seem to have

adopted the same principle. There is a decision of

Ware v Johnson, (1984) 2 NZLR 518. What had

happened in that case was that there was a contract

for the sale of an area of land that had been

planted as a kiwi fruit plantation. It turned out

that the soil had been treated with a weedicide

that had the effect, although it was not known at

the time, of poisoning the kiwi plant, so that

those who bought this newly planted plantation,

with the expectation of starting to get a yield in

a couple of years, found, after a year or so, that

these plants were useless; they had to be dug up

and replanted. They therefore wanted to recover

loss of profits in the period when they were not
getting the profits, although they should have, had
the plantation been as warranted, and the cost of

digging up the infected plants and replacing them.

In other words, it was part reliance and part

expectation claim, and they succeeded in both, and

the reasons given appear in the judgment of

Mr Justice Pritchard at 545 - one really starts at

the bottom of the page where he has some figures,

and then right at the bottom of 545 he says:

Amann(2) 130 14/2/91

As to the second -

of the bases he wanted -

Mr Houston submitted that expenses rendered

futile by a breach of contract are not

claimable in addition to loss of profits.

He refers to McGregor.

Then he goes on to consider the matters of

principle; examines Cullinane and determines that

you can, in an appropriate case, get both heads of

damages.

The only other New Zealand case that we

havefound that deals with this is Herbison

v Papakura Video Ltd (No 2), (1987) 2 NZLR 721.

Again it is a decision of a single judge; it in

effect applies Cullinane's case, as this Court

thought it decided in T.C. Industrial Plant Pty.

Ltd. and Anglia Television Ltd v Reed. Apart from

that there is no more discussion of the problem and

the reliance on those cases.

The consequence is, if the first of the two

American principles is called on and the

restatement put is correct, this is a case where

the uncertainty is such that awarding damages on

their reliance basis is appropriate. If the second

branch is as they stated, we have got the right to

elect, and we have, in so far as the current

judgment is concerned, and our submission there

is - - -

DEANE J:  Mr Bainton, Mr Justice Burchett referred to an

unreported decision of Justice Jenkinson in

Goldburg. Has that since been reported or have you

got copies of it?

MR BAINTON:  The answer to the second question is no; answer to the first question is, I do not know, I the

am sorry, I have not searched it. Mr Grieve says

he has a copy of it. It is a computer printed out

copy if Your Honour still wants it.

DEANE J: Well I would like to have access to it.

MASON CJ: Yes, I think, if copies could be made available

for the members of the Court, Mr Bainton.

MR GRIEVE:  We will make copies available over the lunch

break, Your Honour. It is not a very good copy

we are just apologizing in advance.

MASON CJ: Yes, well if you hand that in, if it is legible,

the Court can make copies of it.

Amann(2) 131 14/2/91

MR GRIEVE:  I think this is our only copy - we will

endeavour to make copies over the lunch break, Your

Honours.

MR BAINTON:  The only other reference that may be of some

assistance to Your Honours is an unreported
judgment of the Court of Appeal in New South Wales,
and specifically Mr Justice Mahoney's judgment in

Levy Strauss Australia Pty Ltd v Mayne Nickless Ltd. Again I would not wish to read it all to

Your Honours, but simply indicate that when lost

opportunity, chance or whatever you might chose to

call it becomes an issue, as it often does and

creates difficulties, Mr Justice Mahoney has

applied his mind to a proper approach to evaluating
what, he, with respect, rightly points out are two

steps. First of all - unfortunately these pages

are not numbered - at page 4 there is a paragraph

beginning "Damages both in contract and tort are to

be calculated". Again, unless Your Honours want me

to, I do not want to read it out. His Honour
discusses the problems and the principles and what

the case is.

MASON CJ:  We can read it for ourselves, but if you would

like to direct us to particular pages.

MR BAINTON: Well, Your Honour, if one begins at the passage

"Damages both in contract and tort" on that page

and you read that page; the next three to the top,

the end of the paragraph which goes over on the

next page, he then goes on, "These distinctions are

relevant in the present case". He then starts to

apply them. It is the passage between there which

discusses the cases and the principles and some of

the problems, Your Honours may get some assistance

from.

That brings me to the second ground of appeal. I do not want to add a great deal to what is put in the outline in respect of that. Mihalis Angelos

is, I think, only ever cited for the proposition

that my learned friend cited it for. It did, in

fact, discuss a couple of legal problems, but when

it gets to this question, to say that it is

enunciating a principle of law is, with respect,

going too far.

The factual situation that the Court had to

consider in Mihalis Angelos, and I assume

Your Honours have it reasonably in mind as the

result of the discussion of it yesterday, was a

very simple one. There was a charterparty. The

charterer cancelled wrongfully on what I might

call, say, day 50. The owner treated that as

repudiation and cancelled, claimed damages and it

went to an arbitrator. The arbitrators found that

Arnann(2) 132 14/2/91

the charter was to pick up a cargo of apatite at

Haiphong at a particular time and convey it to somewhere. There was no apatite available in

Haiphong. The ship was late getting there anyway,

or would have been because it was still in Hong

Kong after the time the last day for arrival at
Haiphong had gone by. Ergo, the arbitrator said,

it was beyond any doubt that if the ship had, in

fact, gone to Haiphong the charterers would have

cancelled as they were entitled to do.	It was
late.	They did not have a cargo - full stop. Therefore, they said, it is as plain as the

nose in front of one's face that the owner lost
nothing by the cancellation prematurely of the

charter while the ship was still in Hong Kong.

They could perhaps have gone further and said it

saved the owners supplying the fuel to send it to

Hong Kong. Therefore, the only conclusion possibly

open on the facts of that case were that the owners

had not lost anything by the premature, but

wrongful, cancellation which they accepted as a

repudiation.

The note here has set out the passages where

each of Their three Lordships referred in one way

or another to what the facts were as found by the

arbitrators. They were not finding the facts.

They were simply agreeing with the decision of the

arbitrators. The judge below had been persuaded to

disagree by what each of Their Lordships described

as "an ingenious argument, but wrong". Having

dismissed that argument, it just simply became a

question of fact. There was no principle of law,

in our submission, involved in it whatever.

Then, in paragraph 6(d), Your Honour

considered what might have to be looked at if this

were a matter of law which could be dealt with in

this appeal. The ground of appeal seems to raise

it as a matter of law. There is no doubt that each

of the - the judgment of Mr Justice Burchett

declined, as a matter of fact, to say that there
should be any deduction.	The others had slightly

different views about it. So let me assume, for

the purpose of the following submissions, either

that there is some question of law involved or that

Your Honours are going to go into the evaluation of

the correct finding of fact to be made.

The steps through which one must go, as a

matter of logic, and the sequence in which one

would have to look at them are set out in the

paragraph beginning at (e) in the middle of page 6.

The whole thing is predicated on the proposition that in the non-existent but to be

Amann(2) 133 14/2/01

assumed situation that there was no repudiation on

12 September, what would the Commonwealth have done

after 12 September by way of endeavouring to

terminate the contract? Your Honour

Justice Gaudron put a view about that which we

would seek to adopt and I do not want to repeat any

of it but could I add just one thing to it before I

come to our own outline: one thing that one does
know and ought to be assumed to know in the

fictional situation that one has to construct to

examine this is that the Commonwealth did not think

it had to go through the clause 2.24 procedure; it

thought it could just cancel.

It found out the error of those ways when

Mr Justice Beaumont delivered his judgment. So,

one would be entitled to assume, contrary to the

submissions that were put yesterday, that it is

very unlikely that the Commonwealth would have

sought to have resort to clause 2.24 at any time

close after 12 September because it obviously
believed it did not need to; as is evidenced by
the fact that it did not resort to it.

Having said that, can I come back to the outline? The first step has to be to consider what

is the meaning and effect of the contract as a

whole, specifically clause 2.24, but as one clause

in this contract between Amann and the

Commonwealth. We have set out the various views

that have been expressed so far on this, among

which - if you are going to come to a factual

decision on this - you must make a choice.

Mr Justice Beaumont thought clause 2.24

exclusively regulated the power to determine the

contract but that the secretary had no obligation

to act fairly and that he was entitled to act in

what he perceived to be the best interest of the

Commonwealth - and we are given the reference.	We
add, just by way of interpolation, one of the

provisions in this contract was that every aircraft

flying a sector had to carry two pairs of

binoculars. There was another provision that said

if it did not there was a penalty amount to be

deducted.

If this view is correct, the Commonwealth was

in the position, at any time, to cancel this

contract on this view if there was only one pair of

binoculars on the plane or none. I suppose parties

can make that contract but you would, in our

submission, with respect, look very hard to find an

alternative before you would agree that the

Commonwealth was in that situation.

Amann(2) 134 14/2/91

The other extremity of the views of the four judges who have dealt with it so far is that of

Mr Justice Burchett. He agreed that clause 2.24

regulated the power to determine but it said it did not extend the common law power. In other words he said the Commonwealth can only cancel if it can

cancel under ordinary principles of contract law

and, even then, if it has that right it has to go

through a clause 2.24 procedure.

Mr Justice Davies thought that clause 2.24 was

triggered by any breach of the term of the

contract, in other words, the Commonwealth had to

go through the 2.24 procedure, that one binocular

on one flight would be enough to allow it to do so,

but he thought the secretary's duty was:

to act without actual bias and not

capriciously and only after giving due

attention to the interests of both parties.

whatever that may mean in practice, and he went on

to say that the secretary would have to:

have regard to the ordinary principles of law

as to rescission of contracts, for they

reflect fair and accepted rules for regulating

commercial disputes.

but that he was not bound by them. But he did

expressly disagree with Mr Justice Beaumont's views

as to the secretary's powers.

Mr Justice Sheppard thought that clause 2.24

could be triggered by any breach of the contract;

that the secretary was obliged to have due regard
to the interests of both parties; that the

arbitration clause could by a contractor to

challenge a decision of the secretary -

Your Honours, there really should have had a

separate sub-paragraph to itself.

Assuming all other factors, for the present

purpose, remain constant, each of those four views

would have to result in a different assessment of

the degree of probability. Mr Justice Beaumont

said 50 per cent on a view which nobody else agreed

with. Mr Justice Davies thought, on his view of

the secretary's power and duties, 20 per cent;

Mr Justice Sheppard decided he was willing to

accept 20 percent, but he had a different view of

the way the secretary would have to go about it,

particularly bearing in mind that he thought the

secretary's decision was arbitrable under the

arbitration clause in the contract. None of them

have expressly mentioned yet other possibility.

Amann(2) 135 14/2/91

The arbitration clause allows arbitration on

allegations of breach. It may well be that

arbitration could be required as to whether or not

there was a breach in any respect before the

secretary could take any steps, because everybody's

view is there has to be a breach of some sort

before the secretary's powers can be invoked. So

there are all those possibilities, and to assess a

chance you have to make a decision as to which of

them is right. That is step one.

Having got there, the next step would have to

be to form a view of first: the probability of a

further breach or breaches by Amann. The view of

all the judges seems to have been that they were

improving day by day; of the nature of those

breaches; of the likely effect of those breaches

on the performance of coast watching, and therefore

on the coast watch contract, and how long those

breaches would be likely to last before you can

form any view as to what the secretary might have

done.

Having got to that stage, you would then apply your mind to the probability of the Commonwealth

wanting to trigger action under clause 2.24, and

try to assess what view the secretary might take of

all those various matters, depending upon which

view of what he had to consider you adopted in the

first place. Then you would have to give thought

to how much time would go by. Before you can make

an assessment as to how much time you would go by,
you would have to form a view as to when the

process would be initiated; whether or not there could be arbitration on the allegation of dispute

before the secretary could do what he had to;	how
long that would take;	how long the secretary would

take to consider the interests of the various

parties on the principles that he has to apply,

whatever they may be when you have decided upon

them. All that is relevant because the background

to this is that it was very clear that the only

other possible person who could carry out this

coast watch operation was saying, "If you do not

get rid of Amann no later than 12 September, we are

going to pack our bag and go."

By the time these procedures had been gone

through, one would have thought the bag would have

been packed and they would have been well and truly

gone. And if that was the situation it would be

very unlikely that the Commonwealth would want to

cancel the Amann contract because if it did, it

would be left without anyone to carry out coast

watching.

Amann(2) 136 14/2/91

BRENNAN J:  I take it there was no evidence given as to the

prospects of the Commonwealth negotiating with Amann for an extension of the coverage pending

proceedings under 2.24?

MR BAINTON:  I cannot answer that because I do not know what

all the evidence was at the trial so far as appears

from the appeal books before the Full Court.	I do
not recollect it going really beyond those two
letters that I drew attention to this morning.
Skywest was then saying - - -

BRENNAN J:  On the face of the letters, Skywest was going to

go on 12 September.

MR BAINTON:  Skywest agreed, contractually I think, but

certainly it agreed to maintain the coast watch

until 11 September, and they did. But they were,

in effect, saying to the Commonwealth, "The 12th is

the deadline. If the contract with Amann subsists

after the 12th, goodbye, we are off." There is no

reason to believe they would not have carried out

that threat, and if they had, it, as I say, left

Amann really then in the impregnable position that

some of the judgments below described it as being

in.

The rest of the outline is more or less

self-explanatory. All of these questions would

have to be thought about, and the material to reach

a decision on them is not before this Court. That

may be fortunate.

DEANE J:  Where does all this lead if, in fact, we do reach

this aspect? This seems to be just telling us what

an unbelievably difficult task we are going to

have.

MR BAINTON: Yes. Well, as I understood what was said, when

special leave was asked for and granted, was that

that was the position this Court was going to find

itself in. It was not minded to go into the

factual investigation and no doubt that is why the

material is not in the appeal book. But this
question, assuming it properly arises at all as a
question of law - which we dispute in the first
place - cannot be determined as a matter of fact on

the material this Court has got before it. It is

an impossible task.

DEANE J:  But this must lead somewhere. Does it lead to a

submission that special leave should be restricted

to exclude these matters or confine to the

first - - -

MR BAINTON: In effect, yes.

Amann(2) 137 14/2/91

McHUGH J: Well, on the special leave application we put on

a rider - - -

MR BAINTON:  Yes, that is what I had in mind.

McHUGH J: - - - ..... were aware of the facts we might revoke

special leave.

MR BAINTON:	I am reminded that there is nothing raised in the ground of appeal as to what any of the judges
below - any of the four of them - said as to the meaning of clause 2.24 but, regrettably, that does
not assist - - -

McHUGH J: It does not really solve the problem

because - - -

MR BAINTON: It exacerbates it because they all had

different views.

GAUDRON J: There is a question, is there not, whether these matters actually arise under ground 2. It seems to

predicate that there is a principle to be applied

and, on your argument, if there is no principle to

be applied that is the end of it.

MR BAINTON: Yes, that is the first argument and if, as we

submit, it is simply a question of fact that people

try to elevate into a principle of law by citing it

from a judgment, it is correct, there is no legal

question. In our submission, it truly is a factual

question. If that is wrong, it cannot be answered

on this material and that is when we get to the
stage that the Court, in our submission, would be

left with no alternative but to rescind leave in so

far, at any rate, as it applies to that question.

The final submission, it is at the bottom of

page 9, I think, was accepted by my learned friend.

It is a reference to the Channel 9 case. When Mr

Justice Hope was discussing a somewhat similar argument he said the assumption that you ought to

make in determining the prospect of the contract

being cancelled is no more than that the other party

will act in his own best interests. Sometimes it
might be in his best interests to get out of the

contract and other times it might be in his best

interest to stay there and pay damages.	You just
have to look at each and every contract.	You do not

assume that he is going to terminate what is

otherwise a most advantageous contract worth

millions of dollars to him to avoid having to pay a

verdict for a couple of hundred thousand. It would

be a nonsense proposition.

The best description, in our submission, is

the passages in Mihalis Angelos that are usually

Amann(2) 138 14/2/91

cited in this, that they are no more than a common

sense reminder to the court as to how it should go

about finding the facts; they are the directions

that a judge would give a jury on that question;

they are not a question of law at all.	Those, if
Your Honours please, are our submissions.

DEANE J: Mr Bainton, in these expenditure cases, is there

any discussion about some compensation for loss of

the use of your money?	We are not concerned with
that here, I gather?

MR BAINTON:  No, I am not aware of any, Your Honour. I

perfectly understand the problem that was raised

about this by one of Your Honours the other day but

nobody, so far as I can see, at first instance,

gave any consideration to discounting for early

payment to be compensated in some cases by interest

for late payment and the like. It was just dealt

with on the basis of dollar amounts all the way

through and, similarly, in the Federal Court. The

question, so far as I am aware, did not arise until

somebody mentioned it yesterday morning.

DEANE J: 

But there was no component in your damages for

loss of the use of the money laid out by way of
expenditure?

MR BAINTON: 

No, at least not in the way the matter was

dealt with before the Full Court. I do not even

recollect any evidence as to the actual date of

payment. There may have been, but it was not a

matter that received any attention in argument and

it is not mentioned in Mr Justice Beaumont's

judgment, from which I can only assume, in the

light of the great detail with which he dealt with

the matters, it was not raised before him either;

but I cannot say that that is certainly so.

BRENNAN J: Mr Bainton, I have two questions I would like to

ask you. First, on the question of the onus: I

have a logical difficulty with the proposition of

this reason; if one starts with the proposition	the onus as dealt with in the American cases for
that the plaintiff must establish his damages and
he establishes simply that he has expended money in
reliance upon the contract, it does not seem to me
that thereby he has established that which, on the classic authorities, is the measure of damages,
namely what would have been the situation had the
contract been performed, but yet it is assumed
for some reason that reliance damages would have
been covered had the contract been performed. Why
is the onus reversed?

Amann(2) 139 14/2/91

MR BAINTON:  Your Honour the way they got there can be

argued about, but it has some common sense behind

it.

BRENNAN J:	I can understand that.
MR BAINTON:	It is to say that you have two commercial

parties making a contract, you have to assume that

each expects that he is going to make a profit in

the ordinary way but there may be times when they
do not. There are always times when the
expectation is not realized but you can assume,

they say, in the absence of material that compels

you to decide otherwise, that if the contract is

fully performed the contractor will get back his

outlay so that it will be taken into account one

way or another in the ordinary calculation.

You can say as a matter of fact that

conclusion ought not be drawn in some cases, but

that is the intermediate step, Your Honour, the

means by which they get to that result, and there

is some reason behind it.

BRENNAN J: That raises another question, and that is, does

page 262 on which the Commonwealth relies which was

your cash flow forecast, suggest that the

Commonwealth discharge whatever onus was on it by showing that you had misconceived the extent of the

expenditure necessary to make this contract a goer,

and therefore it would be a loss contract?

MR BAINTON: Could I answer that after lunch? I do not

think I have ever seen page 262 until this very

moment.

BRENNAN J:  I think that is the page if I have read it

correctly. I think that is the page on which the

reliance was placed.

MR BAINTON:  I am just trying to find its description in the

index, Your Honour.

BRENNAN J:  It is covered in the letter of a couple of pages

earlier, but it is not a very clear description

perhaps.

MASON CJ: Very well, Mr Bainton, if you answer that

question after lunch.	The Court will now adjourn
until 2.15.

AT 12.53 PM LUNCHEON ADJOURNMENT

Amann(2)	140	14/2/91
UPON RESUMING AT 2.15PM:
MASON CJ: Yes, Mr Bainton.

MR BAINTON:  I do not know that I can be conclusive,

Your Honour. The document at page 262 was part of

exhibit C. It begins at page 163 and it seems to

be a document submitted to the Commonwealth with a

tender. It looks as though it may be one of the

documents referred to in the letter that begins at
page 258, 22 December, from Amann to the

Commonwealth, which ends up saying at page 259:

We enclose for your information:

Preliminary Cash Flow Diagramme

Financial Statements for the past 3 years

Details of our financial arrangements

The financial statements are page 261, I would

think. Page 260 might be regarded as details of

financial arrangements, I am not sure. That leaves

page 262, which does not look very much like a

preliminary cash flow diagram, but however that may

be, it seems to be a mish-mash of a number of

figures.

The first entry in it, "Aircraft", has been

taken by, I think, multiplying $2.004 million by

the exchange rate and dividing by three.	It is not
quite right.	Somebody has calculated it, I do not
think exactly, but it is not far off.	Then there

is a number of one-off costs like "Ferry and import

duty", and a number of others. We know that the

aircraft they were talking about at that stage were

not the aircraft they ultimately acquired, which

would probably throw out the accuracy of almost

everything else on the page. I do not really know,

Your Honour, what it would show to anybody, or what

information you can derive from it. I think, with

respect, probably none at all.

BRENNAN J: There is nothing else that is relevant that you

know of?

MR BAINTON: Nothing else that we have found. It could not

even be the outgoing in year one, because
presumably in year one you are paying the $US2.004

million, but they have only taken a third of it.

They have taken other things that you have paid for

entirely in year one, some year one running costs

it looks like, and arrived at a figure which is

distinctly uninformative I think.

Amann(2) 141 14/2/91

It tells us nothing about income, and we know

income is divided into two categories: there is so

much an hour and the standing charges for the

bases, and I can only repeat I do not think

Your Honour can derive anything from it at all.

MASON CJ: Yes, thank you, Mr Bainton. Mr Grieve, I should

perhaps say to you, when you come to ground 2 in

your reply, you might deal with the question which

is present in the mind of the Court, that is,

whether or not the grant of special leave should be

rescinded in so far as it extends to ground 2

because your argument seems to depend on the making

of findings of fact by the Court.

MR GRIEVE: Yes, I understand the point, Your Honours, and

we will come to it. May I just hand up the

requisite number of copies of

Mr Justice Jenkinson's decision in Goldburg v Shell

Oil Co., to which our friends refer.

Your Honours, may we begin by endeavouring to

defend our schedule against the attacks that have

been made on it by taking Your Honours to page 719

in the appeal book and inviting Your Honours to

have the first of the two schedules at hand. At

page 719 the primary judge sets out in the main

what were either agreed figures or figures as

found. They have correlation with the figures set

out in our schedule, subject to several minor

modifications.

To begin with the figure of income,

17 million-odd, is in the schedule in the like

amount. Next, the figures that appear under the

heading expenditure are likewise reproduced in the

schedule.	The 854 is there as the other
establishment costs.	The numbers that appear

underneath that, commencing with salaries,

4 million, down to and including fuel of

2.825 million, when added together come to the

12,043,420 that appears in our schedule as

And lastly, so far as that page is concerned,

operating costs.

the 3390 again appears in our schedule under the

heading borrowing costs. Interestingly, His Honour

the primary judge described that at the page as

interest or hiring fee. And may we go on to

appendix V to the judgment at 823, apropos that

last mentioned figure and draw Your Honours'

attention to the heading that the primary judge

used at 823:

"Interest" or other cost of servicing the

borrowing necessary to fund the acquisition of

the aircraft.

Amann(2) 142 14/2/91

If one moves over a couple of pages, to 825, one

finds a balance sheet of Amann as at 19 September

1987 showing a deficiency of shareholders' funds to

the tune of some $1.1 million-odd, at line 9. That

induced His Honour to observe, at 828, line 17:

It appears that, as at 12 September, the

applicant had lost most, if not all, of its

share capital. As at 19 September, the

balance sheet of the applicant indicated that

it was, technically, insolvent.

All that we draw from that, Your Honours, is this: if eve had called upon the indemnity held to

exist by the Full Court and not challenged by us

and nor, as we understand it, by our friends, at

any time - and one presumes at 12 September, but it

does not matter much - Amann would have had to

borrow the money to meet the indemnity claim.	If
the call was made on the 12th, then Amann would

have had a liability to its lender at an interest

rate which the primary judge found realistically to

be in the vicinity of 20 per cent.

If the call was not made for, let us say, a

year or even two years what would have happened in

the meantime is that the temporary hiring

arrangement would have gone on and eve would have

received the hiring charges, so called, at the
20 per cent per annum rate and then made the call
and for the balance of the contract term Amann

would have had to again have recourse to a lender

and pay an interest factor to it in order to

satisfy the call.

Thus, in our submission, it is entirely realistic to bring to account what we characterize

as borrowing costs, but it does not matter how one

labels it, whether one labels it hiring fee,

borrowing cost, interest charge or whatever, it all

adds up to the same thing and lastly in our

schedule the figure of 5.281 at the top of the

schedule, we find justification for that in the

consensual letter that is annexed to the schedule.

I should say for completeness the other figure of 917 as to the residual value or remainder value of the aircraft is again the figure that emerges from the evidence and is not the subject of any dispute.

Your Honours, that then, in our submission, proves positively what the outcome of the contract

if performed would have been and about it we

respectfully submit there can be no real argument.

McHUGH J:  Is that right because the remainder value of the

aircraft must depend very much on what would have

happened on 13 September 1990? If the contract had

Amann(2) 143 14/2/91

been renewed the aircraft would have had a much

greater value.

MR GRIEVE:  With respect, I take Your Honour's point and if

one approaches it on a footing for the sake of

discussion that the contract on 13 September 1990

was renewed and that a rate of 10 per cent

per annum was an appropriate rate of depreciation
for the first three years, that having been a

figure mentioned in the evidence, then we go to our

alternative schedule and we see that the result of

the contractor's performance to that point on that

factual predicate would have been a loss of

$712,051, on any view a loss, and there is no

evidence to suggest that a rate lesser than

10 per cent could have been appropriate by the
application of any accounting standards or

otherwise. It was the Amann company's own evidence

that suggested the 10 per cent.	So we submit on
either view of the facts - - -

McHUGH J:	You do not allow for depreciation in these figures though, so the loss would be greater, would
it not?

MR GRIEVE: In our alternative schedule, we allow for

depreciation at the rate of 10 per cent.

McHUGH J: Yes.

MR GRIEVE: In our first schedule - and we accept, with

respect, our friend's use of the alternative

expressions, "depreciation and amortization". It

would be appropriate to speak in terms of our first

schedule as involving amortization, that is writing the aircraft down to their remainder value over the

three year life of the contract, and as in our

alternative schedule involving the use of the word "depreciation", there being, as we apprehend it, a

subtle difference between the two terms, but -

McHUGH J:  I am sorry to interrupt you, it just reminds me.

Perhaps you can explain this: would you open the

appeal book at page 956 at Mr Justice Burchett's

judgment, because there is a sentence there, I must

say I do not fully understand. At line 13, where

His Honour says:

Failing a further contract, what would be

required to show a profit would be

amortization of over 80% of the cost of the

aircraft in three years.

MR GRIEVE:  What His Honour seems to be suggesting, with

respect, is that if the contractor did not get a

further contract then, on the expenditure side of

the ledger, he would have to do what we have done

Amann(2) 144 14/2/91

in our first schedule, amortize the aircraft from

their cost price down to their remainder value, and

on the income side of the ledger he would have to

point to revenue that would be sufficient to off

set that total expenditure, including that large

figure for amortization, so as to end up with a

surplus, and as the arithmetic stands, of course,

that was not possible. The revenue was fixed and

the loss, we submit, inevitable, and indeed, at the
very same page, page 956, Mr Justice Burchett, a

line or two on, says:

The arithmetic of the contract is conclusive.

With respect, we agree. The arithmetic of the

contract, having regard to the facts as found,

either after argument or by consensus, there can
really be no room for debate about what would have

happened if the contract had been performed.

Indeed, to put it around another way, taking the

passage in Mr Justice Burchett's judgment, to which

Your Honour Justice McHugh has referred, in order

to get a profit out of the contract, given the

arithmetic, one would have to justify a

depreciation rate significantly less than

10 per cent. We have not actually done the

arithmetic, but if Your Honours look at our
alternative schedule Your Honours see that at

10 per cent a loss of 712 is thrown up out of a
depreciation from cost of 5.65 down to depreciated

value of 4.11, the total allowance for depreciation

therefore approximately 1.5. In order to eradicate

that 710 in broad terms, one would have to justify

a depreciation rate as low as five per cent or

thereabouts, to come into the blue.

So Your Honours, that we venture to suggest,

with respect, is the starting point, that the

arithmetic for the contract, as Mr Justice Burchett

said, is conclusive and what it throws up is that

this contract, standing as it was for three years,

was a loss contract.	The page to which reference
was made a few moments ago before we started the

reply, indicated that that certainly was not

Amann's contemplation. Amann's contemplation was

that the contract in itself would be profitable,

but that is not the way things worked out.

The reason for that changed result is

immaterial. Perhaps, as our friends suggest, it

had something to do with the change in aircraft

type, midway through the preparatory process, but,

be that as it may, it matters not.

BRENNAN J: Why not? If the decision is taken, for good

commercial reasons, perhaps, to expend more on

aircraft because the commercial adva~tage that is

Amann(2) 145 14/2/91

sought to be obtained in the course of performing

this contract will be the greater?

MR GRIEVE: Perhaps, not necessarily.

BRENNAN J:	Not necessarily?
MR GRIEVE:	No.

BRENNAN J: But you say, "It matters not". My proposition

to you is that it does matter.

MR GRIEVE: Well, we submit that it may have some commercial

bearing. It has no legal bearing and we therefore,

with respect, stand by our submission "it matters

not" if one reads that as a submission to do with

the legal situation, rather than a commercial

situation.

Now, Your Honours, one of the anomalies in our

friend's arguments, and indeed, one of the

fallacies in the argument, as we would submit, is

that it does not accommodate the position that

obtains differently where the arithmetic

demonstrates a profit, rather than a loss, and

yesterday in-chief we formulated an example of a

profit contract, using these broad figures: capital

expenditure, $4 million, instead of the

$6 million-odd here; operating expenses,

$10 million, instead of the $12 million-odd here;

interest, $2 million, instead of the

$3 million-here; revenue, the $17 million, same as

here; net result, a million profit, in broad terms.

Now, assume that the tendering party had

efficiently gone about its business and was able to

achieve cost savings on the expenditure side of the

ledger, down to the figures mentioned in the
example, so as to derive a profit of $1 million out
of this very same contract over the three year

period. That contractor would be in precisely the

as the loss contract; the position that our friends same position at the end of the three year period	say, praying in aid, the phrase is used by the Full
Court, an impregnable position; a powerful
position, a strong position; a strong prospect of
renewed contracts. But on our friend's formula
there is no room for compensation for the loss of
that position. Assume that given the postulated
figures in the example, the very event that occurred here was repeated, namely that on
12 September 1987 the Commonwealth determined the
contract without justification.

In that event if, for example, the contractor

had spent the whole of the $4 million capital

postulated, its damages, according to. the

Amann(2) 146 14/2/91

Robinson v Harman principle, would be $5 million,

on the assumption also that it had received no

revenue.

The $5 million would recoup in entirety that

which it had outlaid, the $4 million, and give it

its profit of a million. And it would give it

nothing for the loss of the chance which our

friends say is the basis upon which, in the loss

contract position, their client is entitled to

recover the shortfall.

Your Honours, in our submission there is no

explanation for that anomaly. The figures are

there and they throw up a state of affairs that

just cannot be resolved.

GAUDRON J: Perhaps there is this explanation, Mr Grieve,

perhaps not, but it is not universally correct to

add in capital expenditure and borrowing costs to

work out whether or not a contract is a profit or

loss contract, is it? For example -

MR GRIEVE: With respect, that must be right.

GAUDRON J:  Yes. Now, it must be that it is only right to

do it in the situation that you have hypothesized,

namely, that the capital equipment is useful only

for scrap at the end of the day, or similar.

MR GRIEVE:	Yes.
GAUDRON J:	And that is actually the hypothesis that is put

into issue in this case, is it not, by the

probability of the renewal of a contract?

MR GRIEVE:  We submit not in the sense that if one goes to

the alternative schedule and sees the position that
emerges by the application of a rate of

depreciation as distinct from an amortization - - -

GAUDRON J:  But you still have your interest in. The

problem is the inclusion of the capital expenditure

and interest.

MR GRIEVE:  Yes.

McHUGH J: Can I add this: in the alternative schedule

under the heading "Damages recoverable", you deduct

aircraft at depreciated value.

MR GRIEVE: That is right.

McHUGH J:	Why should you not take the aircraft at their remainder value of $917,000 because that is the
fact? It is all right to depreciate them in terms of working out what the loss or profit would have

Amann(2) 147 14/2/91

been, but in reality as a result of the breach, the

value of the aircraft was only $917,000 instead of

$4.1 million, and then you get very different

figures. In fact, you get a - - -

MR GRIEVE: Yes, I understand it, necessarily must. That

may be the commercial result, but it is not the

legal result. Your Honour observed that as a

result of the breach the aircraft are not worth

their written-down value of 4.118. They are only

worth their scrap value of 917. Commercially, that
may be so, but the point at issue is whether it is

so legally, and we submit that it is not, for the

reasons that we put in-chief shortly stated, that

the breach did not of itself as a matter of law

deprive the contractor of any right at all that it

had to submit a tender for the 1990 contract. It

had that right regardless of breach.

True it is, commercially, that it may have been in a better position to submit a tender in the

hope or expectation of its acceptance and it may

well have been in a better position commercially to

present a more attractive tender but those are

commercial matters which, in our submission, ought

to be disregarded entirely so far as the question

of what is the Commonwealth's liability at law in

damages for the breach. As we put in-chief, to

approach that question on the assumption that the

contractor, but for the breach, would have been

granted a renewal or, alternatively, had a strong
prospect of being granted a renewal, is to reverse

the basic rule that the contract breaker, for the

purpose of damages assessment, is to be taken to

have acted in such a way as to minimize his

exposure to liability rather than any other way.

Now, the grant of a fresh contract, far from

being a matter to which the contractor was entitled

contractually, is a matter entirely within the

discretion of the Commonwealth. The contractor had

no rights whatever to complain about the

Commonwealth's decision - if it made that decision

in 1990 - to grant the fresh contract to another

party altogether.

McHUGH J:  Be that as it may, does it not throw up the

unreality of the figures because the aircraft, as

of 13 September 1987, were not worth $4,118,000 at

all. In the market place they were worth 917,000?

MR GRIEVE:  No doubt. All that simply means, with respect,

is that if the directors of the company determined
that they should publish their annual accounts
disclosing a depreciation rate of only 10 per cent,
rather than an amortization rate of one-third of

the difference between the cost and the written

Amann(2) 148 14/2/91

down scrap value, they would be deciding to present

a set of accounts which did not show a true and

fair picture of the company's financial position in

the sense that they would be presenting a set of

accounts that showed the aircraft written down at,

say, 10 per cent on the assumption that the company

would be getting a contract beyond 1990.

That is an assumption which, as a matter of

law, they could not possibly make. They might be

able to say, "Well, as a matter of commercial

judgment, we have good reason to hope that we will

get a contract in 1990". But, as a matter of law,

to put it colloquially, they could not bank on it

and, likewise, in our submission, they could not,

prudently and properly, publish a set of accounts

showing a 10 per cent depreciation rate unless they

had some enforceable right to an extension, an

option or whatever it is.

McHUGH J:  What this indicates is that the profit of the

contract really depends on post balance sheet

events or certain post contract events?

MR GRIEVE:  No, the profit of the contract, viewed from time

to time during the life of the contract, depends,

if you assume that it is not going to be breached

and brought to an early end, upon an evaluation of

the progress of the contract to that point against

budget and the like. But the budget must, in our

submission, accept the basal fact that the contract

is for a life of three years only.

But, Your Honours, the anomaly that we submit

arises from our friend's approach is that it, as it

were, rewards inefficiency. The contractor who

tenders for a loss contract - and let us assume for

the sake of discussion that he tenders not in

anticipation or expectation that he will make a

loss, he tenders in the hope that he will make a

profit but because his calculations are awry in

reality it transpires that he will make a loss by

reason of inefficiency or whatever - he, under our

friend's approach, gets a better damages result, in

the event of breach, than the efficient contractor

who tenders for a profit and can prove that he

would in fact make a profit.

McHUGH J:  No, perhaps he does that if you cannot prove what

his loss was. If you cannot prove what his loss

was then you do not know what his position is,

whether he is efficient or .....

MR GRIEVE:  We submit that if what his loss was is

impossible of proof by reason of the breach, for

example McRae, then and only then does he have his

reliance loss but the McRae principle, in our

Arnann(2) 149 14/2/91

submission, requires impossibility and in that
sense it can be contrasted with the Chaplin v Hicks

line of country where it may be difficult to assess

damages but it is not impossible.

In McRae the damages were impossible of

quantification; essentially, from a factual point

of view, because the Commonwealth had simply said,

"There is a wreck out there." They did not say,

"There was a wreck that was made of so many tonnes

of steel." They did not warrant anything about the

quality of the wreck, they just said, "There is a

wreck out there.", and the breach, of course, was

that there was none. Therefore, the plaintiff

could not pin his case on to a warranty to say,

"Well, they warranted that there was a wreck

weighing so many tonnes at the location and

therefore we are entitled to our damages quantified

on the basis of the salvage value of so many tonnes

of steel." They were just told there was a wreck

of one sort or another. They were not even told

whether it was a timber wreck or a steel wreck, as

I recall it. It matters not. The fact that there

was no wreck made it utterly impossible, not

difficult or very difficult but utterly impossible.

But in the Chaplin v Hicks case - and I think

in the Fink case, and so forth - you have got a

chance. It may be a matter of educated guesswork -

in Chaplin v Hicks perhaps it may be a case of

saying, "Well, Ms Chaplin was denied the

opportunity of being 1 in 12 competitors for a

prize of X pounds.", and all else being equal, we

could say, therefore, the loss of her chance was

!/12th of X. That would be one reasonably rational

way of going about it. It is not impossible; it

involves a certain amount of educated guesswork but

none the less it can be done.

Our friend's argument runs the two together

and says, "Great difficulty equals impossibility

and therefore McRae can be invoked", but in the

instant case, of course, not only was there no

difficulty, great or otherwise, in quantifying what

would have happened. It was quantified.

McHUGH J:  Well, that depends on whether you can take into

account the renewed contract.

MR GRIEVE:	Indeed.
McHUGH J:	Do you accept that if it is proper to take into

account the potentiality of profit under the

renewed contract then these arguments of yours are

unpersuasive?

Amann(2) 150 14/2/91

MR GRIEVE:  No, with respect, we do not make that

concession. We submit that if it were right to

attach legal significance to the supposed

commercial expectation that the contractor enjoyed,

then the onus of proof lies on the plaintiff

according to the basic maximum and the plaintiff is

in the same position as Miss Chaplin or anyone else

running a loss of a chance case.	They have to
prove what that is worth.	Now, it may be difficult
but it would not be impossible.	They adduce

evidence as to what it is worth, the defendant has,

of course, the opportunity to challenge that

evidence and at the end of the day the court makes

what it will of that situation.

Your Honours, while we are on the point may we

hand up copies of the New South Wales Full Court's

decision in Howe v Teefy which, in our submission,

provides a useful illustration of how Chaplin v Hicks, 27 NSWSR 301, works in practice. I will

summarize the facts of that case, I hope

accurately, in short compass. The plaintiff

obtained a lease of a racehorse for a specified

term.	The breach was the termination of the lease
mid-term.	The plaintiff acknowledged that the cost

of the horse would exceed any probable prize

winnings. None the less he said that his loss in

monetary terms was measurable in the money that he

would have made out of placing wages on the horse

and of imparting information about its form.

Presumably that can be done for money lawfully.	In
all events, that was assumed.

Now, the jury awarded the plaintiff 250 pounds and the Full Court upheld that award as being

within the parameters of Chaplin v Hicks. The case

simply illustrates that the chance is a chance that

is available under the contract because if the

plaintiff had had the possession of the racehorse

for the remainder of the term he would have been

able to have the information about it during that

and he had to return the horse to its owner, the	time but, of course, once the term came to an end
lessor, that would be the end of his source of information and necessarily the end of any opportunity to exploit the horse, and that is the
way in which cases of that sort are measured. The
chance is afforded by the contract and that is
within the life of the contract, not otherwise.

Your Honours, factually our friends contended

that the chance of renewal was such a compelling one, such a powerful one, as to be taken to have

been a virtual certainty and they instanced a
comment made by Mr Justice Davies in support of it

at page 873 where Mr Justice Davies said:

Amann(2) 151 14/2/91

Taking the cost and the value of the aircraft,

absent the contract, into account, Amann could

not, in my view, have made a significant

profit from a contract limited to three years.

The trail Judge calculated a small profit of

$819,099. Any substantial profit lay in

future extensions, for the position of a

contractor was strong, as Skywest

demonstrated.

With utmost respect to His Honour, that

comment, "the position of the contractor was

strong, as Skywest demonstrated", in fact flies in

the face of the objective events. Up to 1986-1987,

Skywest was the sitting contractor and, indeed,

Amann, as a rival tenderer, late in 1986 early

1987, had no aeroplanes at all let alone equip

their aircraft. One would have thought that in

that circumstance Amann's challenge to Skywest's

impregnable position was bound to fail but, in

point of fact, it succeeded.

Thus, the assumption that underlies our

friend's argument really does not stand up as a

matter of historical fact, anyhow. All that one is

then left with is that what the contractor had, so

far as any renewed contract was concerned, was

something between a hope, a chance, a prospect or

an expectation.

McHUGH J: What about probability? That was the finding

that the Full Court made.

MR GRIEVE:  And, with respect, it was a finding that was

wholly unjustified.

McHUGH J: Well, you have got no challenge under that

finding of fact.

MR GRIEVE: Well, no, we do not challenge the finding of

fact.	We simply say that it was irrelevant and its
correctness or otherwise need not be challenged
because it is irrelevant.	Be that as it may, the

difficulty that the approach for which our friends

contend points up is this: how do you evaluate the

difference between a mere chance of renewal, at one

end of the spectrum; somewhere around that same

end, a hope of renewal; and, at the other end of

the spectrum, a probability of renewal or an

expectation of renewal.	How does the Court go
about dealing with that?

Your Honours, to say, "Well, you lump them all

into the one basket and you come up with exactly

the same result by simply saying give to the lost

contractor that which he could not have recouped

under the initial term regardless of whether it is

Arnann(2) 152 14/2/91

a mere chance or whether it is a strong

probability", seems, with respect, somewhat odd.

McHUGH J: It does not seem as odd as the result for which

you contend and that is that although by your

repudiation of the contract you have prevented, on

the probabilities, the plaintiff from earning a

substantial profit running into millions of
dollars, that profit cannot be taken into account

in assessing the damages.

MR GRIEVE:  No more, we submit, than could the profit that

the contractor might have made from - to use the

example offered by Your Honour in argument with our

friend - a contract from Indonesia.

It is rather much as though one enters into a

contract with a builder to have the builder

construct one's house. One terminates ahead of

schedule and the builder comes along and says,

"Well, I have not only lost the profit", or

whatever, "on that building, but I have lost the

profit on building houses for all the neighbours?"

and where does one stop?

McHUGH J: Well, supposing a neighbour had said to the

builder, "You make a good job of Grieve's house, I

will let you build my house", and you wrongfully

repudiate the contract. Now, can you take into

account the neighbour's potential?

MR GRIEVE: In our submission, no, because I had nothing to

do - I being the proprietor in the first contract -

I had nothing to do with inducing or persuading or

influencing the neighbour to say that, that was a

matter for the neighbour. Why I should be

consequentially liable, as a result of something

that the neighbour said, wholly uninfluenced by my

conduct is, in our submission very difficult to

discern.

BRENNAN J: That may be so if its not in contemplation, but

if it is in contemplation, why is it that the fact

that it has got nothing to do with you should

affect the assessment of the loss of him whose

interest has been affected by your breach?

MR GRIEVE:  The difficulty, Your Honour, is this, that no

doubt it could be said to be in contemplation that

whenever someone contracts to render a service for another, the first being in a service industry, he will hope that by rendering that service his

reputation within that industry will be enhanced by

the quality of the service and the like, and to put

it as our friends put it, that his goodwill will be

improved by that. But, if one accepts that as a

generally correct observation as to commercial

Arnann(2) 153 14/2/91

life, does it have the consequence that if the

party to the initial contract of service breaks it,

that his liability is to be measured in damages as

to what might lie ahead for the comprador? One

wonders where one stops; where does the growth of

goodwill finish up?

McHUGH J:  Your submission means we would have to overrule

Richardson v Mellish has stood for 150 years,

particularly as it was interpreted in Chaplin v

Hicks - certainly meaning very probable.

MR GRIEVE:  We submit that Your Honours would not have to overrule that decision. We submit that that

decision is distinguishable for the reasons that we

put in-chief. However, if it comes to it and if we

are wrong in that, then so be it. It may be

ancient, but that does not necessarily make it

right if it is wrong.

McHUGH J: It has been followed and proved on numerous

occasions.

MR GRIEVE: Perhaps so. But, Your Honours, may we just go

on to develop the argument as to this question of

probability or otherwise of renewal? Our friend's

argument has been predicated on an assumption that

by submitting a loss tender, it can be taken that
the tenderer had the motive or purpose of

attracting the good graces of the other party so as

to enhance its prospects of obtaining a renewal in
the fullness of time, and that the whole argument

seems to be predicated on the fact that the

prospects of renewal can be measured and assessed

at a very early stage, indeed, at the inception, at

the time when the contract is made.

In our submission, in practical terms, the

prospects of renewal stand more to be assessed by
the quality of the actual performance during the

life of the contract. May we endeavour to

illustrate that point with reference to some

figures and a postulated example, if Your Honours

would also be good enough to keep our schedule
handy.

Assume for the sake of discussion that the events of 12 September did not happen and that the

contractor, Amann, proceeded to watch the coast in

compliance with the contract. Assume, however,
that over the ensuing 33 months or so the standard
of performance, albeit perhaps literally in

conformity with the contract, was such as not to

meet with the Commonwealth's pleasure. Assume that

the Commonwealth in month 33 or thereabouts with

90 per cent of the contract performed decided to

terminate the contract, and assume that it did so

Amann(2) 154 14/2/91

wrongfully and without justification.	What then
would be the contractor's position?

If we take the figures in the schedule, and I

do not want to weary the Court with undue

mathematics, but it would come to this, that the

6.504 capital expenditure, five lines into the

schedule, would have been wholly outlaid. It had

almost been outlaid by 12 September and by the

middle of 1990 it certainly would have been. If we

assume that the operating costs and the interest

would have been outlaid to the extent of

90 per cent in each case, mathematically, those

amounts would become $10,839,078 and $3,051,000

respectively, making a total expenditure on that

side of the ledger of $20,395,021.

Against that, if we assume that the revenue

would have come into the tune of 90 per cent of the

17-odd million, arithmetically, that would have
meant the contractor would have received

$15,396,715, and if we bring the aircraft back at their remainder value, $917,329, we have receipts

totalling $16,314,44; net loss to that point on

that basis, assuming the aircraft written down to

remainder value, $4,080,977; capital outlaid as

mentioned, 6,504,943 million, therefore recovery of

the outlay allowing for the loss - the recovery

would have been, as it were - the outlay would have

been reduced, allowing for the loss, to $2,423,966,

and that is that a loss of some 4.08 million would

have been incurred as distinct from the projected

total contract loss of 3.913 million as per our

schedule.

The damages, in that instance, by the

application of the classic Robinson v Harman

principle, for which we contend, would have been

$167,405, being precisely the difference between

the loss actually incurred by 90 per cent

performance and the loss that would have been

incurred by 100 per cent performance.

But we offer the illustration simply to

demonstrate that, in our submission, the predicate

of our friend's argument is unsound, that the more

reliable guide to renewal is performance rather

than initial price.

McHUGH J: That only means that when you do not know how

they would have performed then you may have to

discount, as Mr Justice Davies and

Mr Justice Sheppard did.

MR GRIEVE: Perhaps, but in the example postulated where

performance has been adequate in terms of

compliance as found by the court in the assumed

Arnann(2) 155 14/2/91

example but considered by the Commonwealth to have

been less than satisfactory, so much so that it was

minded to terminate the contract wrongfully.	One
could fairly safely take from that that the

Commonwealth would not, as a matter of certainty,

have renewed the contract as a contract.

But if that is overstating it and if it is

perhaps a little more accurate to say, "Well, the

Commonwealth would have perhaps, as a matter of

possibility", albeit a remote possibility, "have

granted a new contract to that contract absent some

more attractive tender" - - -

DEANE J:  But that is really a little bit like saying, in

Chaplin v Hicks, the lady had turned up and

insulted all the judges and then ordered out of the

contest room and then came along and sought damages

for the loss of the chance. You see, what you are

saying is, "They've had the chance but they've

blown it," in your example "by bad performance.".

We are concerned with a case where your conduct deprived them of the chance.

MR GRIEVE: Yes, I understand what Your Honour says.

DEANE J: But while I am interrupting you, can I take you

for a moment to your alternative schedule?

MR GRIEVE:	Yes.
DEANE J:	And I realize that time is going but when you put

up the top, expenditure, and bring in depreciation

at 10 per cent that, no doubt, is a correct basis

for a continuing business balance sheet approach?

MR GRIEVE: Yes.

DEANE J: Well, now, when you go down the bottom and say,

"The Commonwealth, by its breach, has brought the

continuing business to an end", obviously the

continuing business basis of evaluation or

depreciation is quite inappropriate?

MR GRIEVE: Yes.

DEANE J:  What I am suggesting to you is if you be right on

all your other arguments, on this the appropriate

figure in 1 for depreciation on a continuing

business is 4,118,000 but the appropriate figure

for damages recovery is 917,000?

MR GRIEVE: With respect, that is another way of putting the

point that Mr Justice McHugh put to me a short time

ago.

Amann(2) 156 14/2/91

DEANE J: Yes, well that would bring the damages up to

$4.6 million.

MR GRIEVE:  I appreciate that and we make much the same

responses as we made to Mr Justice McHugh. That,

with respect, is just another way of saying that if

you can legitimately take to account the prospect of renewal and so characterize the operation as a continuing business, to use Your Honour's

expression, then that may be the outcome and it begs the central question, "Can the Court, as a matter of law, bring to account the commercial

expectation or hope of renewal?"

DEANE J: Well, it does not, because if the commercial

expectation is probability of renewal, the

treatment on the first half of that page is the

correct commercial accounting treatment, but when

repudiation destroys the business in calculating loss, the only possible treatment is to bring in

aircraft at actual value, consequent upon

repudiation, which is $917,000.

MR GRIEVE:  Yes, I understand Your Honour's point, but in

our submission, it really does come to this though,

does a contract with a three year life expectancy

and in law no more, amount to a continuing

business? We submit that it does not.

DEANE J:  I can see that. The possible other commercial

consideration would be though, if the contract had

not been repudiated, with the result that Skywest

was brought back in at that stage, it could be

expected that there would be a customer for the

bases and the aircraft, which would not necessarily

involve there being disposed of on the basis of

some different purpose. I am not suggesting an

answer to what you have said, but it is a

complicating factor I would have thought.

MR GRIEVE:  Indeed it is. May we just respond by a factual

comment that, while on one view of things, that may

have been the position that obtained, in point of

fact, Skywest, as the person corning on to the

scene, albeit ahead of schedule, was not interested

in the applicant's aircraft, for whatever reason,

so it does not always follow that that would be the

case.

May we just - at the risk of offending the

rule against repetition - again put our submission

that we put in-chief that -

DEANE J:  I was not aware there was any such rule in this

Court.

Amann(2) 157 14/2/91

MR GRIEVE:  Honoured in the breach rather than the

observance, I dare say; but may we just simply

restate our submission in-chief that our friend's

argument also presupposes that the renewal beyond

1990 would have the Amann company's aircraft fit

the bill precisely.	Now, that simply cannot be
assumed.	The Commonwealth may have decided to

allocate five times the resources to this contract

and call for the submission of tenders on an

entirely different set of specifications. That is

not a mere matter of speculation or fantasy in the

sense that it is a contract of obvious national

importance and it is a matter for the Commonwealth.

That, we submit, is of importance on the point

of principle. The Commonwealth was at pains to

reserve to itself the unfettered right to have the

1990 contract let by the process of competitive

public tender on whatever terms it saw fit and if

it saw fit, for example, to increase the allocated

budget from $20 million to $100 million then,

having reserved the right to itself it could do so;

but our friend's argument seems to proceed along

the track that by reason of their clients having

obtained the initial contract at what perhaps was

an attractive price to the Commonwealth, they have

therefore, as a matter of law, got some entitlement

to damages which may indeed practically fetter the

Commonwealth's right to deal with the position

post-1990 as it sees fit.

If our friend's client's damages award is to

include some sum of money for post-1990 activity -

or projected activity - then that sum of money,

whatever it may be, must eat into the budgeted sum

otherwise available to the Commonwealth to spend on
the 1990 following contract. Thus, the commercial

expectation becomes, or rather has some positive

teeth on it, so far as that right that the

Commonwealth was at pains to reserve may be

concerned.

BRENNAN J:  Mr Grieve, is it right to say that the

Commonwealth adduced no evidence with a view to

establishing or denying the commercial value of

this so-called commercial advantage?

MR GRIEVE:	Yes, with respect that is right, and we would add nor did the respondent company, and may we also
say nor did the respondent company put to the Commonwealth witnesses the proposition that the
Commonwealth would regard it as in a favourable
position vis-a-vis renewal.
BRENNAN J:	That might have been a matter of interest but

at all events if the question of profitable

Amann(2) 158 14/2/91

contract or no terms on the value of the commercial

advantage, then it would be a question of the onus

of proof, would it?

MR GRIEVE:  Yes, and in our submission the onus would lie

where it ordinarily lies. Might I just qualify

the answer that I gave to Your Honours with

apologies. The answer was not entirely accurate.

I am reminded that at page 223 there is some

evidence that was before the court. In fairness it

was evidence that was adduced by the Amann company

as part of its case in the sense that the Amann
company tendered the contract and the page in

question is part of it, but page 223 sheds some

light on what was perceived by the applicant to be

the relative value of a three year contract to 1990 in contrast to a five year contract to 1995 in that the applicant said that, "Under a three year

contract my rates are going to be higher than they

will be under a five year contract". Then the

Commonwealth, of course, in the interests of preserving its right to act as it saw fit in 1990

and beyond, elected to pay the higher price.

BRENNAN J:  The inference that might be drawn from that is

that having got a higher price for three years the

Amann company at the end of that three years would

have been in a position to tender for a renewal, if

a renewal were offered, at a figure that is even

lower than that which appears in the five year

contract.

MR GRIEVE:	That is a possibility but it is not the sort of inference, if I may put it this way, that would
found a conviction on circumstantial evidence. It
is not the only rational hypothesis that one can
draw from it.
May we just deal very briefly with several of the cases cited by our friends. The case of
Manubens v Leon, the hairdresser's apprentice case,
was a case whereby it was held that it was an
implied term of the contract that the apprentice would be entitled to the tips during the life of
the contract.  We have no difficulty with that
whatsoever, Your Honours. There is no suggestion at all, nor could there have conceivably been, that
the hairdresser's apprentice would have been
entitled to tips at some time after the contract
had expired by an effluxion of time. That is
enough, in our submission, to put that case to one
side as distinguishable with a capital D.

Your Honours, our friends said, "Look, this is

a second limb of Hadley v Baxendale case. It

doesn't involve any question of causation''. The

question, as our friends formulate it is, "Would

Amann(2) 159 14/2/91

performance of the contractor been foreseen by the

parties as putting the contractor in a favourable
position for renewal?". Our response to that can

be shortly stated. It may be that while the

Commonwealth may have recognized that commercial

fact, it, the Commonwealth, reserved to itself the

right to call for competitive tenders and,

therefore, as a matter of law, was not bound to

have regard to any performance, favourable or

otherwise, in considering those tenders. If it
even so much as capriciously decided to accept a

tender from a company with a notoriously bad

reputation, notwithstanding an excellent level of

performance throughout the three years by Amann, by

so doing it could not conceivably, in our

submission, be exposed to damages. That was its

right and it was free to act as it would and, we

submit, that its breach of the subject contract

cannot affect or alter that position.

I think I have covered most of the other points, Your Honours.	On the second ground of
appeal, may we be brief in reply.	Our friends said

that the contract contained any number of

requirements and instanced the provision of two

sets of binoculars in each aircraft and said it

could not possibly be the case that 2.24 could be

relied upon for a breach in that circumstance.

We will respond to that by simply saying that,

assume that the contractor had for, not once, but

on a number of occasions, failed to comply with

that requirement, and the secretary was so

irritated, if I may put it that way, by this

persistent failure, as to issue a notice to show

cause, and assume then - and perhaps the word

"irritated" is an inappropriate word - that the

secretary deemed that failure to be of a sufficient

gravity to warrant the issue of show cause notice;
assume further that the contractor defiantly

ignored the show cause notice and continued

refusing to carry the binoculars. The Commonwealth

would not, to use our friend's expression, cut off

its nose to spite its face. We accept that the

Commonwealth would act practicably and sensibly and

in its own interests in that regard and would not

go to the drastic measures or lengths of

termination unless the breach was such as to

warrant, from a practical point of view, that

course of action and that really is all we wish to

say about that.

The submission in broad terms that we wish to

put in reply on the second ground is this - and we
bear in mind Your Honour the Chief Justice's
observation immediately after the adjournment - if

it be the case that, as our friends contend, the

Amann(2) 160 14/2/91

assessment by the primary judge of a 50 per cent

probability of termination in accordance with the

clause is no more or less than a finding of fact, not involving any question of principle, then we

submit that that was a finding of fact that was

amply available to the primary judge who had had

the opportunity to hear and see and consider the

evidence over a long trial. It was not a finding

of fact vitiated by some glaring oversight on

His Honour's part of the sort that was made in

Vilus v Cassari and therefore it was a finding of

fact that ought not to have been disturbed by the

intermediate court and if all that is right, we

submit that the proper consequence, as a matter of

justice, is that the finding should be restored.

Alternatively, if it is a finding of mixed

fact and law involving a question of legal

principle so as to have been open to the

intermediate court to have been reviewed then, we

submit, it is open to this Court to review it and

that is all we wish to say about that.

I am sorry, Your Honours, there is one other

matter that I want to come to.	May we hand
up - - -

BRENNAN J: Just before you leave that could we just ask you

this question, is there any evidence which

indicates that Skywest was willing to extend its

service after 12 September?

MR GRIEVE:  I am very much obliged to Your Honour; yes,

there is and may we just give Your Honour the references. A series of letters, they are in

volume II of the appeal papers, the first one is at

380, or relevantly at 380 - it commences at 379,

letter 31 August 1987 from Skywest to the minister

and at the foot of 380, line 43, we have:

Our agreement for extensions in the past and in the future has been given in the light of information -

et cetera -

a) no concessions against the Contract

Specification would be entertained; and

b) that no extensions beyond 12 September for

full compliance with the Specification would

be entertained.

What we draw from that is that they are not saying,

"No extensions beyond 12 September in order for you

to set about your business of terminating under

2.24." May we just comment that Skywest was by no

Amann(2) 161 14/2/91

means any reluctant bride in all this, indeed,

Skywest was very put out by the fact that it had

lost the contract earlier in the year and I do not

know that it misstates the position to say that it

had embarked upon a campaign of trying to put

itself in a position of winning the contract back

and, indeed, that is what happened.

Our friends say that they were threatened to

pack their bags and leave. Our friends put it that

way on an implied premise that the Skywest

infrastructure was like a parcel of BHP shares that

you could sell them by simply picking up a

telephone and ringing a broker. But they were not

even as marketable as a parcel of listed Bond Corp

shares where there may not be a buyer in the

market. They could not be packed up and put in a

bag, as our friend puts it, overnight and Skywest

had a real interest in not packing up their bags as

the reality shows.

GAUDRON J:	But they had an offer for some of their planes, they said in one letter. In one letter they said,
"We have got an offer for nine of our 14 planes".

MR GRIEVE: Yes, they did. But may I just mention the two

other references on this point? Pages 392 and 393,

a letter from the secretary, 2 September 1987, to

Skywest. Relevantly, at page 393, at line 13 or

so:

I would like your urgent advice that you

will continue to be a reliable contractor in

regard to this extremely sensitive operation.

Now, it is rather incongruous to be suggesting

that someone who is being asked to be a reliable

contractor for a space of 10 days and 10 days only

- the language presupposes the possibility of

Skywest being about a little longer. The next

reference is at page 395; reply of 3 September;

line 35 or thereabouts - the last paragraph:

This company has at all times been acutely

aware of its responsibilities with regard to

coastal surveillance services and in good
faith will do its utmost to make sure there is
no disruption to those services.

They are all being a bit coy but it is pretty

obvious, in our submission, what is going on. Our

friend says there is nothing coy about the second

paragraph of that letter. Perhaps, but all part of

a process of jockeying a position with a view to

being there beyond 12 September.

Amann(2) 162 14/2/91

Lastly, Your Honours, at pages 411 and 412:

letter, Skywest to the minister, 11 September 1987,

last paragraph on page 412:

I bring this matter to your attention as it is

consistent with other irregularities we

consider have occurred in the performance of duties by officers of your Department and we are now formally of the view that if Skywest is required to provide services beyond

12 September to your Department it may be

necessary for us to liaise with different

personnel.

Clear contemplation that may well have remained on

the scene. Your Honours, may I conclude by handing

up an appropriate number of copies of proposed
orders that we would ask the Court to consider in
the various events of success in the appeal.

In speaking to these orders, may I also take the opportunity of developing with reference to

some short figures the argument that I put in

rather bald terms yesterday, about the practicality
of disregarding the incidence of receipt and

expenditure in point of time of the moneys.

The first set of orders are as indicated on

the footing that the first ground of appeal

succeeds and the second wholly fails. We invite

the Court to consider making a declaration for the

reason that what has been paid would exceed the sum

in question. The figure of $1,561,612 is the

figure at the foot of our schedule and includes the

special damages claimed below. The interest figure

is calculated by taking the rate of interest from

the date of breach up to the date of the primary
judge's judgment and then capitalizing the interest
for that period, adding it to the 1.56 and then
taking interest on the resultant sum from that date

up to the date of payment, pursuant to the Full

Court's order on 20 April 1990. The remaining

orders are, but for those in 6, 7 and 8, mechanical

designed to give effect to that result if it were,

to obtain and we res,pectfully submit that the

orders in 6, 7 and 8 would be appropriate in the
circumstances; the o, order in 8, as it were,

reinstating Mr Justice Beaumont's order at first

instance to reflect the practical outcome of the

proceedings.

The second set of orders, Your Honour, is

predicated on a total success and I do not know that I need address what we have written there.

And the last set of orders, predicated on success

on ground one, which is not apparent from the

document, for which I apologize, as well as partial

Arnann(2) 163 14/2/91

success on ground 2, and broadly follows the

pattern of the first set of orders.

Your Honours, overnight we endeavoured to

address the mathematics of the proposition that it

would be appropriate for interest to run at court

rates from the date of breach and again, if we

could take up a few moments of the Court's time by

reference to our schedule, to see how it all will

work. We are accepting that from a practical point

of view, as we put yesterday, the fact that the expenditure in performing the contract would be

outlaid over a period of time, that is the

operating expenditure as distinct from the capital
expenditure, and the income would come in over a

period of time, those two countervailing factors

practically cancel one another out so as to fairly

warrant the award of interest on the sum as baldly

calculated as per our schedule.

The reasonableness or justice of that

approach, in our submission, can be demonstrated by

a mathematical process. If one were to apply a 3

per cent discount rate, that being the rate fixed

by the Court in Todorovic v Waller for personal

injuries claims for future loss, if one were to

take that actuarial rate over a three year term and

apply it to discount the revenue back to

12 September 1987, one would have the revenue
figure reduced to $16,449,481. Pausing there, we

offer the Todorovic v Waller 3 per cent with

reservation in that, of course, the factors that

bear upon an injured plaintiff's future may be

entirely different, in point of fact, than those

which may bear on a commercial enterprise, but the

point is for guidance only. If the same 3 per cent

discount is applied to the operating expenses, and

also to the interest factor, then the total

expenditure comes down from the 21.938 million to

21.344,769 million and the ultimate overall

difference, if one applies the same method of

computation as we have in our schedule, is that,

applying the Todorovic v Waller 3 per cent on the

basis that we have mentioned, one finishes up with a damages award, leaving special damages aside, of

$1,241,176, which is not far off the 1.305,563

figure that we suggest.

Indeed, it is sufficiently proximate to

illustrate what we submit to be a reasonable

process of taking the figures as they fall in a
case where the life span of a contract is not
excessive and the expenditure and income will span
out over that life at broadly similar intervals.

As we put in-chief yesterday, it may be that in an unusual case, of which this is not one, in an

Amann(2) 164 14/2/91

extremely unusual case where expenditure and income

were poles apart in terms of time, some special

approach may have to be taken. But, if this is at

all a typical case, then attempts to adjust the

ultimate result for early receipt of revenue which

would necessarily have to be counterbalanced by an

attempt to adjust the expenditure figures on the

other side of the ledge produces so similar a

result by the application of one formula -

the 3 per per cent discount - as to illustrate that

no such adjustments in principle should be

necessary. May we just say for completeness that

it is, in our submission, if one were to apply a

discount rate appropriate to discount not only the

operating costs but also the interest - it sounds

odd at first because one would say, "Well, on

12 September they'd be all sitting down around a

table and there would be no interest payable".

But, just as there would be no fuel burnt in

performance of the contract, nor wages paid to the

men, so there would be no money burnt or interest

expended in an actual sense, but in a notional

sense there would, so that if one were to discount

the immediate receipt of the revenue, one would also consistently discount the incidence of the expenditure on the same basis with, as we say, much

the same ultimate result.

Unless there is some other matter,

Your Honours, those are our submissions.

MASON CJ: Thank you, Mr Grieve. Mr Bainton, I take it you

do not want to say anything further about

revocation?	You dealt with it in-chief in a
general way.

MR BAINTON: No, Your Honour, I do not. Could I say

something, though, about the proposed orders?

MASON CJ: Yes.

MR BAINTON:  Your Honour, our submission would be that it is

better to leave that	until the Court has decided
the questions in the	appeal.	I say that because we
simply do not accept

MASON CJ:  You may recall, Mr Bainton, I suggested that that

was the preferable course and I invited Mr Grieve,

perhaps, to submit draft orders because it was

thought that the draft orders might throw some

light on the way in which the argument fell.

MR BAINTON:  I am not complaining about the fact that they

have been presented but I do not agree with them

simply because we do not accept the $1.56 million

figure. It depends on the schedules. There is a

piece of sleight of hand in those sc~edules that I

Amann(2) 165 14/2/91

am having trouble about so far but I would need to

if one wanted to rely on the figures, part of it is

what Mr Justice Deane exposed as the further

schedule. You should not deduct 4.1, you should

deduct 907,000. There is another similar problem

there. Now, I can deal with it now or leave it and

see if it arises.

MASON CJ:  I think that is the preferable course,

Mr Bainton. The Court will consider its decision

in this matter.

At 3.35 PM THE MATTER WAS ADJOURNED SINE DIE

Amann(2) 166 14/2/91