Commonwealth of Australia v Amann Aviation Pty Limited

[1991] HCATrans 39

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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) 1 13/2/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 13 FEBRUARY 1991, AT 10.16 AM

Copyright in the High Court of Australia

MR D.E. GRIEVE, OC:  May it please Your Honours, I appear

with MISS C.E. ADAMSON for the appellant.

(instructed by Australian Government Solicitor)

MR R.J. BAINTON, OC: If the Court pleases, I appear with my

learned friends, MR P.J. DOWDY and MR M.R. GRACIE,

for the respondent. (instructed by Owen Hodge &

Son)

MASON CJ: Yes, Mr Grieve.

MR GRIEVE:	May we hand up 9 copies of our outline,
Your Honours.	Our friends have copies of cours,e.
MASON CJ: Yes.
MR GRIEVE:	Your Honours, the Full Federal Court by a

majority awarded the respondent damages amounting

to $5,475,814 plus interest for breach of a

contract which, had that contract been performed,

would have resulted in a loss to Amann of some

$3.9 million-odd. We put that at the forefront of

our argument, simply because the evidence and the

findings below made that position plain. We have

prepared, and may we hand up, nine schedules which

demonstrate the relevant arithmetic. The first

schedule sets out in fairly short form the approach

taken by the Full Court or at least by the

majority.

Your Honours see that there were some

$5.2 million outlaid by way of capital expenditure
in the acquisition of the aircraft. There are

other establishment costs of some $850,000-odd

aggregating $6.136 million-odd. The Full Court

allowed credit for the written down post contract

value of the aircraft, some $917,000, reaching an
arithmetic result of $5.219 million and added on

what might be characterized as special damages, consequent upon a particular breach, namely an

allowance for the repayment of the security deposit

and for certain termination expenditures which

Amann had incurred.

Your Honours, the difference between the

capital outlayed on the aircraft and their

remainder value, as we have characterized it, can

be attributed to the fact that the aircraft had

been substantially and specially equipped for the

specific purposes of the contract and ex-contract
there was evidence to suggest that they were worth
significantly less than their cost price to the
contractor company.

The slightly lengthier schedule that we have handed up sets out what we respectfully submit to

be the correct result under the first ground of

Arnann(2) 13/2/91

appeal if proper principle is applied. May we take

a few moments of the Court's time to just go

through the figures. Your Honours will see that we

have made reference to the various pages of the

appeal papers to make good the various figures.	We
do not apprehend that there is or can be any
argument about any of the numbers.	They were found

by the primary judge and not in contest on appeal.

We begin with the capital costs and the establishment costs, get to the $6.19 million.

There is a further capital expenditure incurred of

some $368,000. That we have mentioned in an

explanatory note at the foot. That was the

difference between that which had been spent by the

date of termination, 12 September, and that which

was projected to be spent to bring the aircraft

into full compliance. After the hearing of the

appeal before the Full Court the parties discussed
the figures and a letter which is attached was
written to the presiding judge by consent setting
out the agreed facts in that regard.

If we can return then to the body of the

schedule. Adding the projected capital
expenditure, one has a total of $6.5 million as

the, as it were, start up costs. The operating

costs for the contract as a whole were found, and

effectively at the end of a long trial consensually

found, to aggregate some $12 million. On top of

that the primary judge found - and, with respect, rightly - that the contractor would have incurred

an interest liability of some 20 per cent on the

capital funds over the three year period.

May we just take Your Honours for a moment to

the findings in that regard. They are in volume

III of the appeal books, at pages 827 to 828

initially, where Mr Justice Beaumont, at line 15 on

page 827, wrote this:

But this is not to say that the interest

payable under any such arrangement -

that was an arrangement which was in existence

between the contractor company Amann and an

associate, eve -

would be less than 20 per cent, being the

amount charged by eve in its transaction with

the applicant. On the contrary, the evidence

indicates that lease finance would have cost

approximately as much, and possibly more, than

eve was charging. In its offer made in April

1987, the Commonwealth Bank's rate of interest

exceeded 17 per cent per annum. In addition,

the lessee would have a contingent liability,

Amann(2) 13/2/91

admittedly difficult to estimate, in respect

of the residual value of the aircraft. There

was evidence that the Bank's rate of interest
charged on a lease arrangement would be

16.75 per cent per annum. Again, it would be

necessary to allow for the residual liability.

There was no suggestion that the interest

rates quoted by the Bank exceeded the market
rates. It seems unlikely, therefore, that the

applicant could have obtained lease finance at

an overall cost (including an allowance for

residual liability) less than the 20 per cent

per annum "interest" being charged by eve.

His Honour continued at page 830 line 18, to say:

From the applicant's point of view, on a

realistic analysis, there appeared to be only

two possible sources of finance: (1) lease finance from an institutional lender which

would cost, effectively, about 20 per cent per

annum (i.e. an "interest" rate of about 17 per

cent per annum plus an allowance for residual

liability, which liability would have to be

guaranteed, presumably for some consideration,

by eve); (2) accommodation provided by eve

in return for a hiring fee or "interest" at

the rate of 20 per cent per annum. This was

the arrangement in fact in place on

12 September.

His Honour concluded on the next page at line 15:

In my opinion, if the contract had run

its full term, it is probable that eve would

have retained ownership of the aircraft, but

would have hired them to the applicant in

return for a hiring fee of 20 per cent per

annum, that is, the sum of $3,390,000 being

20 per cent per annum on $5,650,000 over three

years.

Hence, in our schedule we have incorporated the

figure found of $3.39 million for interest or

borrowing costs.	Thus then leads to an aggregate
expenditure by the contractor of $21,938,363.	On
the receipt side of the ledger it was to obtain

revenue, and again this was a finding that was not

material in contest, nor could it have been, of

$17,107,462. If one adds to that the aircraft at

their remainder or post-contract value of

$917,000-odd, one has total receipts of

$18 million-odd, leading to an overall loss of

$3 million-odd.

Amann(2) 13/2/91

Now, our contention, put shortly, is the

correct principle, so far as the first ground of

appeal is concerned, should have lead to this

result. But at the point of breach the contractor

was out of pocket by some $6 million-odd. Had the

contract been fully performed it would have had an

opportunity to recoup approximately $2 million of

that. At the end of the day it would have suffered

an overall loss of some $3.9 million as distinct
from the position that obtained at the point of

termination, namely an out of pocket of

$6 million-odd. Thus by the Commonwealth's breach

the contractor was deprived of the opportunity of
recouping, out of the capital expenditure, some

$2 million-odd; no more no less, and, in short, our

primary submission is that that was the proper

measure of damages which ought to have been found

by the Full Court.

I am sorry, in putting that I have overlooked

the aircraft remainder value; when one adds that

back the $2 million-odd comes back closer to

$1 million-odd, as is apparent from the short
summary: actual expenditure $6 million-odd; add on

the aircraft at depreciated or remainder value and

you have got an effective out-of-pocket position of

$5.2 million. By reason of the termination the

contractor was deprived of the opportunity, as it

were, to incur a loss of $3.9 million; or to put it
another way, to retrieve his position by a net

$1.35 million, and the bold figure towards the foot

of the page, $1,305,563, is what, in our

submission, leaving aside special damages, should

have been the end result. One adds the special

damages, subject to the second ground of appeal,

and reaches a figure of $1,561,612.

Your Honours, in the courts below, there was

extensive argument as to whether it was appropriate

to approach the matter on the basis that the

aircraft be written down to their remainder value.

The contractor contended that it was more

appropriate to depreciate them at the rate of
10 per cent per annum.	The alternative schedule we

have handed up demonstrates that the argument in

the ultimate analysis was arid in that the same

result obtains.

One finds the same figures at the top, capital

expenditure and establishment costs, projected

capital expenditure, operating costs, borrowing

costs. So the expenditure side of the ledger there

is the same as in the first schedule, if one looks

at it as a matter of expenditure and receipts.

Revenue is brought in at the same figure,

17 million-odd, and the aircraft are brought back

Amann(2) 13/1/91

at a higher figure, namely their depreciated as

distinct from written down value.

The loss then becomes some $712,000-odd but as

the table demonstrates at the foot of the page that

does not really alter the end result. The end

result is that the contractor was deprived of the

opportunity of recouping his outlays in large

measure by retaining the aircraft at a greater

value and, in smaller measure, by performing the

contract to a lesser loss.

DEANE J:  I do not follow why the aircraft at depreciated

value, looking at the alternative schedule, should

be the same figure.

MR GRIEVE:  No, they are not. Your Honour sees that the

aircraft's depreciated value cost 5.65 million, we

bring them in as a notional receipt of 4.118

million.

DEANE J:  What I am saying is I do not follow why it

should be the same on the top part of the page as

it is on the bottom because on the top part you

would be concerned with value after three years,

would you not?

MR GRIEVE: Yes.

DEANE J:  On the bottom you are concerned with value as at

the time of cancellation which means the bottom

should be depreciated for what, six months?

MR GRIEVE:  No. We submit that what one is looking at is

the position that the contractor would have been in

had the contract been fully performed.

DEANE J:	Which is the top part.
MR GRIEVE:	Which is the top part and we assume that the

contract would have been performed for three years

and the aircraft written down over the three year

period and we say then that - - -

DEANE J:  I follow that, but what I am directing you to is

the bottom part where you are dealing with the

position as at the time of cancellation. Why would

you depreciate the aircraft over three years when they will have them at the beginning of the three year period?

MR GRIEVE:  We do that because the three year depreciation

factor is part of the cost of deriving the revenue

of $17 million. If one assumes that it is going to

cost the operator, among other things, the

$12 million-odd in operating costs to carry the

contract out for the three year perio4 we assume

Amann(2) 6 13/2/91

also that it is going to cost the operator

$3.39 million in borrowing costs over the same

three year period. We project depreciation as a

revenue expense on a like basis in order to

compensate the contractor as at 12 September 1987

for the loss of what he was to obtain over the next

three years.

Now, true it is that as at 12 September 1987

he has the aircraft in their then condition and

value and it is no doubt arbitrary to speak of them

as being, at that point, worth some $4.118 million

in that if the factual contention advanced, namely

that these aircraft had been specially equipped at

substantial cost for this particular contract is

correct, then it is probably more realistic, with

respect, to say that their true worth at

12 September 1987 was $917,000, which brings us

back to our first schedule.

BRENNAN J:  Does not all of this indicate that if one is

endeavouring to take figures over a period of years

to get the present value of any of those figures

one needs to adopt a discounted cash flow method?

MR GRIEVE: Well, one can, yes.

BRENNAN J: Well, one must, unless one is going to attribute

the same nominal value to money received in three

years time as it is today.

MR GRIEVE: Yes, I expect that must be right.

BRENNAN J:  And if you are taking interest into account as

an outgoing over three years and you are taking it

at the full nominal figure, you are obviously
taking a figure which is different from the present

value of that same sum today.

MR GRIEVE: Yes, indeed, but we are looking at the situation

as if the Commonwealth, on 12 September 1987, had

said, "We have changed our mind. We do not wish to

have you perform this service. We accept that this

is a naked breach of contract and that we are

liable to you in damages. Let us sit down over a table here and now and work out what your damages are, so that we can draw you a cheque here and

now."

The exercise, in our submission, is an

exercise along the lines that we have outlined in

the schedule. You work out what the contract would

have earned over the three years and what it would

have cost him to earn that money. If it is a

profit he obviously gets his profit but if it is a

loss - and that why this particular case raises, in

our submission, an interesting question of

Amann(2) 13/2/91

principle - if, as a result of the hard
projections, the contractor is facing a loss, then

the question which arises is whether he is entitled

purely and simply to that which he spent at that
point or whether one has to take into account the

loss that he will incur.

The Full Court took the view that one can look

purely and simply at what he spent and stop there

and ignore the projected loss. In our submission

that, as we have put in the outline, puts the

innocent party in the same position as the innocent

party against whom a tort has been committed.	He
is to be compensated on the footing that the

contract had never been entered into rather than

compensated on the footing that he would have

occupied had the contract ::::een performec.

We submit that one has to go through this

exercise to work it out and, in this particular

case, the courts below have done that. The

numbers, happily, are no longer in any dispute. It

does not matter whether you say one writes the

planes down to scrap or one depreciates them

10 per cent. It still gets the same result.

The basic principle, of course, is as laid

down by Baron Parke in Robinson v Harman.	The
court below, as it were, after recognizing	that
principle put it to one side and did so on
essentially two bases.	They said that wherever a

plaintiff has some difficulties in proving the

probable, indeed, likely outcome of the contract of

performance, then he may elect to formulate his

claim as reliance losses. That then is the measure
of his damages unless, so the Full Court said by a
majority, the defaulting party can prove the

contrary. In other words, Their Honours cast the

burden of proof across the bar table, as it were.

The alternative way in which they got to the

result was by accepting - as, in our submission,

they must - that, having regard to the evidence in

the findings below which were not materially the

subject of any challenge, this contractor would, in

fact, have made a loss. So Their Honours went the

next step and said that would have been the case at
the end of the three year term but this contractor, having been in place for three years, would thereby

have been in the box seat to obtain an extension of

the contract and, inevitably, under that extension, would have recouped its capital loss in relation to

the first contract.

We challenge both approaches as contrary to principle, but may we take Your Honours to the

Amman(2) 13/2/91

papers to show how Their Honours in the

intermediate court did deal with the matter.

Mr Justice Davies at page 873 which is in
volume IV from line 4 onwards had this to say:

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.

Pausing there, we submit that the arithmetic makes

it plain that, with all respect, it was inevitable

that Amann would have made a loss for the three

years. Be that as it may, Mr Justice Davies

continued:

The trial 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. 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.

Amann was entitled, in the event, to have

its damages assessed on the basis of the
expenditure rendered futile by the

Commonwealth's repudiation, that is to say, to

be compensated for the expenses it had

incurred in reliance on the contract and in

equipping itself for the contract.

There are a number of cases cited and we will go to

them briefly in a short time, Your Honours, but at

the moment may we just content ourselves by

characterizing the cases to which Mr Justice Davies

has referred in these ways.

McRae is a case in a special or exceptional

circumstance as is Anglia Television Ltd v Reed.

Those two cases belong to the same genus in the

sense that they are cases in which it was, as a

matter of fact, impossible for the plaintiff to

prove the damages flowing from the contract

breaker's breach. That was so because of the

nature of the breach and the subject-matter of the
contract. In McRae the breach took the form of

there being no wreck contrary to the warranty that

Amman(2) 9 13/2/91

there was a wreck. In Reed the breach was Reed's

refusal to take part in the film.

T.C. Cullinane and CCC are really in a

separate genus altogether, and we will come back to

them, but for the moment may we simply content
ourselves by submitting that they are each cases
for the sale or supply of income-producing chattels

or assets. The approaches taken in those cases at
the end of the day are not of any great assistance

for cases of this kind.

Mr Justice Davies then goes on at page 874 to

say:

Such 2 loss - - -

TOOHEY J: Mr Grie· could I just interrupt you. Before

you pass t 1ond page 873 you read us two sentences

from line 13 onwards, beginning "Future

extensions", is the view taken by

Mr Justice Davies, namely that future extensions

were not only in contemplation but probable, the

view which is challenged in this appeal? It does

not form any subject of any ground of appeal.

MR GRIEVE:  No. May we respond to Your Honour's question in

this way. What Mr Justice Davies has said as a

matter of commercial observation, if I can

characterize it in that way, is undoubtedly

correct, but its significance in legal principle

and what one draws from it is a different matter.

It is our submission that, even though the parties

may in fact have contemplated that, first, the

contract would be extended and, secondly, that

Amann would have had an opportunity to compete for

the grant of such an extended contract, those two

factors, while they may be commercially

significant, have no significance as a matter of

legal principle. We submit that for these

essential reasons. There was no contractual

commitment on the part of the Commonwealth to

anyone, let alone Amann, that it would grant a

contract beyond 1990. It was free to do so if it

so chose; it was free not to do so if it so chose.

There may well have been compelling commercial or

political reasons as to why it would have offered a

further contract beyond 1990. That can be perhaps

taken as read, but on the other side of the coin

neither Amann nor anyone else had any contractual
right to require the Commonwealth to grant a

contract beyond 1990 and consequently no right of

redress in law if the Commonwealth decided not to

do so.

In that sense the case is essentially

distinguishible from cases such as Chaplin v Hicks.

Amann(2) 10 13/1/91

In Chaplin v Hicks, of course, Miss Chaplin was suing for breach of a contract under which she was

to have an opportunity or a chance to win the

contest and it was the breach of contract that lay

at the foundation of her case. So too in

Fink v Fink. But to say that a party enters into a contract - and this no doubt is often done; one can

accept that in commerce, for various reasons

companies will enter into contracts that they know

to be unprofitable in the first place, in the hope

or expectation that that will put them in an appropriate, superior, commercial bargaining

position for future contracts.

That may well be a renowned, notorious fact of

commercial life, but in law it does not, in our

submission, visit upon the party with whom such a

company or entity contracts, a liability in damages

which goes beyond the scope of the particular

contract into which they both have entered.

TOOHEY J:  I understand the attack based on principle. Some

of your submissions over the last few moments have

come fairly close to an attack on the factual

finding made by Mr Justice Davies, namely that

future extentions were probable, but for the

purposes of this appeal shall we approach the

matter on the basis that that finding is one which

is not challenged, although the legal consequences

that flow from it are challenged.

MR GRIEVE:  Yes. As a matter of fact, we would be content

with that, adding accent, if we may respectfully

say so, to the word "probable", that is to say that

by no means certain or inevitable, but probable.

MASON CJ: That is what probable means.

MR GRIEVE: Yes, certainly. But the reason why we just

wanted to add the rider, Your Honours, is simply

this, that Their Honours below seem to take it as a

matter of certainty that there would be an

extension and, moreover, that Amann had some right

extension and a consequent right in law for damages	in law to expect that it would obtain that
for the loss of that right.

BRENNAN J: 

In order that we can determine both whether your

submission is right as to what rights there are in
law and your submission as to the distinguishable

character of the cases at the bottom of page 16,

could you favour us with your submission as to the

relevant principle which governs the award of

damages in this case?

Amann(2) 11 13/2/91

MR GRIEVE: Yes, Your Honour. The principle, in our

submission, starts and ends with Mr Baron Parke's

celebrated dictum in Robinson v Harman; that is:

where a party sustains a loss by reason of

breach of contract, he is, so far as money can

do it, to be placed in the same situation,

with respect to damages, as if the contract

had been performed.

The only gloss that one can add to that is that

provided however that in such a case - of which

McRae is a leading example - where the plaintiffs

cannot, by reason of the nature of the breach,

having regard to the subject-matter of the

contract, prove what the financial outcome of the

breach has been; that is to say, that the

plaintiff cannot prove in money terms the financial
position that he would have been in had the breach

not been committed, then, in such exceptional

circumstances, he may be compensated and should be

compensated on the basis that he will have back

that which he has spent in reliance on the

contract.

BRENNAN J:  Mr Grieve, if one does approach it then on the

basis of, if the contract had been performed, the

hypothesis that one looks at is what is the value now of all the benefits which the plaintiff would

have received had the contract been performed, as

against which you set out present value of all the

liability which the plaintiff would have incurred

in performing his part of the contract?

MR GRIEVE: Yes.

BRENNAN J:  And I take it then that one would look, in a

contract of this kind, to the revenue that would

have been received and the residual value, whether

of tangible assets or of goodwill, that the

plaintiff would have had at the end of the

contract?

MR GRIEVE: Yes.
BRENNAN J:	And you take away from that the expenditure that

he would have made?

MR GRIEVE: Indeed.

BRENNAN J:  You would not need to be concerned with losses

or profits, would you?

MR GRIEVE:  One can call it losses or profits as a matter

of - - -

Amman(2) 12 13/2/91

BRENNAN J: Call it whatever you like, but I mean,

that - - -

MR GRIEVE:  Yes, that is the end result; it is a - - -

BRENNAN J: Well then, why do you not take into account what

they would have received in the course of the

contract; the value, if any, of the goodwill that

they would have had at the end of the contract as

the result of having performed it during that three

years - a factor which you just sought to

discredit - and then take away expenditure and so

forth?

MR GRIEVE:  If they could prove what that goodwill was then,

no doubt, they could bring to account. If they

could prove that, as a result of having performed

the contract, they were in a position, as it were,
to submit a tender of X dollars which would have

won a renewed contract as against competitive

tenders of Y dollars: Y being less than X,
therefore the goodwill equals X minus Y, if that

were open to proof then, no doubt, it would be

recoverable.

DAWSON J:  I wonder why you say that.

MR GRIEVE: Pardon me, Your Honour?

DAWSON J:  I wonder why you would concede that. The

principle you are expounding is that all you are

entitled to for breach of contract is the loss of

the bargain.

MR GRIEVE:  Yes.

DAWSON J: It was not much of a bargain in this case, but

that is what it amounts to. The bargain here was

that you make a lesser loss than otherwise you

would have, but that is all you are entitled to, as opposed to the measure of damages in tort, which is

to place the plaintiff in the position he could

have been.

MR GRIEVE:  Yes, and the concession that we make is one that

we are not afraid to make in the sense that if it

were open to the plaintiff to demonstrate by cogent

and credible evidence, that by performing the

contract at a substantial loss he had, none the

less, obtained some tangible and measurable

goodwill that put him in some favoured position, vis-a-vis the other party, if he could prove it.

DAWSON J:  That is not the loss of the bargain; that is

consequential loss.

Arnann(2) 13 13/2/91

MR GRIEVE:  That may be so, Your Honour, on reflection,

yes.

DEANE J:  Why would you not say that if Mr Justice Davies

finding of an advantageous position is accepted

that what the respondent was prepared to pay for
that advantageous position in a commercial context,

namely the loss it was prepared to sustain,

constituted good prima facie evidence of its value

and, in the absence of other evidence cutting back

that value, that should be accepted and that brings

into play the whole of the loss calculation for the

purpose of determining the value of the ultimate

position which Amann was seeking to obtain?

MR GRIEVE:  We would submit that to do that would be to cast

the whole of the risk arising under the contract on

the Commonwealth.

DEANE J:  No, because the risk is all involved in the

assessment of the ultimate position which would be

obtained at the end of the contract. I mean, there is a discount for somebody else might get it, there

is a discount for something that might go wrong but

that is all in the commercial context.

MR GRIEVE:  No doubt, but the contractor from first to last

bears the risk. He evaluates at the beginning of

the day, in submitting his first tender, what it is

likely to cost him to put himself in this perceived

favoured position and he makes a judgment, it may

be right, it may be wrong, it is his judgment. He

continues throughout to the end of the three year

term to the point when the fresh contract is to be offered, if one is to be offered at all, accepting

that as probable, he still runs the risk that his

calculation has gone awry and, in our submission,

one cannot properly compensate in contract a party

in damages for the loss of chance where the chance

is one that is merely commercially expected as

distinct from contractually.

DAWSON J:  Why can you not, if the chance is part of the

bargain?

MR GRIEVE:  We submit that it is not part of the bargain.

DAWSON J:  Well you see that is the question. In the way

in which Justice Deane is putting to you it is and

in a realistic sense it is.

MR GRIEVE:  As a matter of fact, although it is by the by

perhaps, in this particular instance the

Commonwealth offered two tenderers an option to tender for either three years or five years. That

is apparent at page 223 of the appeal papers in

volume I. The contractor here elected to take

Amann(2) 14 13/2/91

three years, but as we say, it is perhaps by the by

from the point of principle.

We submit that it is no part of any bargain

where it is a unilaterally perceived aspect of the

matter. No doubt the Commonwealth, as the other

side may have guessed and indeed guessed

intelligently, that the contractor was prepared to

submit what appeared to be a low quotation in the

hope that it would (a), win the contract, that

being its primary objective, and in the hope that

(b), by performing the contract and performing it

well it would impress upon the Commonwealth its

credentials for the grant of such further contracts

as may be offered.

That may well have been open to the

Commonwealth as a matter of educated guesswork but

it does not mean to say that the Commonwealth, by

taking that correlative position and analysing the

reason for the offer in the first place on that

footing, is necessarily therefore to be in some way

committed to treat the successful tenderer as a

favoured party.

DAWSON J:  You say the bargain is the contractual bargain.

The fact that the plaintiff was motivated to enter

into that bargain in the confident expectation that

there would be more to come is irrelevant.

MR GRIEVE: Yes, that is right. This point was, I should

say, argued at first instance - although it does

not seem to have been pressed on Amann's behalf in

the intermediate appellate court.

Mr Justice Beaumont dealt with it, in our respectful submission, succinctly at page 837 and

following, where he wrote, at line 24:

The claim assumes that if the applicant

had been permitted to perform the coastwatch

contract, it would have earned a reputation or

goodwill which had a substantial value in its

own right. The claim must fail. I have already

held, in accordance with the principles in

Hadley v Baxendale, that the measure of the

applicant's damages is to be computed in a way

similar to that indicated in T.C. Industrial

Plant v Robert's Queensland, supra. On that

approach, it is not open to the applicant to

make an additional claim for loss of goodwill

or depreciation in its corporate value.

Reference is made to Golomb and perhaps we could

hand up copies of that particular case as

Amann(2) 15 13/2/91

illustrative of the principle, in a moment,

Your Honours. Continuing:

The applicant further claims damages for

loss of future income ..... This is, in
substance, a claim for damages for loss of a

chance.

It may be accepted that such a claim

could be maintained if an economic value could

be placed on the chance. it may also be

accepted that it was probable that the

Commonwealth would again seek public tenders

for the coastwatch contract in 1990. On

behalf of the Commonwealth, it is submitted

that the applicant's prospects of obtaining a

renewal of the contract were minimal only,

given its significant delay -

et cetera.

There is considerable force in the submission.

But, in any event, it is impossible to

estimate the profit margin, if there was any,

under such a contract. In these

circumstances, this claim must also fail.

Another way of putting the same thing, in our

submission, is this: the Full Court assumed that
under a renewal that which had not been recouped
under the initial contract would be recouped. That

could not necessarily be certain or taken as read

but one may rhetorically ask, "Why stop at break

even? If one can take into account renewed

contracts or the prospect of obtaining new
contracts, why not go on exponentially to give to
the innocent party some further sum for the profits

that it would have derived under those contracts."

BRENNAN J: That is not quite the test, is it? If the

contract had been performed, is there any reason

why one cannot bring to account, as an item in the

calculation of damages, the value of the right

which the plaintiff would have had on the day

before the termination of the contract to sell its
business to anybody else and would that right have

been worth anything, because if the right is worth

anything it is a right which one would have thought

would have grown out of the performance of the

contract?

MR GRIEVE:  We would respectfully answer the questions, "No"

and "Not applicable". We would submit that to cast

upon the contract breaker a liability for damages

in that context goes beyond the term of the

contract, it goes beyond the subject-matter of the

contract.

Amann(2) 16 13/2/91

BRENNAN J:  But why does it go beyond the measure of damages

in accordance with the principle that you have

espoused?

MR GRIEVE: At the beginning of the day, when the parties

enter into the contract, their respective rights

and obligations are defined. In the instant case the Commonwealth's obligations in simple monetary

terms were to pay $17 million-odd by way of what to
the contractor would be revenue receipts for the

performance of the contract. That was what the

Commonwealth promised to do and that was what it was obliged to do.

On the other hand, the contractor promised to

provide the service and all that went with it.	And
how it did that, of course, was its business and

what it finished up with at the end of the day was

its business. If it chose to do it with new

aircraft, that was one thing; if it chose to do it

with second-hand aircraft, that was another thing.

All those were business judgments and value

judgments within its own province and within its

own capacity, subject, of course, to the aircraft

meeting the contract specifications; that was a

matter of its choice. Whether it spent $10 million

or $1 million dollars was of no moment to the

Commonwealth. The Commonwealth's liability and

obligation was defined.

If the contractor went about his business in a

certain way, in a streamlined and efficient way, no

more than was necessary to perform its obligations

under the contract but none the less in a way that,

to use a neutral word, was impressive, no doubt it

would have, by so doing, of its own volition and

not to force the contract, have achieved a goodwill

in its own right. If, on the other hand, it had

gone about its business in a sloppy and clumsy way,

albeit in compliance with the contract, it may not

have had any significant goodwill at the end of the

day but it none the less would have fulfilled its

part of the bargain and it would have become

entitled to its 17 million.

On either view, the exercise by it of its

choice as to the way in which it would go about its

business in discharging its contractual obligations has a consequence of no moment to the Commonwealth, one way or the other, in the event of performance

of the contract. We submit that if that is the

case then it must likewise be the case in the event
of breach.

If one assumes that the contract is performed, as it were, to its letter, and disregards any

variations in that mode of performan~e - in the

Amann(2) 17 13/2/91

style of the staff's uniforms and the spick and

span nature of the office premises and that sort of

thing - if one leaves that all to one side, one

gets the result for which we contend, that it is

the bare bones of the contract and what the

contractor does for himself in formulating his

tender at an excessively low price with a view to

(a) beating his competition and, (b) winning the

contract (c) putting himself in a favoured light

for future contracts, all a matter for him, not for

the Commonwealth.

DAWSON J:  I suppose if you have to allow for loss of

goodwill, in every case of a claim for damages

against a customer, at least a substantial customer

that broke its contract, you would have to allow an

item for loss of goodwill because breach of

contract necessarily involves that.

MR GRIEVE: Yes.

GAUDRON J:  Does that same argument rule out the possibility

of valuing the planes at the day before the end of

the contract as having special value to the

contractor on the basis of the opportunity they

provide for tender?

MR GRIEVE:  We submit it does.

GAUDRON J: That is not a goodwill. There must be some

other answer to that besides - - -

MR GRIEVE: If one goes back, as it were - perhaps I am

going back for my own security, but if one goes

back to the figures that we have set out in the

schedule, to alter the result for which we contend,

one would have to bring the planes back at greater

than their depreciated value for there to be a

profit component. One would have to have evidence

that notwithstanding that mechanical things such as aircraft do wear out and are ordinarily depreciated

in any event over their life expectancy and would

therefore ordinarily be worth, in three years time,

for the purposes of performing this contract, less

than they were on day one, we submit that one still

could not do otherwise than treat the aircraft as

aircraft in the hands of someone projecting it

forward to 11 September 1990, who desired to submit

a tender for this contract.

Now, if it is true that as such they had some

value above their depreciated value, then that is a
value to the contractor, no doubt, and he can take

advantage of it in submitting his next tender,

because he owns the aircraft and if he fails, of

course, he can offer the aircraft for sale at that

increased price to someone else. Now that is all

Arnann(2) 18 13/2/91

within his province; it has nothing to do with the

Commonwealth. Indeed, in our submission, it has nothing to do with the Commonwealth.

If I could just round off the reference to

Mr Justice Davies' judgment, where at page 874 he

continues at line 5 to say:

Such a loss -

that is what has been called a reliance loss

could not be claimed where, even if the breach
of contract had not occurred, the returns from the contract would not have been sufficient to

recoup the expenditure.

Now, in our submission, just pausing there, that was the case, as the evidence has demonstrated and

as the findings below had indicated in this

particular instance, but somewhat strangely, in our

submission, Mr Justice Davies, having said that,

then proceeded to conclude that the contractor was

entitled to reliance loss damages.	He goes on to
perhaps explain why by saying:

However, the onus on this issue was on the defaulting party.

And cites from CCC Films Ltd, a passage in the

judgment of Mr Justice Hutchison. We will go to

that case in some detail in a moment, Your Honours,

if it is convenient to defer a further

consideration of it at this instant. His Honour

also then referred again to McRae and to the

American decision of Albert & Son and Armstrong

Rubber Co and concludes:

As future extensions to the contract must be

taken into account - we of course challenge the word "must". Indeed we

would challenge any word such as "may be taken into

account" - any similarly.

being within the contemplation of the parties,

the Commonwealth could not establish that, had
the contract continued on foot, Amann would

not have recouped its losses.

Mr Justice Sheppard had a different approach.

I should say before going to Mr Justice Sheppard

that Mr Justice Burchett's approach was broadly

along the same lines as that taken by

Mr Justice Davies. Mr Justice Sheppard was in

dissent, and he approached the matter quite

Amann(2) 19 13/2/91

differently at page 893.	He began by saying at the
top of 893:

In my opinion, this is not a case for any

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 consequence, in my respectful opinion, is

that the discretion of the learned primary

Judge has miscarried so that one must approach

the question of damages afresh.

There, His Honour is acknowledging, in our submission, that the evidence and the findings made

it plain that this was a loss contract. His Honour

proceeded:

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. There may be a question

whether, in an appropriate case, a plaintiff

will be put to his election as to whether he

claims loss of profits or reliance damages.

We pause to submit that it is not a matter of

election. Whether you call it loss of profits or
reliance, you really finish up with the same result

because if there are to be profits, the loss of

profits picks up the reliance and carries that all

into account. If there are to be losses, then

obviously one cannot talk about loss of profits

where there are no profits; but to the extent to

which one can talk about reliance one talks about

it on the basis of that which but for the breach

the innocent party may have been able to recoup by

performance, and it therefore becomes that which is

outlaid less that which would be lost in any event.

If the result of that equation is nil, then the

damages are nil.

If the result of that equation is a negative

sum, the damages are likewise nil. In that sense

therefore, the application of the principle for

which we contend will have varying results in terms

of the innocent party's quantum of liability

Amann(2) 20 13/2/91

depending on the time of breach and the amount

outlaid by the innocent party at that point. If

the amount outlaid exceeds the projected loss, then

there will be a sum recoverable. If the amount

outlaid is less than the projected result, in our

submission, no sum will be recoverable.

Mr Justice Sheppard, really after looking at

the various authorities, was inclined to approach

the overall matter on this basis, at page 903

line 21:

In the events which happened, the contractor incurred expenditure which was wasted, but fairness, in my opinion, requires its claim for the losses it has suffered to be assessed in the light of the entirety of the circumstances of the case and not by the simple expedient of casting the burden of

proof on the defendant.

While the majority seemed to have formulated the

principle along the lines that a plaintiff may

elect to claim reliance losses or loss of profits,

but the election or the right of election will not
arise or not be available if the defendant

discharges an onus of proof that a loss would

inevitably have resulted. That was the majority's

approach.

Mr Justice Sheppard seems to have regarded the

right of election between so-called reliance loss

and loss of profits as an unfettered right that was

open to a plaintiff come what may.

BRENNAN J:  What is this election? I do not understand how

an election arises.

MR GRIEVE: Well, with respect, nor do we, in the sense that

what the Full Court has done is to say, "If you
have a contract, such as the one here, where you

have spent $5 million and if, under that contract,

you may have, had it been performed, recovered an

ultimate profit after taking into account your

expenditure at $5 million dollars of $3 million

dollars, you can elect to claim $5 million, or you

can claim $3 million." That seems to have been the

view expressed where one takes into account a

profit contract. Where one has, as here, a loss

contract, the majority, at least, seems to be

saying, "Well, you can still have your $5 million,

even though you will have lost $3 million, or

$2 million, unless the defendant can prove that

that is what you would have lost, or that you would

have lost something."

Amman(2) 21 13/2/91

Even if that were right - and we submit it is

not, but even if it were right, whatever burden of

proof we had we discharged because the figures were

found at the end of the day and were found beyond

argument. But, be that as it may, the so-called

expression of principle, in our submission, is in
collision with Robinson v Harman, and it is in

collision with the fundamental dichotomy between

contractual damages and tortious damages.

To say that a plaintiff has a right to elect

to claim that which is expended in reliance on the
contract simpliciter, or to claim on some other
basis, is to say that he has a right to elect in

favour of saying, "I want to be put monetarily in

the position that I occupied before the contract

was made", or "I want to be put in the position I

occupied as if the contract had not been made".

Now, that is the classic tortious test. That

cannot be right, in our submission.

One then goes back to say, "What happens to the capital expenditure and what is the difference,

if any, between so-called reliance loss and

expectation or loss of profits?" In our

submission, when one sets out the expenditure in a

contract such as this where it can be taken that

the capital expenditure is of a non-recurring item; in other words, that the aircraft at the end of the

contract, assuming that the contractor does not

successfully win another contract, are of no use to

him. He cannot use them as if they were a factory,

to continue making goods for someone else.	He has
to sell them off.	In that case we submit that the

distinction which may otherwise have some

difficulty between items of a capital nature and

items of a revenue nature, becomes unproblematic,

and one can just treat it as we have treated it in

the schedule, as a matter of expenditure on the one

hand - or outgoings on the one hand and income or

receipts on the other hand, and account for the

planes - the so-called capital items on that basis.

Your Honours, Mr Justice Burchett seemed to

have predicated his view of this whole

question of onus on a presumption which he

expounded at page 950 of the appeal papers,

line 24, where he wrote:

Generally, where parties have entered into a

contract, freely negotiated in the ordinary

course of commerce, it seems reasonable to

treat proof of the incurring of expenditure

appropriate to the performance of the contract

as raising a prima facie inference that the

expenditure would be recouped by the carrying

out of the contract.

Amman(2) 22 13/2/91

We would, with respect challenge that

proposition as unsupported by authority, and

contrary to commercial reality.

Contracts are as often entered into, either

consciously or otherwise, that bring about a

resultant loss. To presume that the performance of

contracts will usually bring about a recoupment of
expenditure is to fly in the face of experience.

Now, Your Honours, the proposition for which

we content, as we put briefly before, that one can

look at the probable result of the contract as we

have done in our schedules and find out whether

there is a loss or a profit and proceed

accordingly, yields to the exception that we flag,

namely where the breach is such as to render it
impossible for the plaintiff to prove the outcome
of the contract. McRae, of course, is the leading
example and the breach there was the non-existence
of the wreck and it was impossible then for McRae
to say that had the wreck been made of a certain

quality of steel, the result would have been X; if

it had been made of a certain different quality of

steel, result Y and so forth and this becomes

apparent - I will not take Your Honours' time

reading from it - but it becomes apparent, in our

submission, from what was said in the joint

judgment of Justices Dixon and Fullagar, at

page 414, 84 CLR. The report starts, of course, at

page 377 and that is an exceptional case.

Reed v Anglia Television Ltd is a similar case where the breach is such, not the subject-matter of

the contract, but the breach is such as to render
the financial result impossible of admeasurement,

where in McRae the breach was, as it were, the

failure to provide the wreck, in Reed the failure

was to perform the film. Could we just remind

Your Honours of Reed. It is perhaps less well
known than McRae. Anglia Television Ltd v Reed,

(1972) 1 QB 60, the facts are succinctly summarized

in the headnote:

The defendant, a well known actor,

contracted with the plaintiffs to play the

leading man's part in a television play which

they were producing.	A few days afterwards
the defendant -

that is Reed -

repudiated the contract. The plaintiffs could

not get a substitute for the defendant and

accepted his repudiation.	They abandoned the
production.

Amann(2) 23 13/2/91

They sued for damages; they claimed their wasted

expenditure of 2,750 pounds, and that was in due

course awarded.

Now, Your Honours, obviously enough it was not

a contract susceptible to a decree for a specific

performance. The television company no doubt

perceived that Mr Reed's talents were unique and

that he alone could give to the film that degree of

stardom or star-added quality or whatever one may

call it, that would see it as a commercial
enterprise, but no one could know. No one would

ever know unless and until he performed the film

which he had decided he would not do, and it was

his breach, his decision not to do it, that

rendered it impossible and the case therefore

points up the point of distinction between these

exceptional cases and the run of the mill cases and

the exception can be justified, in our submission,

on this fairly simple basis, that if by reason of

the defendant's breach, the plaintiff cannot prove

a profit beyond that which he has expended, then it

is at least reasonable, it is at least just, to

award him that which he has expended and that, we

submit, to be a perfectly rational and sensible

basis of applying the Robinson v Harman principle.

TOOHEY J:  Mr Grieve, does Anglia Television make clear what

the basis for an election is?

MR GRIEVE: No, it does not, Your Honours. It was an ex

tempore judgment and it does not but we submit that

- it does not in terms but, when one considers the

facts, the basis can be divined as being that which

we have put, namely, the impossibility of proof

otherwise. Although Lord Denning used the phrase,

"election", in reality there is no election; there

is no choice. The plaintiff cannot prove his loss

of profit. That is a choice that is simply not

available to him. He is forced back by the

defendant's breach to proving his case in the only

way that he can, saying, "Look, in reliance on this

contract and in expectation that the defendant

would perform his part of the bargain, I spent X

pounds. Now the defendant has breached the

contract and made it impossible for me to say what

I would have made by way of profit if he had done

what he had promised to do.	I am at least entitled
to have my X pounds back."

BRENNAN J: Reliance is a concept which is taken from tort,

is it not?

MR GRIEVE: It is.

BRENNAN J:  If one looks at it in the simple basis of

putting receipts on the one side and.outgoings on

Amann(2) 13/2/91

the other and you have a profitable contract, your

receipts will exceed your outgoings. So that if

you ask for your outgoings back, you can put it

another way and say, "Well, I want the receipts

equal to those outgoings which I would have

received." If, on the other hand, there is a loss

well then you might or might not get your

outgoings. You will only get a monthly extent of

the receipts because that is what you would have

got.

MR GRIEVE: That is right. That is what we are putting.

BRENNAN J: Well, I understand that, which seems to me to

lead to two issues in this case. We have been

through it and I do not want to repeat it, but one

is: what is the present value of the receipts and

outgoings as distinct from the nominal value. The

second is whether, in determining that, you either
determine the value of the planes on the day of

completion having regard to the prospects that that would give for renewal. In other words, the planes

and their value to the contractor, which was the

point Justice Gaudron made. Or what was the value

of the goodwill - to use a term which is not very

accurate - with the prospects of renewal? And that

is the problem which Justice Dawson has discussed

with you, whether that -

MR GRIEVE: Well, we have put all we wish to put in relation

to the second matter. We accept that perhaps we

have not put our position on the first matter as

clearly as we should have. No doubt if the life of

the contract was over a lengthy period, the

probable impact of inflation may be significant.

Whereas, here, the contract has a comparatively

short term to run and, perhaps more importantly,

receipts and outgoings are not grossly apart, the

greater part of the outgoings are to be outlaid

progressively over the life of the contract,

likewise the revenue is to be derived progressively

over the whole of the contract. In such

circumstances we submit that one can disregard the

impact of inflationary trends and treat it as

though it were all concertinaed to the day of

breach. True it is, at that point, the contractor

has outlaid actual money to that point and received
no revenue. But if one says that one accelerates

the payment of revenue as well as the incurrence of

outgoings, all to occur on the one day, provided

that the life of the contract is not excessive, the

impact of inflation will be marginal and ought to

be disregarded. It would be a case for another

day, in our submission, where an unusual contract

might throw up those circumstances where the impact

of inflation may have significance, the contract

may have a life expectancy of 20 years or more and

Amann(2) 25 13/2/91

receipts of revenue, or the time for the receipt of

revenue may be greatly at odds with the time of

occurrence of expenditure. It would be in that
unusual circumstance that the question may require

consideration but we submit in a case such as this,

it does not.

To the extent to which the Court in dealing

with the matter some months or even years after the actual date of breach is required to compensate for the passage of intervening time, interest

provisions under the Court rules are there to be

availed of.

TOOHEY J:  If you make good your primary argument that

wasted expenditure is not the criterion of damages in this case what are the implications, Mr Grieve?

It does not follow, I suppose, that

Mr Justice Beaumont's assessment was necessarily

correct, although no doubt from your point of view,
having regard to the figures involved, you are

content to live with it.

MR GRIEVE:  We would find it attractive in fact but

unattractive in principle, if I might put it that

way.

TOOHEY J:  Then what are the implications of successful

argument, that the matter goes back?

MR GRIEVE:  No, we submit that if we are right so far as

the first ground of appeal is concerned, then

leaving aside for a moment questions of interest

and costs, the sum which ought to be substituted

for that which was found by the Full Federal Court

as the principal sum, the principal sum found by

the Full Federal Court was $5,475,184, we submit

for that there should be substituted the sum of

$1,561,612.

TOOHEY J: Being an amount greater than that allowed by the

trial judge?

MR GRIEVE: 

Indeed. That is subject, of course, to our

second ground of appeal, but so far as our first
ground of appeal we submit that the correct

principle leads to that result, the figure being

the figure at the bottom of our schedule and it is

either our 10 per cent schedule or our scrap value

schedule; it is the same figure but, as we say,

that is subject to the second ground of appeal to
which we will come shortly.

lot. You lose the actual contract and you lose the

opportunity that you may well have paid for by

quoting cheaply to get the first contract.

All we know about how Amann quoted in this is that it was the lowest tenderer. We do not know

how deliberately low it was placed but if

Mr Justice Beaumont's findings are correct, it was

not placed so low as to put it into a loss

situation. It was placed so that it would get a

moderate profit but have a fleet of aircraft and be

the only people, probably in Australia, with a

fleet of aircraft capable of performing the second

contract without fairly major expenditure by

course, the specification was completely changed. somebody else incurred well in advance unless, of

BRENNAN J:  Would it be right to say that on

Mr Justice Beaumont's approach, eve would have

suffered a substantial loss in the same period?

MR BAINTON:  Yes, but, unfortunately -

BRENNAN J: And, if one then takes the Full Court's approach

which, as it were, picks up the eve situation and

brings it into the situation of the plaintiff, is

it right to say that, leaving aside the intangible

value of the prospect of acquiring a renewal, the

contract was a lost contract?

Amann(2) 86 13/2/91

MR BAINTON:  No, Your Honour, it is not.

BRENNAN J:  Why not? Why do you not consolidate eve and

the - - -

MR BAINTON:  Your Honour, I suppose it depends on what you mean by "lost contract". It is much the same - - -

BRENNAN J: That there would be less coming in than there

was going out.

MR BAINTON:  No, you cannot draw that conclusion. are looking at cash flow, the answer would be that
the cash in would substantially exceed the cash If you

out. If you are looking at accounting on generally

accepted accounting practices and bringing

depreciation into account, it would depend on the

rate at which you depreciate the aircraft. That

would depend upon what you thought might happen at

the end of your contract or renewed contract,

assuming a degree of prescience in the person doing

the accounts. If he knew that at the end of three

years there would be no other contract and that the

aircraft were only going to be worth $917,000, he

should depreciate them down to that figure.

If he knew or thought that there was going to

be a six-year utility of the aircraft, he would

depreciate them down to what he thought they would

be worth at the end of year six, but over six

years.

BRENNAN J:	Mr Bainton, we decide the question of depreciation. If one treated it simply on a cash-
flow basis, that is, money and money out; included
in money in being the residual value of the
aircraft at the end of three years -
MR BAINTON:	And including money out, the cost of the

aircraft?

BRENNAN J: Yes, and the interest paid on any moneys that

were borrowed for the purpose of the acquisition.

MR BAINTON: That question cannot be answered for the simple

reason that one just does not know what the terms

of the renewed contract are going to be, or - - -

BRENNAN J:  No, I am leaving aside the value of the renewed

contract, in other words, dealing only with the

money: money that comes in and money that would

have gone out.

MR BAINTON:  Your Honour, my answer has to be the same. We

do not know how much money would have come in under

the renewed contract.

Amann(2) 87 13/2/91

DAWSON J:  You talk about the "renewed contract" but put the

renewed contract right to one aside.

BRENNAN J:	The three year contract.
MR BAINTON:	I thought Your Honour was asking me about six

years, not three.

BRENNAN J:	No, three years.
MR BAINTON:	On three years cash out would have exceeded cash in, yes, if you lump together Amann and eve as
one, but that is very common when you have a
contract for which you have to make capital
expenditure in the first place. Whether or not you
are going to lose money on that does not depend
simply on comparing cash flow in and cash flow out.
You have to take into account the residual value of
your capital items at the end of the contract and
that depends very much on what you can use them
for, and in this case that depends very much on
whether you are going to get another contract or not. That is why that chance was a matter of
importance to Amann and substantially because the
Full Court of the Federal Court thought it was a
strong chance, they took the view that you could
not work out the totality of the profit. You could
not even work out over six years the totality of the cash flow, therefore you adopted the principle
that has been enunciated in America and in this
Court in McRae and said, "Well, the only certainty
we know is they have spent so much on getting
themselves into the position", you prima facie
assume that people do not spend money unless they
think they are going to get it back - does not
necessarily follow, of course, but unless it can be
shown -  some of these cases have said that they
cannot get it back, you at least give them what
they have spent, as against the contract breaker.

BRENNAN J: That assumes they are going to get it back if

the contract is performed, in other words, they

have not made a bad deal. Now, if they have made a

bad deal, why would you give them back everything

that they have spent, if that is more than they

would have ended up with had the contract been

performed?

MR BAINTON: Well, Your Honour, that begs, if I may say so,

with respect, one question by what Your Honour

means by, "if the contract had been performed".	I
understand what it means literally, but am I to
assume that performance would have been such as to
trigger the chance of a renewal, or not, because
the answer has to be different?

BRENNAN J: Well, trigger the chance of a renewal, yes.

Amann(2) 88 13/2/91

MR BAINTON: All right. Well, the renewal was triggered;

the contract, let me say, becomes six years - it

might have been five, it might have been seven, we

just do not know. You cannot say that over that

period the whole of the expenditure would not have

been recouped because of the uncertainties about

the renewal. You can say that on accounting

principles the first period was profitable - not

that it had returned all the cash out, but was

profitable in the sense that Mr Justice Beaumont

worked out the $819,000-odd.

You assume that commercial people enter into

arrangements on the basis that they expect to get

back their actual expenditure; you know that that

does not necessarily happen, but it is a just

approach, so the Americans have said and the

English have said, and this Court have said, in

McRae, in those circumstances, that unless the contract breaker can show that over, on what

Your Honour is putting to me, the six-year period,

they would not have got back the amount of money

they had spent up to the time of breach.

McHUGH J:  Is not the big distinction between this case and

the cases in Canada and the United States that here

we can calculate your damages for breach of this

contract, the $1,930,000-odd, plus the loss of the

chance that you had for the second contract?

MR BAINTON:  Your Honour, the argument is critical that that

is to be taken into account, obviously. If it is

you cannot devaluate that with precision at all.

McHUGH J: But, in the American cases, you could not

determine what the plaintiff's profit or loss was,

full stop, could you, any of it?

MR BAINTON:  No, that is true. certainly in the ones that I have looked at, in I think in most of them,

America this question has arisen without the added

factor of the chance of renewal but, in principle,

it should make no difference.

McHUGH J: Perhaps it does.

MR BAINTON: That is the question.

McHUGH J: Yes.

MR BAINTON:  It is really the only question that arises

under the first ground of appeal. It is as simple

as that in the long run.

TOOHEY J: But you put the matter, Mr Bainton, a moment ago

in terms of the loss of chance being reflected in

the totality of profit - I think that was the

Amann(2) 89 13/2/91

expression you used; that is the totality of

profit that might have been earned over a period of

three plus whatever years.

MR BAINTON:  Your Honour, I do not remember precisely what I

said. What I intended to say was that the loss

arising from the repudiation of the actual contract

had to take into account the money value to the

contractor of his chance of renewal. The only way you can realistically approach that money value is

to ask what, assuming the renewal, the contractor

would have made out of that contract by way of

first recoupment, by way of depreciation or

amortization of the capital expenditure at the

beginning of the first contract; and, secondly, by

way of profit, properly so called. That is what

would have happened.

TOOHEY J:  You can ask the question but you cannot get an

answer, can you?

MR BAINTON:  You cannot get an answer, no.

TOOHEY J: That is why I was about to ask you: is it enough

for the purposes of your argument that the loss of

the chance makes it impossible to say that the

contract, taking into account the possibility of

renewal, cannot be shown to have been an

unprofitable contract or do you have to go further?

MR BAINTON:  No, that is as far as we need to go if you

apply the principle for which we have advocated.

MASON CJ:  Mr Bainton, that is probably a convenient place

to -

MR BAINTON:  Yes, Your Honour. That is the way the Full

Court of the Federal Court approached it.

MASON CJ:  Thank you. We will adjourn until 10.15.

AT 4.18 PM THE MATTER WAS ADJOURNED

UNTIL THURSDAY, 14 FEBRUARY 1991

Amann(2) 90 13/2/91