Commonwealth v Amann Aviation Pty Ltd

[1991] HCA 54

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Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1992) 174 CLR 64 (12 December 1991)

HIGH COURT OF AUSTRALIA

THE COMMONWEALTH OF AUSTRALIA V. AMANN AVIATION PTY. LIMITED [1991] HCA 54; (1992) 174 CLR 64

F.C. 91/043

Contract

High Court of Australia

Mason C.J.(1), Brennan(2), Deane(3), Dawson(1), Toohey(4), Gaudron(5) and McHugh(6) JJ.

CATCHWORDS

Contract - Breach - Damages - Wasted expenditure - Reliance damages - Impossibility of predicting innocent party's position if contract performed - Onus of proof - Whether innocent party may elect between recovering loss of profits and wasted expenditure - Government contract - Power of department head to require contractor to show cause why contract should not be cancelled where not carried out to his satisfaction - Power to cancel contract if cause not shown - Function of department head.

HEARING

1991, February 13, 14; December 12. 12:12:1991

APPEAL from the Federal Court of Australia.

DECISION

MASON C.J. AND DAWSON J. Amann Aviation Pty. Limited ("Amann"), the respondent in these proceedings, brought an action in this Court's original jurisdiction for damages for breach of contract against the Commonwealth of Australia. The action, which was remitted for hearing to the Federal Court pursuant to s.44(1) of the Judiciary Act 1903 (Cth), was heard by Beaumont J. He delivered judgment in favour of Amann, assessed damages in the sum of $410,000 and ordered the Commonwealth to pay one half of Amann's costs. Amann appealed to the Full Court of the Federal Court on the grounds that Amann was entitled to a substantially higher award of damages than that awarded at first instance and that it should not have been deprived of one half of its costs. The Commonwealth cross-appealed on the grounds that judgment should have been given in its favour and, if not, that the damages awarded should have been nominal only.

2. The Full Court (Davies, Sheppard and Burchett JJ.) allowed the appeal and varied the orders made by the trial judge by substituting the following orders:

(a) that the Commonwealth pay Amann the sum of $6,600,207; and

(b) that the Commonwealth pay 90 per cent of Amann's costs of the

proceedings before the trial judge.

and dismissed the cross-appeal with costs. The Commonwealth has appealed to this Court seeking in effect that its cross-appeal to the Full Court be allowed.

The history of relevant events

3. For various purposes, of which the primary purpose is quarantine, the Commonwealth must maintain regular aerial surveillance of Australia's northern coastline from Karratha in Western Australia to Cairns in north Queensland. The object of the surveillance is the detection and reporting of vessels, aircraft and unauthorized landings. In recent times, the aerial surveillance has been undertaken, in accordance with government policy, by a private contractor.

4. Skywest Airlines Pty. Ltd. ("Skywest") had a contract for the provision of aerial surveillance of Australia's northern coastline which was due to expire on 31 March 1987. The Commonwealth decided that it would not renew the Skywest contract and that it would invite tenders for the provision of the service for a period of three years. After a lengthy process it decided to accept the tender submitted on behalf of Amann. The Commonwealth gave notice of acceptance of that tender on 12 March 1987. The parties contemplated, at the time of acceptance of the tender, a preparatory period of six months.

5. On receiving notice of the Commonwealth's acceptance of its tender, Amann set about the acquisition and fitting out in the United States of fourteen specially equipped aircraft which it proposed to commit to the performance of its contract. This was not an easy task as finance had to be obtained and suitable planes located, purchased and modified. The aircraft then had to be flown to Australia, checked and certified as meeting Australian requirements. Delays inevitably occurred so that Amann took longer than was expected in assembling its fleet of planes. Amann did not disclose accurately the state of its preparation.

6. In the meantime, Skywest pressed the Commonwealth to terminate the Amann contract and reinstate it (Skywest) as the contractor. On 12 September 1987, Amann commenced coastwatch flights, having received from the Commonwealth a programme of what was required for that day and for the ensuing days. But Amann did not then have all its aircraft ready to perform its contractual obligations, nor did any of its planes then comply in every respect with the specifications prescribed by the contract. It had been apparent for some considerable time before 12 September 1987 that this would be so and it appears to be common ground that the Commonwealth had already decided to give immediate notice of termination of the contract upon verifying Amann's non-compliance with the contract. Skywest had threatened that, unless the Commonwealth acted promptly to terminate its contract with Amann, it (Skywest) would dispose of its own planes, with the result that the Commonwealth would be left in a position in which it was entirely dependent on Amann for the provision of coastal surveillance. Skywest had agreed to extend its operations, first to 30 June 1987 and subsequently to 11 September 1987. Such extensions were made necessary by reason of the shortness of time between the communication by the Commonwealth of its acceptance of Amann's tender and the date on which the Skywest contract was due to expire.

7. On 12 September 1987 the Commonwealth gave notice that it regarded the contract as terminated. The notice was given in the afternoon of 12 September 1987 and it specified in some detail Amann's failure on that day to comply with its contractual obligations. At the trial and before the Full Court of the Federal Court, the primary question was whether this notice was effective or whether (as held by the trial judge and the Full Court) it amounted to a repudiation of the contract, entitling Amann to elect to terminate the contract and sue for damages. On 15 September 1987 Amann so elected. The question whether the notice was effective to terminate the contract is no longer an issue in this Court as the Commonwealth accepts that this notice of termination was not valid.

8. The only questions which now arise for decision in this Court concern the assessment of damages but, as will appear, the questions are such as to require a consideration of the terms of the contract. By way of explanation of this statement, we should point out that the Commonwealth submits that, in the assessment of damages, account must be taken of the likelihood that the Commonwealth would, in any event, have validly exercised its right to terminate the contract for breach some time after 12 September 1987.

9. The trial judge assessed damages on the basis of lost profits and arrived at an amount very substantially less than that claimed by Amann. Amann contended that it was entitled to damages on a "reliance" basis as it had incurred heavy expenditure in equipping itself to carry out its contractual obligations, this expenditure having been wasted by virtue of the Commonwealth's repudiation of the contract. By 12 September, apart from incurring pre-operational expenditure of $854,943, Amann had arranged for the acquisition and fitting out of aircraft at a cost of $5,281,521. It was common ground between the parties that the resale value of the aircraft was only $917,329, a difference of $4,364,192. This large discrepancy is to be explained both by the fact that the aircraft had been adapted to a special use for which there was a very limited demand and by the cost of transporting them to an available market.

10. Amann's prospects of making a substantial profit rested on its prospect of securing a renewal of the contract. The cost and value of the aircraft were such that a period of operation significantly longer than three years was needed in order to generate a substantial profit. The prospect of the contractor securing a renewal was strong because it would be fully equipped with the cost of its aircraft written down. It would be very difficult for a competitor to match this advantage.

The trial

11. It is convenient to restate the summary of conclusions which is set out in the judgment of Beaumont J. His Honour summarized his conclusions in this way:

"(1) The contract obliged (Amann) to provide at least 11

suitable fully equipped aircraft on 12 September.

(2) On 12 September, (Amann) provided only seven aircraft.

They were not fully equipped and, in particular, the

majority of those aircraft then lacked the endurance

required by the contract.

(3) (Amann) then (i.e. on 12 September) proposed to

increase its fleet of aircraft and to carry out a

number of structural modifications to its aircraft.

In particular, (Amann) proposed to install long

range fuel tanks in its turboprop aircraft. It is

probable that (Amann) could have carried out all

the structural modifications within approximately

two months of 12 September and, in the meantime,

provide a limited coastwatch service using its

other aircraft.

(4) On 12 September, the Commonwealth attempted to

terminate the contract on common law grounds. However,

by cl.2.24 of the contract, there was laid down a

procedure for the cancellation of the contract. The

procedure under cl.2.24 required the Commonwealth,

in case of a breach of the contract, to give (Amann)

a notice requiring it to show cause why the contract

should not be cancelled. It was then a matter for the

Commonwealth to decide whether it would, or would not,

cancel. However, cl.2.24 laid down an exclusive code

in the field of termination so that the Commonwealth

no longer had any power to terminate on common law

grounds. The Commonwealth could only proceed, if at

all, under the show cause provision.

(5) Thus, the attempt by the Commonwealth to terminate

on 12 September on common law grounds was unlawful

and constituted a repudiation of the contract by the

Commonwealth.

(6) If the contract had subsisted for its full term of

three years, (Amann) would have earned a profit of

$820,000.00.

(7) However, in assessing the measure of (Amann's) loss,

it is appropriate to take into account the chance

that, in any event, it was open to the Commonwealth

to proceed under cl.2.24. In my opinion, there was

a 50 per cent chance that the Commonwealth would do

this. The consequence is that (Amann's) claim must

be reduced by one-half.

(8) I assess (Amman's) damages for breach of contract as

$410,000.00."

Two further conclusions, not included in the summary, should be mentioned. First, his Honour considered that cl.2.24, on its true construction, did not require the Secretary to act fairly between the parties and that the Secretary was at liberty to exercise the power to cancel the contract in the best interests of the Commonwealth. Secondly, his Honour considered that Amann's breaches of contract as at 12 September 1987 did not go to the root of the contract and did not deprive the Commonwealth of substantially the whole benefit of the contract.

12. His Honour's assessment of damages in the sum of $410,000 was arrived at by finding that Amann's net profit under the contract would have been $819,099 which, rounded off, resulted in a figure of $820,000. His Honour then found Amann's claim must be reduced by one half to allow for the contingency of cancellation under cl.2.24, resulting in a net figure of $410,000.

13. The figure of $819,099 was arrived at as follows:

"Income $17,107,462

Expenditure -

Pre-operational

expenditure 854,943

Salaries, wages and

associated costs 4,000,000

Maintenance 4,000,000

Facility expenses 400,000

Motor vehicles,

licences, travel,

miscellaneous items,

legal and accounting

fees 408,000

Insurance 410,000

Fuel 2,825,420

Interest or hiring fee 3,390,000 $16,288,363

NET PROFIT: $819,099"

14. Beaumont J. did not accept that Amann was entitled to "reliance" damages. Nor did his Honour accept that Amann was entitled to be compensated on the footing that it was probable that it would have secured a renewal of the contract when it expired. Further, it will be seen that, in calculating profits, his Honour allowed for interest or hiring charges of $3,390,000. This item arose out of the arrangements made for the acquisition of the aircraft. Title to the aircraft was vested in an associated company, CVC Investments Pty. Limited ("CVC").

15. The arrangement between Amann and CVC was not spelled out in detail. The substance of it appears in a minute of a meeting of directors of CVC on 12 April 1987 which was as follows:

"CVC INVESTMENTS It was agreed that CVC Investments

TRUST & AMANN Pty Limited would act as Trustee

AVIATION PTY LIMITED: of moneys provided by Wenola Pty

Limited and, if necessary, from

Southsea Investments Pty Limited

which companies were providing the

loan funds to enable the purchase

of aircraft in the name of CVC

Investments Pty Limited. These

aircraft would be hired to Amann

Aviation so that an interest rate

of 20% was derived by the Trust

as bridging finance until the

Commonwealth Bank took over the

debt on the safe arrival of the

aircraft in Australia and the

finance contract with the

Commonwealth being available."

The minute accords with evidence given by Mr Amann to the effect that CVC would hold title only until such time as Amann had made arrangements for bank or other lease finance. It was contemplated that this would occur when the contract was in operation. Beaumont J. held:

"From the minute of the meeting held on 12 April ..., it

appears that there was an understanding between (Amann)

and CVC that (Amann) would take over the aircraft from

CVC once the Commonwealth Bank finance had been arranged.

From the note at the foot of (Amann's) balance sheet as

at 19 September ..., it seems that (Amann) had also agreed

to indemnify CVC against any loss in connection with the

coastwatch contract."

16. Beaumont J. was of the view that, notwithstanding the close relationship between CVC and Amann and the indemnity agreement between those two companies, they were nevertheless separate corporate identities and should be treated as such for the purposes of assessing damages. In practical terms, as has been seen, this meant that Beaumont J. did not treat the acquisition of the aircraft and the associated costs of fitting those aircraft as pre-operational expenditure incurred by Amann.

The appeal to the Full Court

17. As we have already mentioned, the Full Court upheld the trial judge's finding that the notice of 12 September 1987 was ineffective to terminate the contract and that it constituted a repudiation by the Commonwealth entitling Amann to terminate the contract and sue for damages. The Full Court, unlike the trial judge, concluded that Amann was entitled to have its damages assessed on the basis of its expenditure rendered futile by the Commonwealth's repudiation; in other words, to be compensated for the expenses it had incurred in reliance on the contract and in equipping itself for the contract. Their Honours acknowledged that such a 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. However, the Full Court was of the view that the onus of establishing such insufficiency was on the defaulting party. And, in the view of Davies and Burchett JJ., the value of the prospect of future extensions of the contract must be taken into account in assessing whether the returns from the contract would have been sufficient to recover expenditure, as they were within the contemplation of the parties. In the event, this factor rendered the task of the Commonwealth in discharging the onus which confronted it insuperable.

18. The Full Court concluded that, if the Commonwealth had not given notice of termination on 12 September 1987, it was possible, but not probable, that the Secretary of the Department of Transport would terminate the contract under cl.2.24. Davies J., though agreeing that the clause made exclusive provision governing the termination of the contract, rejected, like Sheppard J., the interpretation of the clause favoured by the trial judge, namely, that the Secretary was entitled to act in the best interests of the Commonwealth and that there was no duty of fairness to the contractor. According to Davies J., "(a)s the Secretary was not a party to the contract, he was bound to act without actual bias and not capriciously and only after giving due attention to the interests of both parties." Burchett J. expressed no opinion upon this point. However, he and Davies J. concluded that the trial judge's estimate that there was a 50 per cent chance of termination of the contract under the clause was excessive. Their Honours, taking into account the fact that the Commonwealth was anxious to terminate the contract, considered that there was a 20 per cent chance of such termination. Their Honours did not, however, allow any discount for that 20 per cent possibility. In this respect, their Honours departed from the approach adopted by the trial judge who allowed a discount of the amount of damages payable commensurate with what he estimated to be the 50 per cent chance of early termination. In taking this approach, Beaumont J. followed what he conceived to have been decided by the English Court of Appeal in The Mihalis Angelos (1971) 1 QB 164. Davies J. treated that decision as underlining the preference of the common law for reasonable certainty rather than speculation in the assessment of damages and as providing no support for discounting a proved loss by reference to an event which was unlikely to occur.

19. Their Honours concluded that the trial judge was correct in finding that an indemnity was given by Amann to CVC in respect of the cost of the aircraft acquired by it. Unlike Beaumont J., however, all members of the Full Court expressed the view that Amann's liability to indemnify CVC was a liability that had been incurred and which should therefore be taken into account in the assessment of Amann's damages. It was a liability that was incurred in reliance on the Commonwealth's promise of performance of the contract. Davies and Burchett JJ. held that it was proper to take into account, in the assessment of damages, the difference between the sum paid for the aircraft ($5,281,521) and their agreed value ($917,329), that is $4,364,192. To this they added the pre-operational expenditure of $854,943, the termination payments to employees of $143,049 and the security deposit of $113,000. The total was $5,475,184, on which interest was allowed under s.51A of the Federal Court of Australia Act 1976 (Cth), resulting in judgment for $6,600,207.

20. Sheppard J. considered that, even if the common law applied concurrently with cl.2.24, Amann's breaches were not such as to go to the root of the contract. With respect to the measure of damages, his Honour was of the view that Amann was entitled to recoup the expenditure which it incurred in consequence of its entry into the contract and its reliance upon the Commonwealth's performance of the contract. Accordingly, he also concluded that Amann should recover its pre-operational expenditure, the cost of acquisition of the aircraft less their value at the termination of the contract, the amount of termination payments to employees and the security deposit.

21. However, his Honour held that it was necessary to make allowance for the possibility that the Secretary might terminate the contract under cl.2.24, the possibility that the contract might not be renewed and the contingency that Amann might be required in a later contract to refit, modify or replace existing aircraft or equipment. Further, his Honour considered that a discount should be made for the early receipt of compensation in lieu of receipts extending over nine or ten years. In the result, Sheppard J. concluded that Amann should be awarded one half of the four components of the award, namely, $2,737,592, together with interest under s.51A.

The case for the appellant

22. The Commonwealth argues that Amann was not entitled to an award of damages calculated on a reliance basis. The award of damages for breach of contract on that basis is only justified, so the argument runs, where the nature of the breach, having regard to the subject-matter of the contract, is such as to render proof of the loss caused by the breach impossible. Absent such impossibility, damages should be calculated on the ordinary basis of loss of profits. The Commonwealth then submits that, in any event, an award for reliance damages should not be made where it is established, as here, that the plaintiff would have made a loss on the contract. In this respect, the Commonwealth contends that it was wrong to include in the assessment of damages an estimate of what Amann would have earned if it had obtained a renewal or extension of the contract. There was no commitment by the Commonwealth to renew or extend and, accordingly, Amann was not entitled to compensation on that footing. Furthermore, according to the Commonwealth's argument, to assess damages by reference to the prospect of renewal is inconsistent with the rule, said to be established in The Mihalis Angelos, that damages should be assessed on the footing that the defaulting party will not act so as to increase its liability.

The award of damages for breach of contract

23. The general rule at common law, as stated by Parke B. in Robinson v. Harman [1848] EngR 135; (1848) 1 Ex 850, at p 855 [1848] EngR 135; (154 ER 363, at p 365), is:

"that where a party sustains a loss by reason of a 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".

This statement of principle has been accepted and applied in Australia: see Wenham v. Ella [1972] HCA 43; (1972) 127 CLR 454, per Gibbs J. at p 471.

24. The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as "expectation damages". The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.

25. In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.

26. The expression "damages for loss of profits" should not be understood as carrying with it the implication that no damages are recoverable either in the case of a contract in which no net profit would have been generated or in the case of a contract in which the amount of profit cannot be demonstrated. It would be an invitation to the repudiation of contractual obligations if the law were to deny to an innocent plaintiff the right to recoupment by an award of damages of expenditure justifiably incurred for the purpose of discharging contractual obligations simply on the ground that the contract breached would not have been or could not be shown to have been profitable. If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v. Harman, as those costs would have been recovered had the contract been fully performed. Similarly, where it is not possible for a plaintiff to demonstrate whether or to what extent the performance of a contract would have resulted in a profit for the plaintiff, it will be open to a plaintiff to seek to recoup expenses incurred, damages in such a case being described as reliance damages or damages for wasted expenditure.

27. A further example of the application of Robinson v. Harman which will result in a plaintiff being entitled to claim damages for wasted expenditure is in a contract for services such as that between a solicitor and a client. Where a solicitor has breached his or her contractual duty of care, the measure of damages to which a client will be entitled will be such an amount as would put the client in the position he or she would have been in had the contract of retainer been performed without negligence. In cases where, had non-negligent advice been given, the client would not have entered into a subsequent transaction, for example a purchase of real property, then, in conformity with Robinson v. Harman, the client will be entitled to recover as damages expenditure wasted on account of the negligent advice, less anything subsequently recovered and given reasonable acts of mitigation: Hayes v. Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, per Staughton LJ. at p 820. The amount of wasted expenditure will be the appropriate measure of damages in such a situation because, it having been established that the client would not have entered into the subsequent contract if proper advice had been given, it is not sensible to speak of loss of profits. Hayes v. Dodd is a useful illustration of the statement that the expressions "expectation damages", "damages for loss of profits", "reliance damages" and "damages for wasted expenditure" are simply manifestations of the central principle enunciated in Robinson v. Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim.

28. The corollary of the principle in Robinson v. Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed. In L. Albert and Son v. Armstrong Rubber Co. (1949) 178 F 2d 182, Learned Hand C.J. said (at p 189):

"(O)n those occasions in which the performance would

not have covered the promisee's outlay, such a result

imposes the risk of the promisee's contract upon the

promisor. We cannot agree that the promisor's default

in performance should under this guise make him an insurer

of the promisee's venture".

Learned Hand C.J. went on (at p 191) to approve the statement made by Fuller and Perdue in their celebrated article, "The Reliance Interest in Contract Damages", (1936) 46 Yale Law Journal 52, at p 79:

"We will not in a suit for reimbursement for losses incurred

in reliance on a contract knowingly put the plaintiff in a

better position than he would have occupied had the contract

been fully performed."

29. In similar vein, the Restatement of the Law: Contracts, 2nd ed. (1981), section 349 states:

"As an alternative to the measure of damages stated in

section 347 (expectation damages), 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."

According to the comment, the plaintiff may choose to sue for damages based on his reliance interest

"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."

To the same effect is Corbin on Contracts, vol.5, (1964), section 1031. Corbin says:

"The fact that profits are too uncertain for recovery does

not prevent a judgment in favor of the plaintiff for the

amount of his expenditures."

30. The United States references in the decided cases and in the texts to the availability of reliance damages where loss of profits cannot be proved with reasonable certainty must be treated with some reserve. As early as 1858 it was decided that damages for breach of contract must "be shown, by clear and satisfactory evidence, to have been actually sustained" and to "be shown with certainty, and not left to speculation or conjecture": Griffin v. Colver (1858) 16 NY 489, at p 491. The burden thus imposed upon the party not in breach was more onerous than the balance of probabilities test traditionally applied in Australia and England.

31. The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can: Fink v. Fink [1946] HCA 54; (1946) 74 CLR 127, at p 143; McRae v. Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, at pp 411-412; Chaplin v. Hicks (1911) 2 KB 786, at p 792. Indeed, in Jones v. Schiffmann [1971] HCA 52; (1971) 124 CLR 303, Menzies J. went so far as to say that the "assessment of damages ... does sometimes, of necessity involve what is guess work rather than estimation": at p 308. Where precise evidence is not available the court must do the best it can: Biggin and Co. Ltd. v. Permanite Ltd. (1951) 1 KB 422, per Devlin J. at p 438. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages: see McGregor on Damages, 15th ed. (1988), pars 357-359.

32. In the United States, in recent years, there has been a relaxation of the requirement of certainty so that "reasonable certainty" rather than "certainty" is insisted upon: Farnsworth on Contracts, (1990), section 12.15; Restatement of the Law: Contracts, section 352. Again, it is said that courts are less demanding if it appears that, as in claims for loss of goodwill, proof with precision is impossible: Farnsworth on Contracts, section 12.15, p 254. It follows nonetheless that in the United States the requirement of "reasonable certainty" may compel a plaintiff to confine a claim for compensation to wasted expenditure in circumstances where it would still be possible for a plaintiff to succeed in maintaining a claim for loss of profits on the balance of probabilities.

33. The approach to the assessment of damages in Canada is to similar effect, though the "reasonable certainty" requirement may not be an element in the Canadian approach. See, generally, Sunshine Vacation Villas Ltd. v. The Bay (1984) 13 DLR (4th) 93; Bowlay Logging Ltd. v. Domtar Ltd. (1978) 87 DLR (3d) 325; affd (1982) 135 DLR (3d) 179. In Bowlay Logging Ltd., at first instance, Berger J. rejected the submission that the plaintiff's reliance damages should not include any losses that would have been incurred if the contract had been fully performed. Berger J. endorsed (at p 335) the statement in Corbin on Contracts, at pp 205-206:

"If, on the other hand, it is proved that full

performance would have resulted in a net loss to the

plaintiff, the recoverable damages should not include the

amount of this loss. If the amount of his expenditure at

the date of breach is less than the expected net loss, he

should be given judgment for nominal damages only. If the

expenditures exceed this loss, he should be given judgment

for the excess."

Thus, if a plaintiff's expenditure would not have been fully recouped had the contract been performed, then full compensation for the wasted expenditure would not be awarded. A plaintiff is only entitled to damages for an amount equivalent to that which would have been earned had the contract been fully performed. In this way, the award of damages assessed by reference to a plaintiff's expenditure is in complete conformity with the principle that an award of damages for breach of contract should place a plaintiff in the same position as if the contract had been performed.

34. In Anglia Television Ltd. v. Reed (1972) 1 QB 60 Lord Denning M.R. considered that a plaintiff could claim expenditure thrown away when he has not suffered any loss of profits or if he cannot prove what his profits would have been. His Lordship observed (at pp 63-64):

"It seems to me that a plaintiff in such a case as this has

an election: he can either claim for loss of profits; or

for his wasted expenditure. But he must elect between them.

He cannot claim both. If he has not suffered any loss of

profits - or if he cannot prove what his profits would have

been - he can claim in the alternative the expenditure which

has been thrown away, that is, wasted, by reason of the

breach. That is shown by Cullinane v. British 'Rema'

Manufacturing Co. Ltd. (1954) 1 QB 292, 303, 308."

Subsequently, in CCC Films Ltd. v. Impact Quadrant Films Ltd. (1985) QB 16, Hutchison J. said that "a plaintiff may always frame his claim in the alternative way if he chooses": at p 32. See also Sunshine Vacation Villas Ltd., at pp 99-100.

35. We do not regard the language of election or the notion that alternative ways are open to a plaintiff in which to frame a claim for relief as appropriate in a discussion of the measure of damages for breach of contract. In truth, as has been seen, damages for loss of profits and damages for expenditure reasonably incurred are simply two manifestations of the general principle enunciated in Robinson v. Harman. So much at least emerges from the judgment of this Court in TC Industrial Plant Pty. Ltd. v. Robert's Queensland Pty. Ltd. [1963] HCA 57; (1963) 37 ALJR 289, per Kitto, Windeyer and Owen JJ. at pp 292-294. There the Court did not accede to the submission that the plaintiff was bound to elect whether it would pursue its claim for expenditure uselessly incurred as a result of the defendants' breaches of contract or, in the alternative, its claim to recover for the loss of profits it would have earned had the crusher been fit for the purpose.

36. Naturally, the categories of case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits and those in which it is impossible to assess what would have been the outcome had the contract been performed or those in which that outcome is otherwise uncertain. So much is acknowledged by Lord Denning in the passage from Anglia Television already cited. The manner in which a plaintiff frames his or her claim for damages will be dictated not so much by a choice of alternatives giving rise to an election but simply according to whether the contract, if fully performed, would have been and could be shown to have been profitable (even if the actual amount of profit is not readily ascertainable). If this can be demonstrated, a plaintiff's expectation of a profit, objectively made out, will be protected by the award of damages. Otherwise, subject to it being demonstrated that a plaintiff would not even have recovered any or all of his or her reasonable expenses, a plaintiff's objectively determined expectation of recoupment of expenses incurred will be protected by the award of damages.

37. An award of damages for expenditure reasonably incurred under a contract in which no net profit would have been realized, while placing the plaintiff in the position he or she would have been in had the contract been fully performed, also restores the plaintiff to the position he or she would have been in had the contract not been entered into. In this particular situation it will be noted that there is a coincidence, but no more than a coincidence, between the measure of damages recoverable both in contract and in tort.

38. It should be observed that, in a case where it is not possible to predict what position a plaintiff would have been in had the contract been fully performed, as was the case in both McRae and Anglia Television, it is not possible as a matter of strict logic to assess damages in accordance with the principle in Robinson v. Harman. But the law considers the just result in such a case is to allow a plaintiff to recover such expenditure as is reasonably incurred in reliance on the defendant's promise. In this case, the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed. It will still be open to a defendant, however, to argue that, notwithstanding the fact that it is impossible to assess what profits, if any, the plaintiff would have made had the contract been fully performed, the expenditure claimed by a plaintiff would nevertheless not have been recovered even if, to use the examples of McRae and Anglia Television, the tanker had existed or the defendant actor, Oliver Reed, had participated in the production of the film. In essence, such an argument is to the effect that, far from being impossible to predict what the result of the contract would have been, if fully performed, it is possible to demonstrate that performance of the contract would not even have resulted in the recovery by the plaintiff of reasonable expenses incurred.

Onus of proof

39. Why the law appears to assume that a plaintiff would at least have recovered reasonable expenses incurred in the case both of contracts not resulting in a net profit and of contracts in which a plaintiff maintains that it is not possible to determine what position the plaintiff would have been in had the contract been fully performed, and why the law puts the burden of displacing this assumption on a defendant are questions to which we now turn.

40. In other jurisdictions there is strong authority to the effect that, where a plaintiff claims damages for expenditure reasonably incurred, it is prima facie sufficient for that plaintiff to prove his or her expenditure and that it was reasonably incurred. The onus then shifts to the party in breach of contract to establish that such expenditure would not have been recouped even if the contract had been fully performed. If this onus is not discharged, a plaintiff's entitlement to reliance damages remains intact. In L. Albert and Son v. Armstrong Rubber Co., Learned Hand C.J., after noting that the basis for the award of damages was not predicated on the notion that a defaulting promisor was an insurer for a promisee's venture, went on to observe (at p 189):

"(I)t does not follow that the breach should not throw upon

(the defaulting party) the duty of showing that the value

of the performance would in fact have been less than the

promisee's outlay. It is often very hard to learn what the

value of the performance would have been; and it is a common

expedient, and a just one, in such situations to put the

peril of the answer upon that party who by his wrong has

made the issue relevant to the rights of the other. On

principle therefore the proper solution would seem to be

that the promisee may recover his outlay in preparation for

the performance, subject to the privilege of the promisor to

reduce it by as much as he can show that the promisee would

have lost, if the contract had been performed."

See also Restatement of the Law: Contracts, section 349, where it is stated that, where a plaintiff seeks reliance damages, "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 ... and have it subtracted from the injured party's damages".

41. In Bowlay Logging Ltd., Berger J. expressed his agreement with the American approach: at pp 334-335. His Honour held that the onus rested on the defendant to establish that, even if the contract had been fully performed, the plaintiff would not have even recovered his reasonable expenditure. In C.C.C. Films Ltd., Hutchison J. adopted the reasoning of Learned Hand C.J. in L. Albert and Son v. Armstrong Rubber Co. in holding (at pp 39-40) that the onus lies on a defendant to establish that a plaintiff is not entitled to reliance damages because the expenditure incurred would not have been recouped, even if the contract had been fully performed. Hutchison J. described the fact that the onus in this regard should fall on a defendant as "eminently fair".

42. The placing of the onus of proof on a defendant in the manner described amounts to the erection of a presumption that a party would not enter into a contract in which its costs were not recoverable. Cases such as Bowlay Logging Ltd. illustrate that such a presumption is not irrebuttable but, until that presumption is rebutted, a plaintiff may rely on it to recover his or her reasonable expenses both in the case of a contract which would not have been profitable and in the case of a contract where the outcome of the contract, if it had been fully performed, cannot be demonstrated, whether at all or with any certainty. This last type of contract, of which McRae and Anglia Television have been cited as examples, is to be distinguished from a purely aleatory contract where, almost by definition, it would not be appropriate to apply the presumption we have described for the reason that inherent in the entry into such a contract is the contingency that not even the slightest expenditure will be recovered, let alone the securing of any net profit. In the case of aleatory contracts, damages are awarded for loss of a chance and the burden of establishing the existence and loss of this chance as a result of the defendant's breach lies on a plaintiff although, as has already been observed, mere difficulty of estimation does not relieve a court or jury, in appropriate cases, of the task and responsibility of placing a value on the chance lost. The case of Aldwell v. Bundey (1876) 10 SALR 118 in which reliance damages were recovered for breach of a purely aleatory contract must be explained on the basis that that case predated Chaplin v. Hicks and, although it was recognized that what the plaintiffs lost was the chance of winning a boat race, the case proceeded on the assumption that it was not possible to assess damages for loss of such a chance: at p 132.

43. In the context of the discussion of onus of proof and the presumption relating to recovery of reasonable expenditure incurred which we have described, it is necessary to consider the decision of this Court in McRae. There, the plaintiffs recovered as damages the amount of the agreed purchase price together with the expenditure wasted in reliance on the promise that there was an oil tanker at the locality given, there being no oil tanker anywhere in that locality. The expenditure wasted was incurred by the plaintiffs in taking steps to see whether there was a tanker in the locality given and, if so, whether any and what things should be done to turn her to account. Dixon and Fullagar JJ. (with whose conclusions McTiernan J. agreed) considered that the steps taken by the plaintiffs were not unreasonable and that they were such as the defendant would naturally expect them to take. Their Honours concluded (at p 413) that the case fell within the second rule in Hadley v. Baxendale [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145). The plaintiffs were therefore entitled to recover damages "measured by reference to expenditure incurred and wasted in reliance on the Commission's promise that a tanker existed at the place specified": at p 415.

44. Their Honours pointed out (at p 414) that the plaintiffs had a prima facie case for recovery of wasted expenditure because (1) the expense was incurred; (2) it was incurred in reliance on the promise that there was a tanker; and (3) the fact that there was no tanker meant that the expense was wasted. This threw the burden on the defendant "of establishing that, if there had been a tanker, the expense incurred would equally have been wasted". But it was impossible to assess damages on the basis of a comparison between what was promised and what was delivered, "not because what was promised was valueless but because it is impossible to value a non-existent thing": at p 414.

45. Accordingly, McRae illustrates the proposition that a plaintiff has a prima facie case for recovery of wasted expenditure once it is established that the expense was incurred in reliance on the promise of the party in breach, there being a failure of performance by that party. By reason of its facts, the reasoning in McRae does not depend upon the presumption that an innocent party would not have entered into the contract unless it would at least have recovered its reliance expenditure under the contract had it been performed. But the reasoning is not inconsistent with the application, in appropriate cases, of that presumption which, in our view, has much to commend it. Indeed, it is just and fair that the repudiating party should bear the onus of showing that the party not in breach would have made a loss on the contract.

46. The present case differs from McRae in that it was not impossible, as a matter of theory, for Amann to establish what its profits (if any) would have been had the Commonwealth not repudiated the contract. Indeed, the trial judge's assessment of damages proceeded on that footing although, significantly, he did not take into account the value to Amann of the prospects of renewal of the contract. But the difficulties attending that undertaking were legion, as appears from the judgments in the Full Court. Not the least of those difficulties were the problems of assessing what were the prospects of early termination of the contract by the Commonwealth had the contract proceeded and, more importantly, the prospects of Amann securing a renewal of the contract. Add to those uncertainties the fact that, on any view, the most substantial part of Amann's damages flowing from the Commonwealth's breach of the original contract was represented by the wasted expenditure.

47. In this respect it is significant that the contract was of such a kind that the parties clearly contemplated that the contractor would be in an advantageous and preferred position to secure a renewal of the contract had it run its expected course. In that event Amann would, subject to any variations in the Commonwealth's requirements, have had the necessary equipment (written down in value), facilities and personnel in place at the relevant time. The prospect of renewal was an important commercial benefit which would then have accrued to the contractor. Amann was looking to that commercial benefit as well as revenue receipts arising under the original contract as the reward which it would obtain under that contract. In other words, it was a contract which enabled the contractor to recoup part, if not all, of its expenditure during the currency of the original contract and placed the contractor in a favourable position to secure a renewal of the contract and earn substantial profits under any renewed contract. On this score alone it was a case in which, it being natural and appropriate for Amann to sue to recover its wasted expenditure by way of reliance damages, the onus rested on the Commonwealth of establishing that the reliance expenditure would have been wasted even if the contract had been performed.

The prospect of renewal of the contract and discharge of the onus

48. In seeking to discharge this onus, the Commonwealth submits that it is irrelevant, when considering the position Amann would have been in had the contract been fully performed, to have regard to the value of Amann's prospects of renewal of the contract. This is because, so the argument runs, the Commonwealth was under no legal obligation to renew the contract. According to the argument, a defendant is not liable for that which he or she has not promised to do; a plaintiff is not entitled to recover compensation for the non-realization of his or her expectation that the defendant would provide him or her with a benefit when the defendant has not assumed a legal obligation to do so. A variation of this argument is that to take into account loss arising from deprivation of the prospects of renewal is to take into account a loss arising from non-performance of an act which the Commonwealth was under no legal obligation to perform. Damages for the loss of a chance or an opportunity to secure a benefit may be awarded but, argues the Commonwealth, only in those cases in which there is a legal obligation to provide a chance or an opportunity of obtaining that benefit. Chaplin v. Hicks is the classic illustration of just such a case.

49. Amann relies upon Richardson v. Mellish [1824] EngR 715; (1824) 2 Bing 229 (130 ER 294) in support of the contrary argument that damages for breach of contract may be assessed so as to include the prospect that the contract will be renewed even though the defendant is under no legal obligation to renew the contract. In Richardson v. Mellish the plaintiff recovered damages on the footing that he would be employed as master of the "Minerva" for two remaining voyages. In fact, the defendant had promised the plaintiff to appoint him for the two voyages subject to certain contingencies. Those contingencies included the East India Company approving the master of the ship for each individual voyage. It was argued that the Company might withhold its approval of the plaintiff's appointment for the second voyage as approval for that voyage had not yet been given and that, therefore, the damages in respect of the second voyage should not have been awarded. However, it was established that the Company's approval of a renewal of an appointment of a master for a second voyage was "almost to a certainty". Accordingly, the case was one in which the value to the plaintiff of the defendant's promise depended in part upon the occurrence of an event extraneous to the contract, the approval of the Company, and the probability of its occurrence was relevant to the assessment of the value of the promise. The award of damages to the plaintiff for the loss of two voyages was upheld.

50. Richardson v. Mellish does not support Amann's submission, however, because in that case there was a promise by the defendant to appoint the plaintiff for two voyages. So understood, the case is consistent with the firmly established rule that, in an action for breach of contract, a defendant is not liable in damages for not doing that which he or she has not promised to do: Abrahams v. Herbert Reiach Ltd. (1922) 1 KB 477, per Scrutton LJ. at p 482; Lavarack v. Woods of Colchester Ltd. (1967) 1 QB 278. In Lavarack, the English Court of Appeal (Diplock and Russell LJJ.; Lord Denning M.R. dissenting) rejected the submission that damages for wrongful dismissal could include extra benefits which the contract did not oblige the employer to confer upon the plaintiff but which he might reasonably expect the employer to have conferred upon him otherwise than in performance of the contract.

51. However, the rule that the defendant is not liable in damages for not doing that which he or she has not promised to do is necessarily subject to the rule in Hadley v. Baxendale. According to Alderson B.'s renowned formulation, the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach: at p 354 (p 151 of ER). It is now accepted that this is the statement of a single principle and that its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case: C. Czarnikow Ltd. v. Koufos [1967] UKHL 4; (1969) 1 AC 350, per Lord Reid at p 385; Lord Upjohn at p 421; The "Pegase" (1981) 1 Lloyd's Rep 175, per Robert Goff J. at p 182.

52. However, in the present case, the application of the rule in Hadley v. Baxendale turns not on the degree of knowledge possessed by the defendant but on what may reasonably be supposed to have been in the contemplation of the parties as the probable result of the breach. If it be right to suppose that the loss of the prospect of securing a renewal of the contract was within the contemplation of the parties as a probable result of the breach, then, notwithstanding the principle established by Abrahams and Lavarack, Amann is entitled to compensation which takes into account the value of the loss of the prospect of securing a renewal of the contract.

53. What was in the contemplation of the parties depends upon a consideration of the terms of the contract in the light of the matrix of circumstances in which it was made. As we have seen, performance of the contract by Amann would have placed it in an advantageous position to secure a renewal of the contract with the benefits that would entail. The prospect of renewal was a distinct commercial benefit, inevitably contemplated by the parties as enuring to the advantage of Amann on, and by reason of, its performance of the contract. It was not an advantage which would accrue to Amann independently of performance of the contract or incidentally. The corollary is that the parties necessarily contemplated the loss of that prospect as the probable result of a repudiation or fundamental breach of the contract on the part of the Commonwealth.

54. The Commonwealth also submits that the Full Court of the Federal Court was wrong in taking into account the prospect of renewal of the contract because to do so infringed the rule that, where there are two or more ways in which a defendant might perform the contract, the court, in assessing damages, adopts the mode of performance which is most beneficial to the defendant. That rule, which is a manifestation of the principle that damages will not be awarded for not doing that which there is no legal obligation to do, is well supported by authority: Cockburn v. Alexander [1848] EngR 1009; (1848) 6 CB 791, per Maule J. at p 814 [1848] EngR 1009; (136 ER 1459, at pp 1468-1469); Withers v. General Theatre Corporation (1933) 2 KB 536, per Scrutton L.J. at p 551; TCN Channel 9 v. Hayden Enterprises (1989) 16 NSWLR 130, per Hope J.A at pp 150-156.

55. The Commonwealth contended that The Mihalis Angelos is an instance of the rule. It was a case in which the plaintiff shipowners suffered no loss by reason of the defendant charterers' repudiation of the charterparty because the charterers would have cancelled the contract shortly thereafter pursuant to an option in the charterparty to cancel in the event that the vessel was not ready to load in Haiphong by a stipulated date. It was found as a fact that the vessel would not have been ready to load by that date had she proceeded to Haiphong. The decision in The Mihalis Angelos is of no assistance on the aspect of the case now under consideration; it has more application to another argument, which we shall mention later, that Amann suffered no substantial loss because the original contract would have been terminated pursuant to cl.2.24 in any event.

56. Where compensation is sought in respect of the deprivation of a possible benefit which is dependent upon the unrestricted volition of another it may be impossible to say that any assessable loss results from the breach: Fink v. Fink, per Dixon and McTiernan JJ. at p 143; Chaplin v. Hicks, per Vaughan Williams LJ. at pp 792-793. However, this statement must be understood in the light of the principle that the mere existence of a contractual right in a party to terminate does not operate automatically to restrict the damages that can be awarded. The court does not reach a conclusion by reference to an improbable factual hypothesis. The court must have regard to the facts and evaluate the possible exercise of the right in all the relevant circumstances of the case: TCN Channel 9, per Hope J.A. at p 154. Moreover, in determining what is or would be beneficial for the defendant, the court does not confine its attention to the relationship between the plaintiff and the defendant; it would be wrong to reduce the defendant's legal obligations to the plaintiff on the footing that he or she would incur greater loss in other respects: Lavarack, per Diplock L.J. at pp 295-296.

57. If we make the assumption that the contract would have proceeded to completion, which is a necessary assumption for present purposes, it would be wrong, in the circumstances of the case, to conclude that the Commonwealth would have refused to renew the contract simply because that outcome would reduce the Commonwealth's liability in damages to Amann in the light of the events as they have actually fallen out. In assessing damages, the Court is necessarily engaged in a hypothetical exercise, that is, ascertaining how the contract would have turned out had it not been brought to an end by Amann's acceptance of the Commonwealth's wrongful repudiation. On the assumption that the contract would have proceeded to completion, it would have been to the Commonwealth's advantage to have agreed to a renewal, rather than to have negotiated a fresh contract with a third party who would have been in the position of starting from scratch and thus have sought and insisted upon large financial rewards in order to compensate for heavy initial expenditure of the kind incurred by Amann. Accordingly, there would have been a strong prospect of renewal.

58. This being so, the value of the prospect of a renewal of the contract was a matter to be taken into account in determining whether Amann would or would not have recouped its expenditure. As in a case such as Richardson v. Mellish where the value of the legal obligation to the plaintiff depends upon the occurrence of an event extraneous to the contract, the probability of the occurrence is relevant to the estimate: Lavarack, per Diplock L.J. at p 294. As we have said, there was a strong prospect of such an occurrence in this case.

59. It follows that we consider that the Full Court was correct in taking into account the prospect of renewal of the contract as a factor relevant to the assessment of damages. The consequence of this conclusion, in view of the onus cast upon the Commonwealth as the party in breach, is that the Commonwealth must demonstrate that the value to Amann of the prospect of renewal of the contract when combined with those expenses that would have been recovered by way of gross receipts was less than the total expenses to be incurred by Amann in the performance of its contractual obligations. If the Commonwealth was able to demonstrate that this would have been the result, had the contract been fully performed, then, in conformity with Robinson v. Harman, Amann would not be entitled to all of its expenditure incurred in reliance on the Commonwealth's promise to perform and wasted as a result of the Commonwealth's breach. The Commonwealth was unable, however, to demonstrate this and so discharge the onus. Accordingly, the presumption that Amann would not have entered into a contract in which it would not recover the value of its expenditure incurred remains undisturbed. We agree with the Full Court's conclusion that Amann was entitled to recover as damages an amount commensurate with what it had expended in reliance upon the Commonwealth's promise to perform its contractual obligations.

Discount in the quantum of damages by reference to the prospect of termination of the contract pursuant to cl.2.24

60. The Commonwealth mounts another argument to the effect that no damages should be awarded and that, if damages are awarded, any damages should not be substantial. This argument is put on the footing that the Commonwealth would have validly terminated the contract in any event for breach pursuant to cl.2.24. The Commonwealth argues that the amount of damages awarded should have been discounted in accordance with the prospect of valid termination by the Commonwealth and that, in assessing this prospect, it should be presumed that the Commonwealth would have acted so as to minimize its liability in conformity with The Mihalis Angelos. The Commonwealth argues that both Davies J. and Burchett J. erred in failing to discount the damages they assessed.

61. Clause 2.24 provides:

"2.24 TERMINATION

Whenever and so often as the Contractor fails to carry out

the Contract or comply with a condition of the Contract to

the satisfaction of the Secretary then in either of these

events the Secretary may, by notice in writing, require the

Contractor to show cause in writing to the satisfaction of

the Secretary, why the Contract or any specified portion

thereof should not be cancelled. If the Contractor fails

to show cause in writing, as so required, the Secretary

shall be entitled to treat the Contract or any specified

portion thereof as having been cancelled and may declare the

whole or any part of the security lodged by the Contractor

forfeited to the Commonwealth, and thereupon the amount so

declared to be forfeited shall become the property of the

Commonwealth absolutely.

The Commonwealth shall, in addition, be entitled to recover

from the Contractor any damages, losses costs and expenses

which the Commonwealth may sustain, or incur in consequence

of such cancellation of the Contract or portion thereof as

the case may be. A certificate by the Secretary stating

the amount of any damages, losses, costs and expenses

sustained or incurred by the Commonwealth in consequence

of the cancellation of the Contract or portion thereof shall

be conclusive evidence of the matter stated.

The Secretary will likewise be entitled to treat the

Contract as having been cancelled if the Contractor

commits an act of bankruptcy or enters into a composition

with creditors or assigns his estate for the benefit of

creditors or, if the Contractor, being a company, goes

into liquidation otherwise than for the purpose of

reconstruction."

The expression "Secretary" was defined by the contract in these terms:

"'Secretary' shall mean, except where otherwise stated,

the person for the time being holding the office acting

in or performing the duties of Secretary of the Department

of Transport or his authorised representative".

62. The Commonwealth submits that cl.2.24 gave to the Secretary, subject to observance of the "show cause" procedure, a very wide power of cancellation and that the Secretary was not under a duty to act impartially, as the Full Court held, but was entitled to view the matter from the Commonwealth's perspective and act accordingly. In this Court that submission, though made, was not developed. That is not surprising; the notice of appeal does not challenge the interpretation given to cl.2.24 by the Full Court. And the prescription of the "show cause" procedure, coupled with the references to "the satisfaction" of the Secretary, indicate that the decision-making function of the Secretary under the clause called for something more on his part than a mere pursuit of what was to the advantage, or in the interests, of the Commonwealth. In other words, the Secretary was required to arrive at a decision after weighing in the balance the matters that led him to invoke the "show cause" procedure, such case as Amann might wish to present in accordance with that procedure and such other matters as might bear upon the issue of cancellation. Accordingly, we are not persuaded that this Court should depart from the interpretation placed upon cl.2.24 by the Full Court of the Federal Court.

63. Even so, the Commonwealth contends that substantial damages should not have been awarded on the ground that the breaches of contract found by Beaumont J. were such as to have entitled the Secretary to have cancelled the contract pursuant to cl.2.24 on the interpretation of it favoured by the Full Court. Beaumont J. found that Amann breached the contract on 12 September in four respects:

(1) it failed to provide sufficient aircraft;

(2) the aircraft provided were not then suitable for the work

required by the contract to be undertaken;

(3) the aircraft provided were not fully equipped in conformity

with the contract; and

(4) Amann failed to carry out all the scheduled flights on

12 September.

The breaches were not trivial and, with the exception of the fourth, they would have continued for some time.

64. With respect to the first breach, Beaumont J. found that, although Amann proposed to add further aircraft to its fleet to bring it up to the prescribed strength, Amann also proposed to carry out structural modifications to most of its aircraft so that they would need to be taken out of service for this purpose. This, so the Commonwealth submits, would mean that Amann's fleet would be under strength for two months. With respect to the second and third breaches, his Honour found that they would have taken two months to rectify. In the result his Honour concluded that "the coastwatch service would not be fully provided until about the middle of November and this could lead to serious complications". This, as his Honour observed, was the principal argument in favour of cancellation. He went on to say:

"The main argument against cancellation, and just as

compelling as the previous consideration, was the

circumstance that, by 12 September, (Amann) or CVC had

spent approximately 96 per cent of the expenditure required

to establish the service. (Amann) or CVC (principally

CVC) had by then incurred expenditure of approximately

$6,000,000.00 on this account."

Beaumont J. resolved these competing arguments by holding that there was a 50 per cent possibility of cancellation pursuant to cl.2.24. But, in arriving at this conclusion, his Honour proceeded on the footing that the Secretary in exercising the power of cancellation was free to pursue the interests of the Commonwealth without any relevant qualification. The Full Court did not agree with that interpretation of the clause. The Full Court's more restricted view of the Secretary's power of cancellation led, quite naturally, to that Court assessing the possibility of cancellation at 20 per cent.

65. We are not persuaded that this was an erroneous estimate. The Commonwealth's interim arrangement with Skywest to stay on so as to provide a "back-up" facility expired on 11 September. What prospects the Commonwealth had of inducing Skywest to extend that arrangement, in what circumstances and on what conditions must remain matters of conjecture. True it is that the Commonwealth wanted to terminate the contract before 12 September. But it does not follow that the Commonwealth would have maintained that attitude after 12 September once it appreciated what would be the consequences of attempting to invoke the "show cause" procedure and that Amann would be in a position to comply in all respects with the contract by November. Unless the Commonwealth could extend its interim arrangement with Skywest, there was no practical way in which the Commonwealth could, to its own advantage, bring about a cancellation of the contract without prejudicing its essential interests in maintaining a regime of surveillance of Australia's northern coastline. Consequently, we are not persuaded that the Full Court was wrong in either its estimate or its conclusion that the amount of damages to be awarded should not be discounted on account of an event which was unlikely to occur. It goes, virtually without saying, that we reject entirely the Commonwealth's contention that no damages should have been awarded on the ground that termination was probable.

Conclusion

66. Having dealt with the arguments of principle advanced by the Commonwealth in conformity with its grounds of appeal, there being no challenge, independently of those grounds of appeal, to the calculation of damages made by the Full Court of the Federal Court, we would dismiss the appeal.

BRENNAN J. The facts are set out in the judgment of the Chief Justice and Dawson J. To analyse those facts, I would first state the principles which I apprehend to apply in this case.

The measure of damages for breach of contract.

2. The general principle governing the measure of damages for breach of contract is stated in Robinson v. Harman [1848] EngR 135; (1848) 1 Ex 850, per Parke B. at p 855 [1848] EngR 135; (154 ER 363, at p 365):

"The rule of the common law is, that where a party sustains

a loss by reason of a 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."

It is common ground that that principle, which was applied in Wenham v. Ella [1972] HCA 43; (1972) 127 CLR 454, at p 471, governs this case. Robinson v. Harman identifies both the subject of compensation (loss sustained by reason of a breach of contract) and the measure of damages (the amount required to place the innocent party in the same situation as if the contract had been performed). Where a contract is rescinded for breach, the innocent party loses the benefit of performance of the contract so far as the contract remains unperformed. And there may be other losses resulting from the breach. The rule in Hadley v. Baxendale [1854] EngR 296; (1854) 9 Ex 341, at p 354 (156 ER 145, at p 151) prescribes the condition on which damages can be awarded in respect of a loss sustained by reason of a breach of contract:

"Where two parties have made a contract which one of them

has broken, the damages which the other party ought to

receive in respect of such breach of contract should be

such as may fairly and reasonably be considered either

arising naturally, i.e., according to the usual course of

things, from such breach of contract itself, or such as may

reasonably be supposed to have been in the contemplation of

both parties, at the time they made the contract, as the

probable result of the breach of it."

Applying the rule in C. Czarnikow Ltd. v. Koufos [1967] UKHL 4; (1969) 1 AC 350, at p 385, Lord Reid said that:

"The crucial question is whether, on the information

available to the defendant when the contract was made, he

should, or the reasonable man in his position would, have

realised that such loss was sufficiently likely to result

from the breach of contract to make it proper to hold that

the loss flowed naturally from the breach or that loss of

that kind should have been within his contemplation."

I respectfully agree. A plaintiff (as I shall call the party not in breach) seeking damages from a defendant (as I shall call the party in breach) bears the onus of proving both the loss sustained by reason of the breach and the damages for the loss.

3. The measure of damages prescribed by Robinson v. Harman ensures that the parties to the contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach. The measure of damages for breach of contract is governed by the contract itself. As the contract determines the measure of damages for losses caused by its breach, there is a difference between the measure of damages in contract and the measure of damages in tort, though the purpose of damages in both is the award of compensation. The general principle on which compensatory damages are assessed was stated by Taylor and Owen JJ. in Butler v. Egg and Egg Pulp Marketing Board (1966) [1966] HCA 38; 114 CLR 185, at p 191:

"That principle is that the injured party should receive

compensation in a sum which, so far as money can do so,

will put him in the same position as he would have been

in if the contract had been performed or the tort had not

been committed". (Emphasis added.)

If a contract be profitable and is rescinded for breach, the profits lost and the costs actually and reasonably incurred in performance are proper subjects of compensation. If a contract be a loss contract, the costs actually and reasonably incurred in performance are the subject of compensation, but only to the extent that those losses would have been recovered had the contract been performed.

4. The situation of a plaintiff "if the contract had been performed" is, of course, a hypothetical situation with which the plaintiff's actual situation is compared. When a contract is rescinded for breach by a defendant, the hypothesis postulates that the contract is still on foot. On that hypothesis, the benefits to which the plaintiff would have been entitled had the contract been performed (let the benefits have a value of $B) can be apportioned among three components: the amount expended by the plaintiff in performing or preparing to perform the contract prior to rescission ($x); the further amount which the plaintiff would have had to expend to perform the contract ($y); and the amount of profit or loss that would have eventuated had the contract been performed ($z). The cost of capital equipment properly to be apportioned to the contract must be taken into account whether by way of hiring charges, depreciation or amortization, else the profit component is falsely inflated or the loss component falsely reduced or eliminated, but care must be taken to ensure that, in an action to recover damages for costs and lost profits, there is no duplication of this item: see the explanation of Cullinane v. British "Rema" Manufacturing Co. Ld. (1954) 1 QB 292 by this Court in TC Industrial Plant Pty. Ltd. v. Robert's Queensland Pty. Ltd. [1963] HCA 57; (1963) 37 ALJR 289. The components of the calculated profit considered in TC Industrial Plant, at p 294, show that the remuneration payable under a contract plus the value of all other benefits to which a plaintiff would have been entitled had the contract been performed equals the costs incurred and to be incurred in performing the contract plus the profit or minus the loss, as the case may be. An equation can therefore be stated: $B = $x + $y +- $z.

5. In this case, the principal item of loss which the respondent ("Amann") is seeking to recover is the net amount expended by it in preparing to perform the contract ($x), forgoing any profits which it submits it would have earned but which it is unable to quantify. The amount so expended (net of its remainder value) was wasted by the repudiation of the contract by the appellant (the Commonwealth). It is a loss that falls comfortably within the rule in Hadley v. Baxendale. The question is: what is the measure of damages for that loss?

6. The Commonwealth contends that there were no profits to be made; to the contrary, it contends that there was a demonstrable loss to be expected from performance of the contract. The resolution of this controversy depends on the value to be attributed to the rights which the contract conferred on Amann or, more precisely, on the value to be attributed to the benefits to which Amann would have been entitled under the contract had the contract been performed: Foran v. Wight [1989] HCA 51; (1989) 168 CLR 385, at p 430. If the value of those benefits ($B) less the amount which Amann would have had to expend but is now dispensed from expending in performance of any of its unperformed obligations under the contract ($y) exceeds the expenditure incurred by Amann in preparing to perform the contract ($x), Amann is entitled to recover $x; if the net benefit ($B - $y) is less than the expenditure incurred ($x), Amann is entitled to recover no more than the net benefit, for that is all that it would have recouped had the contract been performed. The measure of Amann's damages thus depends on the value of the benefits which Amann would have been entitled to receive had the contract been performed ($B), $x and $y being agreed amounts. If $B cannot be quantified, the problem is this: does Amann fail because it has not proved that $B - $y is sufficient to cover the $x it expended, or does the Commonwealth fail because it has not proved that $B - $y is insufficient to cover the $x or has not proved the amount of the insufficiency?

A plaintiff's contractual benefits: $B.

7. Where a contract rescinded for breach is conditional or contingent, the benefits to which a plaintiff would have been entitled had the contract been performed are affected by the possibility that performance of the contract might have been dispensed with or abbreviated by non-fulfilment of the condition or the occurrence of the contingency. To apply the hypothesis that "the contract had been performed" in such a case, it is necessary to find whether the condition would have been fulfilled or whether the contingency would have occurred or, if the fact cannot be found, to make some estimate of the possibility of non-fulfilment of the condition or the occurrence of the contingency. Where damages are assessed after the time for fulfilling the condition or for the occurrence of the contingency has arrived (if there be a stipulated time), the court may be able to determine with some precision the benefits to which the plaintiff would have been entitled had the contract been performed: Wenham v. Ella, at p 473. But, if no time be stipulated or if damages be assessed before the stipulated time has arrived, some estimate must be made as to the possibility of non-fulfilment of the condition or of the occurrence of the contingency. The estimate must be taken into account in assessing a plaintiff's damages. In this case, the manner in which account is to be taken of the possibility of early termination of the contract will have to be considered. It must always be assumed in assessing a plaintiff's damages that the defendant would have committed no further breach of the contract. (That assumption eliminates the need to consider the possibility that further breaches might have been committed by the defendant and the countervailing possibility that compensatory damages for those breaches would have been recovered by the plaintiff.)

8. In evaluating a plaintiff's benefits under a contract, the court does not look solely at the express terms of the contract but evaluates the plaintiff's rights to benefits of any kind, whether those benefits are expressed by the terms of the contract or are ascertainable by reference to circumstances extrinsic to those terms. Thus a hairdresser's assistant who was wrongfully dismissed was held entitled to recover not only damages for lost wages but also a sum representing the tips which he would have received (Manubens v. Leon (1919) 1 KB 208), and an artist's opportunity of gaining fame and reputation by performing a theatrical engagement must be evaluated in assessing damages when the engagement is wrongfully terminated: Herbert Clayton and Jack Waller, Ld. v. Oliver (1930) AC 209. In cases of this kind, the contract is found to contain by implication a promise to give the plaintiff an opportunity to acquire the unexpressed benefit (White v. Australian and New Zealand Theatres Ltd. [1943] HCA 6; (1943) 67 CLR 266, at pp 271, 273, 281; Withers v. General Theatre Corporation (1933) 2 KB 536, at p 554), and damages are awarded for breach of that promise. They are not awarded in respect of benefits which the plaintiff has no contractual right to receive: Abrahams v. Herbert Reiach, Ld. (1922) 1 KB 477, at p 482.

9. Unexpressed benefits are frequently of an intangible kind or are otherwise of uncertain value but difficulty in evaluating a contractual benefit is no barrier to recovery of damages where the defendant is bound to provide the benefit but has failed to do so: see Chaplin v. Hicks (1911) 2 KB 786, at pp 796, 799, where, as Dixon and Fullagar JJ. said in McRae v. Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, at p 412, the broken promise "was, in effect, 'to give the plaintiff a chance'". Their Honours observed that -

12. Moreover, in some cases, the plaintiff's only recoverable loss is the expenditure thrown away by the defendant's breach. Thus, a purchaser of land is able to recover the costs thrown away in investigating the title to the land, although, by an anomalous rule of the common law, the vendor is not liable for damages for loss of the bargain if its failure to prove and make title has occurred bona fide and without fault on its part. If the vendor fails to complete for reasons other than a defect in title, the purchaser will be able to recover any expenditure thrown away by the vendor's breach even though the purchaser would not have made any profit if the sale had been completed: Wallington v. Townsend (1939) Ch 588, at pp 592-593; Lloyd v. Stanbury (1971) 1 WLR 535, at p 546; (1971) 2 All ER 267, at p 275. Likewise, if a purchaser incurs expense in arranging for the delivery of goods, it will be entitled to recover the cost of any wasted expenditure even though the goods are otherwise obtainable at the contract price.

13. However, the most important class of case where the plaintiff is entitled to recover wasted expenditure is the one where the plaintiff cannot prove any loss of profit because the nature of the breach makes it impossible or too uncertain to ascertain whether the plaintiff would have made any profit or, if it would have, what the amount of that profit would have been. In McRae v. Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, this Court held (at p 415) that, where the defendant had contracted to sell an "OIL TANKER lying on JOURMAUND REEF" and no such tanker existed, the plaintiff's damages were "to be measured by reference to expenditure incurred and wasted in reliance on the Commission's promise that a tanker existed at the place specified". Dixon and Fullagar JJ. said (at p 414):

"If we regard the case as a simple and normal case of breach

by non-delivery, the plaintiffs have no starting-point. The

burden of proof is on them, and they cannot establish that

they have suffered any damage unless they can show that a

tanker delivered in performance of the contract would have

had some value, and this they cannot show. But when the

contract alleged is a contract that there was a tanker in a

particular place, and the breach assigned is that there was

no tanker there, and the damages claimed are measured by

expenditure incurred on the faith of the promise that there

was a tanker in that place, the plaintiffs are in a very

different position. They have now a starting-point. They

can say: (1) this expense was incurred; (2) it was incurred

because you promised us that there was a tanker; (3) the

fact that there was no tanker made it certain that this

expense would be wasted. The plaintiffs have in this way

a starting-point. They make a prima-facie case. The fact

that the expense was wasted flowed prima facie from the fact

that there was no tanker; and the first fact is damage, and

the second fact is breach of contract. The burden is now

thrown on the Commission of establishing that, if there had

been a tanker, the expense incurred would equally have been

wasted. This, of course, the Commission cannot establish.

The fact is that the impossibility of assessing damages

on the basis of a comparison between what was promised and

what was delivered arises not because what was promised

was valueless but because it is impossible to value a

non-existent thing. It is the breach of contract itself

which makes it impossible even to undertake an assessment

on that basis. It is not impossible, however, to undertake

an assessment on another basis, and, in so far as the

Commission's breach of contract itself reduces the

possibility of an accurate assessment, it is not for the

Commission to complain."

14. In the Full Court in the present case, Burchett J. took the view that the basis of decisions such as McRae is that, where parties have freely negotiated a contract in the ordinary course of commerce, proof of the incurring of expenditure appropriate to the performance of the contract raises a "prima facie inference" that it will be recouped from carrying out the contract. It would seem likely that, by "prima facie inference", his Honour meant that in the absence of further evidence the tribunal of fact was entitled to act on the inference. But pressed to its logical conclusion, this proposition would mean that, in every commercial case, proof of expenditure raises an inference - upon which the court can act - that the plaintiff's loss for the purpose of the assessment of damages was no less than the amount of that expenditure. It would have the result that, unless the defendant discharged the evidentiary onus of showing that the expenditure would not be recouped, the plaintiff in a commercial case would be entitled to damages commensurate with its expenditure.

15. With great respect to his Honour, I think that no such inference arises in commercial cases as a matter either of law or of commercial experience. No doubt the majority of commercial contracts are profitable. But many are not. Business people frequently make bad bargains; there is no a priori reason for thinking that a plaintiff would have recovered the expenditure incurred if the contract had been fully performed. A prima facie inference of the kind suggested by his Honour could only arise if the experience of the commercial world was that expenditure incurred in preparation for or in the performance of any commercial contract was always recovered in the absence of some very exceptional circumstance arising. The experience of commerce, and not merely its recent experience, contradicts such a proposition. Moreover, the history of the law of evidence has seen an increasing rejection of presumptions and other artificial forms of reasoning in favour of allowing tribunals of fact to give such probative force to evidentiary materials as they think fit having regard to all the circumstances of the case. To now formulate such a presumption in a commercial case would be inconsistent with that historical development.

16. I would reject the explanation that the basis of cases such as McRae is or ought to be that proof of expenditure gives rise to a prima facie inference that it will be recouped by the carrying out of the contract. The rule in McRae is satisfactorily based on the broad principle of justice that, if the breach of the defendant has made it impossible to ascertain whether or not the plaintiff would have made a profit from the performance of the contract, it is only fair that the defendant should reimburse the plaintiff for expenditure which it has wasted as the result of the breach.

17. In McRae, Dixon and Fullagar JJ. said that the burden of showing that "the expense incurred would ... have been wasted" was on the defendant. A similar approach to the question of burden of proof is to be found in the United States in the judgment of the Court of Appeals for the Second Circuit in L Albert and Son v. Armstrong Rubber Co. (1949) 178 F 2d 182 and in Canada in the judgment of Berger J. in Bowlay Logging Ltd. v. Domtar Ltd. (1978) 87 DLR (3d) 325. But, unless it is the law that the plaintiff has an unfettered choice to claim either loss of profits or wasted expenditure, it is not easy to understand how any question can arise of the onus being on the defendant to show that the expense incurred would have been wasted in any event. In a case like McRae, the plaintiff can only claim for expenditure which has been wasted if the nature of the breach makes it impossible to assess what the outcome of the contract would have been if it had been performed. No question of an onus being on the defendant can arise. Ex hypothesi, once it is proved that it is impossible to assess the outcome of the contract, no issue can arise as to whether "the expense incurred would equally have been wasted". In a case like McRae, until the plaintiff proves that the defendant's breach has made it impossible to prove the outcome of the contract or the value of the defendant's promise, expenditure wasted in reliance on the defendant's promise is not recoverable. But once the plaintiff discharges that burden of proof, it is entitled to be compensated for all expenditure wasted in reasonable reliance on the defendant's promise to perform its side of the contract.

Amann's loss

18. It needs to be kept firmly in mind that, for the purpose of the principle in Robinson v. Harman, the "loss" which Amann suffered as the result of the breach by the Commonwealth is not the same thing as any profit that it may have made under the contract or even any profit which it might have made on its operations in the post-breach period. In assessing any "profit" of Amann, any revenue obtained under the contract could properly be charged, wholly or proportionately, with costs and expenses already incurred as at the date of breach. But in assessing Amann's loss as the result of the breach, the only consideration is: what sum of money will place Amann "in the same situation ... as if the contract had been performed"?

19. As at the date of breach, Amann had already paid or incurred a liability to pay $6,136,464 in acquiring aircraft and in other establishment costs. It appears that, if the contract had continued, Amann would have been liable to pay another $368,479 in respect of the acquisition of aircraft. Whether or not it had already incurred liability in respect of that payment is not clear. But the better view would seem to be that it was a liability which would be incurred in the future. I shall act on that basis. The learned trial judge also found that the cost to Amann of borrowing money to purchase the aircraft was $3,390,000. It was a liability, however, that had been incurred as at the date of breach. On the Full Court's findings of fact, Amann was liable to indemnify another company for the cost of the aircraft and would have to borrow to fund that liability. It is immaterial whether the precise sum would have been $3,390,000 or a larger or smaller sum. The important point is that, as at the date of breach, Amann had paid or had a liability to pay $6,136,464, part of which gave rise to a further liability in the form of interest payments or its equivalent of $3,390,000. The liability to pay the $3,390,000 or some equivalent sum had been incurred as at the date of breach. It was not a liability to be incurred in the future, as the figures put forward by the Commonwealth assumed. So as at the date of breach, Amann had paid or was liable to pay $9,526,464 ($6,136,464 + $3,390,000). Those payments and liabilities had to be recouped or met by Amann from the revenue generated by the contract or from its own or other sources. They had to be recouped or met whether the contract ran until its expiry date or was sooner terminated by Amann, the Commonwealth, the consent of the parties or frustration of law. But they are irrelevant in determining how much better off Amann would have been if both parties had continued to perform their obligations under the contract: see Banks v. Williams, at pp 229-230. If Amann had abandoned the contract the moment before breach, those payments and liabilities would have existed. They were not liabilities which had to be incurred after 12 September 1987 if Amann was to earn the $17,107,462 in revenue to which it was entitled under the contract. Likewise, questions concerning the value of the aircraft are irrelevant to the computation of Amann's loss. Once those aircraft were committed to the surveillance contract and fitted out for that purpose, they had an intrinsic value of only $917,329. From Amann's point of view, after conversion their residual value was $917,329. And even if Amann had obtained any contract awarded in 1990 that would have been their value at the commencement of that contract. As at the date of breach, therefore, Amann had already lost the difference between the cost of acquiring those aircraft and their residual value.

20. If there had been no breach of contract by the Commonwealth, Amann had only two expenditures to incur in the future to obtain the $17,107,462 revenue which it would have derived under the contract. They were its operating costs, which Beaumont J. assessed at $12,043,420, and the sum of $368,479 to be paid in respect of the acquisition of aircraft. It may be that three years of operations would have meant some small decline in the residual value of the aircraft. But no point was made about this, and it can be ignored.

21. Accordingly, in my opinion, if the contract had continued instead of being breached and terminated, Amann would have been $4,695,563 ($17,107,462 - ($12,043,420 + $368,479)) better off than it was immediately before the breach. As the result of the breach, Amann was also required to pay the sum of $143,049 in termination payments to its employees and a security deposit of $113,000 was wrongly forfeited. Both these amounts are recoverable as part of Amann's loss which, therefore, totals $4,951,612.

22. The correctness of the sum of $4,695,563 as the measure of Amann's loss, apart from the forfeiture of the deposit and the termination payments, can be demonstrated by comparing Amann's position, if the contract had been performed, with its present position without an award of damages.

A. The contract performed

Cost of aircraft and establishment costs $ 6,136,464

Further cost for acquisition of aircraft $ 368,479

Borrowing costs $ 3,390,000

Operating costs $12,043,420

___________

Total expenditure or liability $21,938,363

Less

Revenue $17,107,462

Value of aircraft $ 917,329 $18,024,791

___________

Loss = $(3,913,572) B. Position

without damages

Cost of aircraft and establishment costs $ 6,136,464

Borrowing costs $ 3,390,000

___________

Total expenditure or liability $ 9,526,464

Less Value of aircraft $ 917,329

___________

Loss = $(8,609,135) C. Difference

between A and B = $ 4,695,563

23. Amann would be entitled therefore to recover the sum of $4,951,612 as its prima facie loss by reason of the non-performance of the Commonwealth of its contractual promise. The Commonwealth contended, however, that the amount of damages which Amann was entitled to recover was only $1,561,612. The difference between that figure and the figure of $4,951,612 is, of course, the sum of $3,390,000 which the Commonwealth charged as a cost of earning the revenue sum of $17,107,462. But, as I have pointed out, the liability to pay interest of $3,390,000 or some equivalent amount was a liability already incurred as at the date of breach. That liability was a concomitant of Amann's indemnity to pay for the cost of the aircraft. It was not a liability which would arise in the future when Amann sought to earn the revenue sum of $17,107,462. It existed at the date of breach. Amann's prima facie loss, therefore, is the sum of $4,951,612. I say prima facie because Amann says that it was also entitled to damages for the loss of the chance to earn profits under any contract let in 1990. Since it is common ground that, in the circumstances of the case, damages for loss of the chance are impossible to assess, Amann concedes that it could not obtain any expectation damages for that loss of chance but says that it is entitled to reliance damages in accordance with the principle of McRae's Case. Consequently, Amann says its loss is not $4,951,612 or whatever sum represents what can be calculated as expectation damages. Its loss is the pre-breach expenditure. On the other hand, the Commonwealth contends that Amann's prima facie loss must be discounted to allow for the contingency that the 1987 contract might have been terminated before its expiration because of Amann's own breaches of contract.

Reliance damages in this case

24. If reliance damages are to be awarded to Amann, it can only be on one of two possible grounds: first, that the Commonwealth expressly or impliedly promised Amann that, if it performed the 1987 contract, it would obtain a commercial advantage which would enable it to earn profits under any contract let in 1990 and the value of that commercial advantage cannot be assessed because of the breach; second, that although the Commonwealth made no promise concerning the 1990 contract, one of the consequences of the breach of the 1987 contract is so uncertain or impossible to assess that it is just and proper to award reliance damages.

The promise of a commercial advantage

25. If the Commonwealth promised Amann that performance of the 1987 contract would confer a commercial advantage on it and that, by reason of the breach of contract, the value of the commercial advantage could not be assessed, there would be no difficulty in applying McRae's Case and holding that Amann was entitled to reliance damages. Amann's pre-breach expenditure would have been incurred in reliance on the Commonwealth's promise that a commercial benefit would flow from the performance of the contract. The claim by Amann would, therefore, be firmly rooted in reliance damages doctrine. But the evidence does not establish any express or implied promise by the Commonwealth that the 1987 contract would confer any implied commercial advantage on Amann.

26. In the absence of an express or implied contractual stipulation, the common law rejects the notion that a plaintiff claiming damages for breach of contract is entitled to be compensated for, or have taken into account, a commercial advantage or loss of opportunity to display business or professional skills or to enhance a professional or business reputation. Where the contract of an actor, producer or author has been wrongly terminated, damages may be recovered for the loss of the opportunity to enhance his or her reputation: Marbe v. George Edwardes (Daly's Theatre) Ltd. (1928) 1 KB 269; Herbert Clayton and Jack Waller Ltd. v. Oliver (1930) AC 209; White v. Australian and New Zealand Theatres Ltd. [1943] HCA 6; (1943) 67 CLR 266; Joseph v. National Magazine Co. Ltd. (1959) Ch 14. But the true explanation of these cases is that there is an implied promise on the part of the employer to afford the actor, producer or author such an opportunity: see Oliver, per Lord Buckmaster at p 218; White, at pp 271, 273, 281-282; and cf. Re Golomb (1931) 144 LT 583, per Greer LJ. at pp 590-591. Whether the promise in these cases arises from business necessity or is implied by law, those cases are in a special category. They provide no foundation for supposing that there is any general rule that contractual promises in a business or professional context give rise to a further implied promise that the promisee will obtain the commercial advantages which are expected to flow from the performance of the contract. The fulfilment of such expectations is at the promisee's risk. In the absence of special facts peculiar to the contract in question, there is no ground for implying such a term into an ordinary commercial or professional contract as a matter of either fact or law. The contrary view would have far-reaching effects. It would mean, for example, that the householder who wrongly terminated a contract with an interior decorator would be liable for damages for depriving the decorator of the opportunity to enhance his or her reputation with the householder's friends and neighbours. In Re Golomb, in dismissing a claim "to recover damages for loss of prestige and (or) publicity" by a person who had not been appointed as a company director, Scrutton LJ. said (at p 587) that the claim was "one which has startled me very much".

27. Amann's claim is not supported by Richardson v. Mellish [1824] EngR 715; (1824) 2 Bing 229 (130 ER 294) where the defendant had promised to appoint the plaintiff master of a ship for two voyages subject to certain events, one of which was the East India Company approving the master for each voyage. No appointment was made for the second voyage. The defendant argued that damages should not be given for the second voyage since the Company might have withheld its approval. But since the approval was "almost to a certainty", damages were given for the second voyage. In Richardson, the loss of profits from the second voyage was directly caused by the defendant's breach of its promise.

28. Nor is its claim supported by T.C. Industrial Plant where this Court said (at p 294) that, in assessing damages for breach of warranty of fitness, regard could be had to the receipts and expenditure which the plaintiff would have obtained or incurred under a contract with the Commonwealth "and the probable extension thereof". Since the promisor had warranted that the machine was fit for the purpose of carrying out work of the relevant kind, the damages included what could be earned under the contract and what might have been earned under the extension in performing the work which the promisor had warranted the machine was fit to carry out.

29. There was no express promise and there were no facts peculiar to the 1987 contract which gave rise to an implied promise that if Amann performed the 1987 contract, it would obtain a commercial advantage which would enable it to earn profits under any contract let in 1990. Accordingly, Amannn is not entitled to damages for breach of such a promise. This basis for claiming reliance damages must be rejected.

Reliance damages where a consequence of the breach is uncertain

30. If reliance damages are to be awarded, it can only be upon the second ground to which I have referred, that is, that one of the consequences of the breach of contract by the Commonwealth is so uncertain or impossible to assess that it is just and proper to award Amann reliance damages. In other words, the claim for reliance damages is not because there is any claim that there has been a breach of any promise in relation to any contract to be let in 1990; it is because the breach of the promises made in the 1987 contract has caused a consequential loss to Amann which is impossible to assess. The claim, therefore, goes beyond the claim which this Court accepted in McRae.

31. It is one thing to assess damages on a reliance basis when it is impossible or too uncertain to determine what the value of the defendant's promise would have been. It is another matter altogether to say that, although the value of the defendant's promise can be fully and accurately determined, reliance damages can be awarded because a consequence of the defendant's breach is too uncertain or impossible to evaluate. If the promise of the defendant can be valued, an award of expectation damages, based on the estimated outcome of the contract, gives the plaintiff all that it was entitled to receive in return for any moneys expended in reliance on the defendant's promise. Consequently, if Amann can be awarded "reliance" damages in this case - where the value of the Commonwealth's promise can be fully determined - it means that "reliance" damages can be awarded, not because money was expended in reliance on the defendant's promise and that promise cannot be valued, but because the defendant's breach of promise may have caused a consequential loss to the plaintiff. To award "reliance" damages on such a basis would be contrary to the rationale of the reliance damages doctrine.

32. Consequently, I would reject the claim that reliance damages should be awarded in this case because Amann was entitled to have the loss of the chance of future profits taken into account in assessing damages. The loss of that chance flows from its expectations and not the Commonwealth's promise. Indeed, the fact that it was a Commonwealth contract under which there was a chance to make profits seems accidental. If the claim for reliance damages could succeed in this case, it would seem to make no difference that the breach had caused the loss of a chance to earn profits under some other contract to which the Commonwealth was not a party.

33. Moreover, even if, contrary to my view, reliance damages can be awarded in a case where the outcome of the contract and the value of the defendant's promise can be accurately determined, I would reject the claim on the facts of this case.

Causation

34. The Commonwealth contended that the Full Court was not justified in attaching significance to Amann's prospects of obtaining a renewal or extension of the contract because "to include in the assessment of damages an allowance for that which would have been obtained under a renewed or extended contract is to compensate the contractor for loss resulting from a decision not to renew or extend rather than for loss resulting from the breach" (my emphasis). The Commonwealth argued that the breach did not prevent Amann from tendering for any further contract beyond 12 September 1990. The contention of the Commonwealth raises the question whether its breach of contract caused the loss of the chance of obtaining profits from any renewal or extension of the 1987 contract.

35. Absent any contrary contractual stipulation, a plaintiff is entitled to be compensated only for loss or damage which is the result of the defendant's breach. Loss or damage which flows from the plaintiff's inability to perform or obtain another contract is recoverable only if that loss or damage resulted from the breach and was reasonably foreseeable as likely to result from the breach: see Reg. Glass Pty. Ltd. v. Rivers Locking Systems Pty. Ltd. [1968] HCA 64; (1968) 120 CLR 516, at p 523. It is not enough that the parties contemplated that the contract would probably be renewed or that loss or damage to the plaintiff might occur if the contract was not renewed. When the defendant has refused to promise that the contract would be renewed and the issue of renewal is at the risk of the plaintiff, it seems almost paradoxical to find that the defendant should have to pay damages to the plaintiff when the risk has been realised. Nevertheless, accepting for the purpose of the argument that, although the Commonwealth did not promise to renew the contract, it may have to pay damages for the loss of the chance of earning profits under a renewed contract, Amann could not succeed in that claim unless it proved that the Commonwealth's breach caused the loss of that chance.

36. In the Full Court, it appears to have been taken for granted that the breach caused the loss of the chance that the contract would be renewed. At all events, the members of the Full Court did not discuss the matter. They appear to have acted on the assumption that, if the parties contemplated that the contract would probably be renewed, Amann was entitled to have its damages assessed on the basis that it had lost the chance of earning profits under a renewal of the contract. But the contemplation of the parties goes to the issue of remoteness, not causation. Foreseeability is not relevant to the issue of causation in a civil case: Chapman v. Hearse [1961] HCA 46; (1961) 106 CLR 112, at p 122. The assumption made in the Full Court reflects the rule concerning remoteness of damage which is to be found in such cases as Hadley v. Baxendale [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145). That rule is an exclusionary rule. The contemplation of the parties marks the boundary of the liability for loss or damage caused by a breach of contract. It is a limit on, and not a ground of, liability. Consequently, the finding of Davies J. that future "extensions of the contract were not only in the contemplation of both parties but probable" is not decisive of the issue of causation. The probability of renewal could have no relevance to that issue unless it also be found that the Commonwealth's breach of contract destroyed that probability. Under the issue of causation, the question is not whether the contract was likely to be renewed or whether the parties contemplated its renewal but whether any failure to renew it would be the result of the defendant's breach of contract.

37. In March v. Stramare (E and M.H.) Pty. Ltd. [1991] HCA 12; (1991) 171 CLR 506, this Court held that, for the purpose of the law of negligence, the test for determining whether a negligent act or omission was the cause of a particular occurrence is a question of fact which, in the words of Lord Reid in Stapley v. Gypsum Mines Ltd. [1953] UKHL 4; (1953) AC 663, at p 681, "must be determined by applying common sense to the facts of each particular case". Deane J. said (at p 524) that "the question whether conduct is a 'cause' of injury remains to be determined by a value judgment involving ordinary notions of language and common sense". The majority of the Court rejected the proposition that the "but for" test is the exclusive test of common law causation. The reasoning in March requires that the same test of causation be applied in determining whether a breach of contract is the cause of a particular loss for the purpose of assessing the damages recoverable for that breach.

38. In Smith, Hogg and Co. v. Black Sea and Baltic General Insurance Co. (1940) AC 997, Lord Wright pointed out (at pp 1003-1004) that:

"There is always a combination of co-operating causes, out

of which the law, employing its empirical or common sense

view of causation, will select the one or more which it

finds material for its special purpose of deciding the

particular case."

Since the purpose of the inquiry involved in the causation issue is to fix legal responsibility "and not to find ultimate explanations, the factor chosen by the common law is that which common sense fixes upon as relevant to responsibility in a particular case": The National Insurance Co. of New Zealand Ltd. v. Espagne [1961] HCA 15; (1961) 105 CLR 569, per Windeyer J. at p 592. But, as Taylor J. pointed out in The Commonwealth v. Butler [1958] HCA 56; (1958) 102 CLR 465, at pp 476-477:

"the cause of an event is not established in the legal

sense by showing, without more, that in the absence of a

proved set of circumstances the event would or may not have

happened, or, that a proved set of circumstances, in the

widest sense, contributed to the happening of the event".

39. If the Commonwealth's breach of contract caused the loss of the chance of obtaining profits under a renewal or extension of the 1987 contract, it must be because it either prevented Amann from tendering for or effectively destroyed its chance of being awarded that contract. But nothing resulting from the Commonwealth's breach of contract prevented Amann from tendering for any contract offered in September 1990. The breach of contract did not affect Amann's capacity to tender for that contract. The capacity of its aircraft to carry out that contract was unaffected by the breach. Since Amann was entitled to recover damages for any loss arising under the 1987 contract, it would be in no worse financial position when tendering for any 1990 contract than it would have been if there had been no breach. Of course, in the three-year period before any 1990 contract came up for tender, Amann may have elected to sell its aircraft, disband its personnel or abandon the business. But, if it did, any or all of those acts would be the result of a voluntary choice made by Amann. And, unless constrained by the conduct of the wrongdoer, a result which occurs because of the subsequent voluntary act of the plaintiff or a third party is not "caused" by the wrongdoer for the purposes of the common law doctrine of damages.

40. The present case is different, for example, from a case of a negligently caused injury which has resulted in a plaintiff suffering damage by reason of losing a chance of promotion. In such a case, the injury constrains the employer to reject any application for promotion and is rightly seen as a cause of the loss of the chance of promotion. But nothing in the Commonwealth's breach or anything directly flowing from it could dictate the result of or affect the tendering process for any contract offered in 1990. Even if any tender by Amann was rejected out of hand without any real consideration, it could be safely inferred that the cause of the rejection was not the Commonwealth's breach of contract but its perception of Amann's capacity and reliability.

41. Accordingly, in my opinion, Amann was not entitled to have its damages assessed on the basis that it should be compensated for the loss of the chance of obtaining profits under any further contracts. Both as a matter of principle and, in any event, on the facts of the case Amann's claim to have its damages assessed on a reliance basis fails.

42. Subject to the discount argument considered below, Amann's loss for the purpose of the principle in Robinson v. Harman was the sum of $4,695,563 together with the sum of $256,049 in respect of the security deposit forfeited and the termination expenses incurred.

Discount for the prospect of termination under cl.2.24

43. When Amann accepted the repudiation of the Commonwealth, it was itself in breach of contract. In the Full Court, Davies J. held that there was a 20 per cent chance that the contract would have been cancelled pursuant to the provisions of cl.2.24. However, his Honour thought that such a chance should not be taken into account in assessing damages. I agree with his Honour's construction of cl.2.24 and with his reasons for the conclusion that there was a 20 per cent chance that the Secretary would have terminated the contract by reason of Amann's breaches. In my opinion, however, since Amann had only an 80 per cent chance of recovering the sum of $4,695,563 and the sum of $113,000 representing the security deposit, its damages should be reduced accordingly: see Malec v. J.C. Hutton Pty. Ltd. (1990) [1990] HCA 20; 169 CLR 638, at pp 642-643. Just as in a personal injury case, the plaintiff's damages must be discounted for the general and specific contingencies applicable to his or her case, so in a contract case the plaintiff's damages must be discounted to cover any specific contingencies that may have prevented the plaintiff from recovering all the moneys which it had been promised.

44. Amann's damages, therefore, are 80 per cent of $4,808,563 ($4,695,563 and $113,000), which equals $3,846,850, together with the sum of $143,049 for termination payments to employees. That makes a total of $3,989,899. In addition, Amann is entitled to interest pursuant to s.51A of the Federal Court of Australia Act 1976 (Cth). The sum of $4,695,563 would have been earned over and not at the beginning of the three-year period of the contract. It is appropriate, therefore, that Amann should receive interest on only one-half of 80 per cent of that sum for the period 12 September 1987 to 12 September 1990. Thereafter, it should receive interest on 80 per cent of $4,695,563 to the date of this judgment. It should also receive interest on 80 per cent of the sum of $113,000 (the security deposit) and on all of the sum of $143,049 (the termination payments) from 15 September 1987, the date of the termination of the contract.

Order

45. The appeal should be allowed. In lieu of par.2(a) of the order of the Full Court, there should be substituted such sum as represents the sum of $3,989,899 damages and interest calculated in accordance with this judgment. The judgment should take effect as from today. The respondent should pay the costs of, and incidental to, this appeal.

ORDER

Appeal dismissed with costs.