LAW2102 · Contract B
Damages for Breach of Contract
Damages are the workhorse remedy. The compensatory principle (Robinson v Harman) puts the innocent party, so far as money can, in the position as if the contract had been performed — the expectation/loss-of-bargain measure — with reliance (wasted expenditure) available as an alternative, now strengthened by Cessnock (2024). Every claim must then run the gauntlet of causation (Alexander), remoteness (Hadley v Baxendale's two limbs) and mitigation (Burns). The chapter also covers non-pecuniary loss and the recent recognition of psychiatric-injury damages in Elisha (2024). It is the most heavily examined remedy — typically the quantum stage of an 'Advise X' problem.
What this chapter covers
- 011. The compensatory principle — as if performed (Robinson v Harman; Amann; Tabcorp)
- 022. Measures: loss of bargain / expectation (difference in value or cost of cure) vs reliance
- 033. Reliance (wasted expenditure) and Cessnock (2024) — 'a fair wind, not a free ride'
- 044. Causation — the breach must cause the loss (Alexander v Cambridge Credit)
- 055. Remoteness — Hadley v Baxendale's two limbs (Victoria Laundry; The Heron II)
- 066. Mitigation — reasonable steps; no recovery for avoidable loss (Burns)
- 077. Non-pecuniary loss — generally not recoverable, except recognised classes (Baltic Shipping)
- 088. Psychiatric injury — recoverable for breach of contract (Elisha v Vision Australia, 2024)
Reliance (wasted expenditure) damages and Cessnock (Topic 8)
- 1 markIssue. Can Summit recover its wasted expenditure when its expectation (profit) loss is unprovable?
- 3 marksRule. A plaintiff may claim reliance (wasted expenditure) as an alternative to expectation. Cessnock City Council v 123 259 932 [2024] HCA 17: where the breach has caused or increased uncertainty about the plaintiff's hypothetical performed position, the court infers the plaintiff would have recouped reasonably-incurred anticipatory expenditure — a 'fair wind, not a free ride'; the defendant bears the burden of rebutting, and the heavier the uncertainty it created, the stronger the inference.
- 4 marksApplication. Summit's $900,000 fit-out is expenditure reasonably incurred in reliance on Riverton's promise; Riverton's breach is precisely what makes Summit's expected profit unprovable, so the Cessnock inference applies and gives Summit a 'fair wind'. Riverton must rebut by showing Summit would NOT have recouped the spend (for example that the venture was doomed regardless).
- 2 marksConclusion. Summit can likely recover the $900,000 reliance loss; the burden shifts to Riverton to prove non-recoupment.
Key terms
- Compensatory principle
- The governing principle of contract damages: so far as money can do it, put the innocent party in the position it would have been in had the contract been performed (Robinson v Harman; affirmed in Amann and Tabcorp). Contract damages compensate the loss of the bargain, not punish the breach.
- Expectation (loss-of-bargain) damages
- The default measure: the value of the performance the innocent party expected, measured as the difference in value or the cost of cure (Bellgrove v Eldridge / Tabcorp). It looks forward to the position as if the contract had been performed.
- Reliance damages
- Wasted expenditure incurred in reliance on the contract, recoverable as an alternative to expectation — especially where expectation loss is unprovable. Cessnock (2024) holds that where the breach created the uncertainty, the court infers the expenditure would have been recouped ('a fair wind, not a free ride'), with the defendant bearing the onus to rebut.
- Remoteness (Hadley v Baxendale)
- A limit on recoverable loss. Loss is recoverable only if it falls within Hadley's two limbs: (1) loss arising naturally, in the ordinary course of things; or (2) loss in the reasonable contemplation of both parties at contract time as a serious possibility (e.g. special loss communicated to the other party). Victoria Laundry and The Heron II apply the limbs.
- Mitigation
- The innocent party's duty to take reasonable steps to reduce its loss. It cannot recover loss it could reasonably have avoided, and is allowed the reasonable costs of mitigating (Burns; British Westinghouse). Failure to mitigate reduces recoverable damages.
- Non-pecuniary loss
- Loss not measured in money, such as distress or disappointment. Generally not recoverable for breach of contract, but recoverable within recognised classes — e.g. where the object of the contract is enjoyment or peace of mind (Baltic Shipping) — and psychiatric injury is recoverable subject to remoteness (Elisha, 2024).
Damages for Breach of Contract FAQ
What is the basic measure of contract damages?
The compensatory principle from Robinson v Harman: damages put the innocent party, so far as money can, in the position as if the contract had been performed. The default is expectation (loss-of-bargain) damages, measured as the difference in value or the cost of cure (Tabcorp). Reliance (wasted expenditure) is available as an alternative, especially when expectation loss cannot be proved.
When should I use reliance damages instead of expectation?
When the innocent party cannot prove the profit it would have made — typically because the breach itself created the uncertainty. Cessnock (2024) then helps: the court infers the plaintiff would have recouped its reasonably-incurred expenditure (a 'fair wind, not a free ride'), and the defendant bears the burden of proving non-recoupment. Reliance and expectation are alternatives; you do not get both for the same loss.
How do causation, remoteness and mitigation fit together?
They are sequential filters on a head of loss. First, the breach must have caused the loss (Alexander). Second, the loss must not be too remote — it must fall within Hadley's limb 1 (arising naturally) or limb 2 (in both parties' reasonable contemplation, e.g. special loss communicated in advance). Third, the innocent party must have mitigated, and cannot recover avoidable loss (Burns). A head of loss must pass all three to be recoverable.
Can I recover for distress or psychiatric injury caused by a breach?
Mere disappointment is generally not recoverable, but there are recognised exceptions. Where the object of the contract is enjoyment or peace of mind, distress damages are available (Baltic Shipping). And Elisha v Vision Australia (2024) confirms that damages for psychiatric injury are recoverable for breach of contract, applying Baltic Shipping and the Hadley remoteness test (serious-possibility limb).
How is the damages topic examined?
Almost always as the quantum stage of an 'Advise X' problem after a breach is established. You will be given several heads of loss and asked what is recoverable. Run each through the gauntlet — measure (expectation or reliance), causation, remoteness (which Hadley limb?) and mitigation — citing the leading case for each, and flag any non-pecuniary or psychiatric-injury head. The marks reward separating the heads and testing each, not a single global figure.
Exam move
Make the 'damages gauntlet' your default routine: for every head of loss, ask measure → causation → remoteness → mitigation, and attach the leading case to each gate (Robinson v Harman; Alexander; Hadley/Victoria Laundry; Burns). Learn the two-limb remoteness test cold, because the classic exam trap is special loss that was never communicated — it fails limb 2. Know when to switch from expectation to reliance and reach for Cessnock's 'fair wind, not a free ride' with the burden-shift. Keep the two recent High Court cases tabbed — Cessnock (reliance) and Elisha (psychiatric injury) — plus Baltic Shipping for the enjoyment exception. In the exam, split the claim into separate heads and test each one; a global figure without the gauntlet leaves marks on the table.
