Claims for the value of the lost contractual performance

• Author: David Winterton
• Pages: 75-103

CLAIMS FOR THE VALUE OF THE LOST

CONTRACTUAL PERFORMANCE

DAVIDWIN TERTO N

It is often said that contractual damages awards compensate the promisee for loss

caused by breach. Statements like this are indeterminate because they leave unspecified

whether such awards aim merely to make good some of the eventual deterioration in

the promisee’s balance sheet position attributable to breach or instead redress the

immediate loss of performance entailed by the breach itself. This article demonstrates

that Anglo-Australian law recognises both of these claims and defends the High

Court’s emphatic recognition of this proposition in Clark v Macourt.

IINTRODUCTION

It is commonly claimed that damages awards for breach of contract aim to

compensate the promisee for loss suffered in consequence of the promisor’s breach.

But statements of this kind mask an ambiguity as regards the underlying purpose

of such awards. In particular, it is not clear whether such awards aim merely to

make good the ultimate deterioration in the promisee’s balance sheet position that

iscausally attributable to the promisor’s breach or whether they instead aim to

enforce (or ‘vindicate’) the promisee’s contractual right to performance by

providing a monetary substitute for what was promised, but not provided, where

the award’s availability does not depend upon any quantifiable deterioration in the

promisee’s ultimate balance sheet position.

This basic ambiguity regarding the purpose of awarding contractual damages is

starkly illustrated by the High Court’s decision in Clark v Macourt.1 The majority

there awarded the purchaser of a fertility clinic by deed the full cost of replacing,

as at the date of breach, the worthless donor sperm provided to her by the vendor

as part of the assets of that business. Significantly, this sum was awarded even

though: (1) it was considerably higher than the sale price of the business under the

deed, (2) the purchaser substantially recouped the costs she incurred in acquiring

contractually compliant sperm to replace what she received, and (3) as a registered

medical practitioner, she was ethically bound by certain guidelines prohibiting her

from selling donor sperm for profit.

The High Court’s decision in Clark is controversial, provoking strident

criticism. The principal concern appears to be that Clark’s award significantly

augmented the balance sheet position she would otherwise have occupied ‘but for’

the breach’s occurrence; a result alleged to offend ‘the compensatory principle’ said

1 (2013) 253 CLR 1; [2013] HCA 56(‘Clark’).

to underpin contractual damages assessment.2 This concern is misconceived,

relying upon an impoverished interpretation of Parke B’s famous dictum in

Robinson v Harman (the ‘Robinson v Harmanprinciple’).3 The true position, as

Keane J held in Clark, is that the common law recognises at least two different

kinds of claims for ‘damages’ following a contractual breach. One claim aims to

make good certain detrimental financial consequences that the promisee eventually

suffers and can causally attribute to the breach; the other aims to provide the

promisee with a monetary substitute for what was promised, but not provided.

The existence of more than one kind of monetary claim upholding the Robinson

v Harmanprinciple is, however, not always appreciated; it being commonly said

that all awards giving effect to this principle aim simply to make good certain

detrimental consequences that the promisee can causally attribute to the breach.

Moreover, even amongst those who reject this monistic view of contractual

damages awards there is disagreement regarding precisely how to quantify an

award that substitutes for the undelivered performance. One view is that the market

valueof the lost contractual performance should be awarded;4 another is that the

sum necessary to obtain a close substitute for what was promised from elsewhere

provides the correct measure.5 One possibility is that the former approach is apt in

some scenarios, while the latter is appropriate in others. Regardless of this, the

award made in Clarkis consistent with either ‘substitutionary’ measure. This means

that support for the decision does not necessitate a choice between them, though

the High Court’s reasoning does undoubtedly more closely accord with the former

approach.

What is most critical to appreciate though, is that endorsing Clark requires

rejecting the commonly held view that all awards upholding the Robinson v

Harman principle are concerned merely with making good (certain of) the eventual

balance sheet deterioration that the promisee can causally attribute to the breach.

The better view is that making good such deterioration is simply part of the law’s

process for achieving next-best conformity with the primary duty breached.

Uncertainty regarding the meaning of key terms used in this area of the law, such

as ‘loss’ and ‘compensation’, is undoubtedly part of the explanation for why

2 See J Carter, G Tolhurst and W Courtney, ‘Issuesof Principle in the Assessment ofDamages’, (2014)

31 Journal of Contract Law 171 and K Barnett, ‘Contractual expectations and goods’ (2014) 130 LQR

387.

3 (1848) 1 Exch 850 at 855; 154 ER 363 at 365.

4 See R Stevens ‘Damages and the Right to Performance: A Golden VictoryorNot?’in Neyers,

Bronaugh and Pitel (eds) in Exploring Contract Law, Hart, 2009 at 171.

5 For different versions of this view, see B Coote, Contract Damages, Ruxley, and the Performance

Interest’ (1997) 56 CLJ 537, S Smith, ‘SubstitutionaryDamages’,in C Rickett (ed), Justifying Private

Law Remedies, Hart, 2008 at 93, C Webb, ‘Performance and Compensation: An Analysis of Contract

Damages and Contractual Obligation’ (2006) 26 OJLS 41 and D Winterton, Money Awards in Contract

Law (Hart 2015).