Breach of contract: can you sue for the distress and inconvenience?
Where there has been a breach of contract, in what circumstances can the innocent party sue for damages for distress, anxiety and depression arising from the breach? What about the inconvenience caused by the breach? The Court of Appeal in the recent case of Archibald v Powlett[1] sheds some light on these issues.
The facts
The applicant was one of two defendants in a County Court proceeding brought by the respondent in 2013. In 2011, the respondent had entered into contracts with the applicant and the other defendant for the purchase, transport and restumping of relocatable homes on her land. The applicant was responsible for the sale and relocation of the homes, and the other defendant was to secure them onto the respondent’s land. It was the respondent’s intention to offer the homes as holiday accommodation for rent.
Due to the illness of the applicant prior to trial, the County Court proceeding was split into two trials — one for each defendant. The trial against the applicant was heard second. The County Court judge found that the applicant had not performed some of the contracts and had only partly performed others. The judge awarded damages for the applicant’s breaches of contract, including damages for loss of income and opportunity and damages for what the trial judge termed the respondent’s ‘distress, anxiety and depression’. The applicant took issue with the awarding of those damages, and sought leave to appeal on those and other grounds.[2]
On appeal
The Court of Appeal allowed the appeal and varied the decision of the trial judge in part. McLeish JA, with whom Redlich and Osborn JJA agreed, delivered the Court’s decision.
Approaching the question of entitlement to damages, McLeish JA took a different view to the trial judge regarding damages for distress, anxiety and depression. On the other hand, his Honour agreed with the trial judge on the question of the respondent’s entitlement to damages for loss of income and opportunity.
No damages for distress, anxiety and depression
At trial, the judge had found that the respondent had been subject to ‘increasing pressure, both financially and emotionally’ as a result of the breaches and awarded damages for ‘distress, anxiety and depression’. Relying on the High Court authority in Baltic Shipping Company v Dillon,[3] McLeish JA noted that such a category of loss is only compensable where the object of the contract was to provide ‘pleasure, relaxation or freedom from molestation’. This was not a quality of the contracts in question. His Honour also observed that Baltic Shipping requires that the breach have caused physical inconvenience.
His Honour also considered the application of statute, namely the Wrongs Act 1958 (Vic). His Honour noted that, as a consequence of part VBA of the Act, damages (whether in tort or for breach of contract) for anxiety or stress cannot be recovered unless there is evidence of a ‘significant injury’.[4] In considering the definition of ‘significant injury’ and the related definition of ‘injury’ — according to section 28LB, it means ‘personal or bodily injury’ and includes psychological or psychiatric injury or disease — his Honour framed the issue as being whether the damages awarded for ‘distress, anxiety and depression’ were ‘in respect of an injury’ for the purposes of the Wrongs Act.
In seeking to justify the award of damages, the respondent argued on appeal that damages for inconvenience could be recovered despite the requirements of the Wrongs Act where the inconvenience was of some significance; the respondent referred to cases where damages were awarded for inconvenience and discomfort, ostensibly as a distinct category of loss.
McLeish JA noted one such instance in the decision in Boncristiano v Lohmann.[5] There, the Court awarded general damages for ‘inconvenience’ caused by a builder’s breach of contract. Nevertheless, as McLeish JA pointed out, the ‘inconveniences’ that were compensable in that case were ‘not the time and trouble inevitably spent as a result of dealing with the consequences of any breach of contract [but rather] the actual disruption and physical imposition’.[6]
His Honour concluded:
‘In the present case, there was no evidence of such inconvenience having been caused by the applicant’s breaches of contract, nor did the judge make any finding to that effect. The position is not assisted by seeking to rely on “inconvenience” as a distinct head of damage. Moreover, that was not a claim made or upheld at trial.’[7]
Damages for loss of income and opportunity
McLeish JA agreed with the trial judge’s decision to award damages for loss of income and opportunity caused by the breaches. At trial, the respondent presented evidence of her encountering financial difficulty with respect to an existing holiday home on her land, as well as needing to sell some of her other property in order to meet her obligations under a bank loan. Ultimately, because of the contractual breaches, the respondent forewent potential rental income from the holiday homes.
On appeal, the applicant contended that the respondent’s loss of income and loss of opportunity were due to her own impecuniosity and that her financial difficulty was not in the parties’ contemplation when entering the contracts. To that, McLeish JA identified the case of Burns v MAN Automotive (Aust) Pty Ltd[8] as demonstrating that damages for breach of contract may be recoverable, to a point, notwithstanding the innocent party’s impecuniosity may have contributed to the loss.
Moreover, as far as the remoteness of the loss was concerned, there was evidence at trial of conversations between the parties regarding the respondent’s desire to use the relocatable homes as a business venture and her need to borrow from the bank to fund the business. Contrary to the applicant’s submission, the evidence established that the applicant knew of such matters. McLeish JA stated:
‘A reasonable person in the circumstances would apprehend that, without earning income from the new homes, the respondent might not be able to meet the repayments of the loans sustaining the business.
It is a short step then for a reasonable person to perceive that, by virtue of that situation, the respondent might eventually be driven to divest assets of the business in order to meet her repayment obligations. It this occurred, she would lose the income she would have earned from those assets. Such a loss ought reasonably to have been in the applicant’s contemplation by virtue of what he knew about the business and the respondent’s circumstances’.[9]
Comment
The Court of Appeal’s decision in Archibald v Powlett demonstrates the difficulty in recovering damages for distress and anxiety for breach of contract. The Court highlighted the availability of such a category of damages under statute and at common law, albeit only in limited circumstances. The Court also stated that inconvenience to the innocent party arising from a breach of contract will not merit compensation unless that inconvenience was physical.
Finally, insofar as the question of remoteness is concerned the Court’s decision illustrates how, with the right evidence, foreseeability of the consequences of breach of a contract can extend to loss of income and loss of opportunity.
[1]: [2017] VSCA 259.
[2]: Some of the grounds of appeal related to procedural matters and to a claim of issue estoppel. These ultimately were unsuccessful on appeal. My discussion of the case focuses only on the issues regarding damages for breach of contract.
[3]: (1993) 176 CLR 344, 363.
[4]: His Honour also cited Thomas v Powercor Australia Ltd [2011] VSC 586, [116].
[5]: [1998] 4 VR 82.
[6]: Archibald v Powlett [2017] VSCA 259, [66] (emphasis added).
[7]: Ibid.
[8]: (1986) 161 CLR 653.
[9]: Archibald v Powlett [2017] VSCA 259, [78]–[79].