LECTURE 8
EQUITABLE DAMAGES
In all Australian jurisdictions the supreme courts have jurisdiction to award so-called
equitable damages. In New South Wales, that jurisdiction is sourced in s 68 of the
Supreme Court Act 1970 (NSW) which stipulates the following:
Where the Court has power:
(a) to grant an injunction against the breach of any covenant, contract or
agreement, or against the commission or continuance of any wrongful
act, or
(b) to order the specific performance of any covenant, contract or
agreement,
the Court may award damages to the party injured either in addition to or in
substitution for the injunction or specific performance.
When can damages pursuant to s 68 be ordered? See Boyns v Lackey (1958) 58 SR
(NSW) 395 at 405; Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at
678-9; Edward St Properties Pty Ltd v Collins [1977] Qd R 399; Price v Strange [1978]
Ch 337.
What principles of assessment apply in relation to s 68? See Johnson v Agnew [1980] AC
367 at 400.Can equitable damages be ordered in situations where common law damages
could not be awarded? See Lavery v Pursell (1883) 39 ChD 508 at 519. Can equitable
damages be refused, or quantum be affected, on discretionary grounds? See Weily v
Williams (1895) 16 LR (NSW) Eq 190 at 195-6; McMahon v Ambrose [1987] VR 817 at
852-3; Malhotra v Choudhury [1980] Ch 52.
See also examples Norton v Angus (1926) 38 CLR 523; Ford-Hunt v Raghbir Singh
[1973] 2 All ER 700.
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ACTIONS FOR A FIXED SUM AND DEBT
INTRODUCTION
This topic is concerned with the recovery, by a plaintiff, of sums of money fixed by a
contract. Such sums can fall into two categories, each of which is governed by its own
rules. The first category relates to sums known as liquidated damages and is simply a
fixed sum which the parties have agreed upon as being the amount due to the plaintiff
upon breach of contract by the defendant. However, clauses that set out such sums will
not always be enforceable. Those that are not enforceable are referred to as penalties. The
second category of fixed sums relates to actions for debts. Such an action will arise where
a contract imposes an obligation to pay a sum of money and the right to payment of that
sum has accrued to the plaintiff. Each of these categories will be considered in turn.
LIQUIDATED DAMAGES
A liquidated damages clause in a contract is one that stipulates a sum to be paid to a
plaintiff by a defendant who breaches the contract. What are the advantages of such
clauses? See Boucaut Pay Co Ltd v The Commonwealth (1927) 40 CLR 98 at 106-07.
However, if the sum stipulated is not a genuine pre-estimate of the loss suffered by the
plaintiff the clause will not be enforceable. Such a clause is referred to as a penalty.
Clauses stipulating the payment of a specified sum upon breach of contract must be
examined to determine whether they are penalties or liquidated damages clauses.
However, this examination also extends to clauses that stipulate for payment of specified
sums where a contract is terminated pursuant to a contractual right to do so, even if that
contractual right can be exercised in the absence of a breach of contract: O’Dea v
Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359.
In Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71 at [31]-[32], a unanimous
High Court observed that the ‘law of contract normally upholds the freedom of parties,
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with no relevant disability, to agree upon the terms of their future relationships’ and that
the law on penalties was an exception to that principle that ‘require[d] good reason to
attract judicial intervention to set aside the bargains upon which parties of full capacity
have agreed’. See also Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC
281 at [37], [48]; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193-4.
Distinction Between Liquidated Damages and Penalties
The feature that distinguishes a liquidated damages clause from a penalty was set out in
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86. See
also Bridge v Campbell Discount Co Ltd [1962] AC 600 at 622; Lordsvale Finance Plc v
Bank of Zambia [1996] QB 752 at 762
In Dunlop Pneumatic Tyre v New Garage & Motor, at 86-8, Lord Dunedin summarised
the basic principles governing the distinction between liquidated damages clauses and
penalties. See also AMEV-UDC Finance v Austin, at 190; Alfred McAlpine Capital
Projects Ltd v Tilebox Ltd at [48]; Lordsvale Finance v Bank of Zambia, at 763-4;
Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 at 527. Note
comments in Ringrow v BP Australia, at [12]. For examples see Dunlop Pneumatic Tyre
v New Garage & Motor; AMEV-UDC Finance v Austin; Esanda Finance Corporation
Ltd v Plessnig (1989) 166 CLR 131. On Esanda Finance decision note effect of Shevill v
Builders Licencing Board (1982) 149 CLR 620, discussed in Lecture 7.
Effect of a Liquidated Damages Clause
An enforceable liquidated damages clause entitles the plaintiff to recover the sum
stipulated without the need to prove any loss: Pigram v Attorney General for the State of
New South Wales (1975) 132 CLR 216. See also Diestal v Stevenson [1906] 2 KB 345;
Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445 at [24].
Effect of a Penalty Clause
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A penalty is void and unenforceable. Can the plaintiff sue for damages? See W & J
Investments Ltd v Bunting [1984] 1 NSWLR 331 at 335-6; AMEV-UDC Finance v
Austin, at 192-3.
ACTIONS FOR DEBT
Although a failure by a defendant to pay a sum fixed by a contract gives a plaintiff a right
to sue for damages for breach of contract, it may also entitle the plaintiff to recover the
sum as a debt. The plaintiff can bring the debt claim in conjunction with, or as an
alternative to, a claim for damages, but cannot recover the sum twice. A common
example of an action for a debt is to recover the price that the defendant should have paid
for goods or service provided by the plaintiff.
An action to recover a debt is quite distinct from an action for damages for breach of
contract. See Young v Queensland Trustees Ltd (1954) 99 CLR 560 at 567, 569-70.
Requirements for an Action for a Debt
For an action for a debt to arise the contract must contain an obligation to pay a certain or
ascertainable sum of money and the performance to which the payment relates has
occurred: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475.
Certain or Ascertainable Sum
See Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq)
(1936) 54 CLR 361.
Requirement of Performance
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Before the sum stipulated in the contract is recoverable as a debt, the plaintiff must have
performed the obligation to which the payment of the money relates. This is what
differentiates an action for damages for breach of contract and an action for a debt. In an
action for damages, the mere failure of the defendant to pay is sufficient to give rise to
the claim for damages. However, mere failure to pay does not give rise to a debt. The
action for a debt requires the plaintiff to have ‘earned’ the right to recover the debt by
performance. In context of land contracts see McDonald v Dennys Lascelles, at 475-8;
Farrant v Leburn [1970] WAR 179 at 184; Lowe v Hope [1970] Ch 94 at 100; Workers
Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 579-80;
Conveyancing Act 1919 (NSW), s 55(2A).
Termination of Contract and Debt
At common law the termination of a contract for breach or the frustration of a contract,
do not affect the right to recover a debt which has accrued before termination or
frustration. In the case of frustration the common law position is subject to legislation in
relevant jurisdictions. In the case of termination for breach, see McDonald v Dennys
Lascelles, at 477; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465;
Lucy v The Commonwealth (1923) 33 CLR 229 at 253.
Mitigation and the Action for a Debt
If one party repudiates a contract or commits a terminating breach of it, the other party
has a right to terminate the contract. However, there is no obligation to do so. The
innocent party may elect to affirm the contract and complete performance of his or her
obligations. When that party sues the contract breaker for the debt payable by the latter,
generally, the principles of mitigation do not apply. See White and Carter (Councils) Ltd
v McGregor [1962] AC 413, esp Lord Reid at 428-9, 431. In relation to Lord Reid’s
comments also see Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC
2178 esp at [41]-[43]; Gunton v Richmond-upon-Thames London BC [1981] Ch 448 at
474-5; Stocznia Gdanska SA v Latvian Shipping Co [1996] 2 Lloyd’s Rep 132 at 139;
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Gator Shipping Corporation v Trans-Asiatic Oil Ltd SA and Occidental Shipping
Establishment (The Odenfield) [1978] 2 Lloyd’s Rep 357; Clea Shipping Corporation v
Bulk Oil International Ltd (The Alaskan Trader) [1984] 1 All ER 129, at 136-7; Carter
and Harland (2002), at 893.