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Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344; (1993) 111 ALR 289; (1993) 67 ALJR 228 (10 February 1993)

CATCHWORDS

HEARING

DECISION

2. The appellant appealed by leave to the Court of Appeal. The appeal was dismissed by a majority of the Court ((1) Baltic Shipping Co. v. Dillon (1991) 22 NSWLR 1 (Gleeson C.J., Kirby P; Mahoney J.A dissenting)). So far as it is relevant to this appeal, the judgments of the majority decided four questions. First, that the respondent was entitled, by reason of the operation of the Contracts Review Act 1980 (N.S.W.), to relief from a deed of release she had signed. Secondly, that certain exclusion clauses contained in the printed ticket received by the respondent were not incorporated in the contract under which she was carried on the vessel. Thirdly, that the award of restitution of the fare was properly made. Fourthly, that the award of compensation for disappointment and distress was properly made.

3. In its appeal to this Court, the appellant challenged each of these conclusions. During the hearing of the appeal, special leave to appeal on the first two questions was rescinded with reasons given at the time. There is no occasion to repeat those reasons here.

4. It is necessary therefore to consider only the other two questions. THE CLAIM FOR RESTITUTION OF THE FARE
Basis on which the claim is advanced

5. By cl.12 of her further amended writ of summons in personam, the respondent claimed:
"return of the full fare in the sum of $2,205.00 as for a total
failure of consideration".
total failure of consideration. At trial, the respondent's claim was refined so as to extend only to the balance of the fare not already refunded by the appellant, that balance being $1,417.50.

6. Carruthers J. held that the contract of passage was an entire one ((2) Dillon v. Baltic Shipping Co. (1989) 21 NSWLR 614, at p 667) and said ((3) ibid., at p 668):

"In reality, the plaintiff got no benefit from this
contract. It is true that she did have eight days cruising
on the vessel and visited the Bay of Islands, Auckland,
Tauranga, Wellington and Picton, but those benefits were
entirely negated by the catastrophe which occurred upon
departure from Picton. Thus, I would allow the amount
claimed under this head."

"On this point it is my view that Carruthers J reached
the right conclusion. The respondent did not contract with
the appellant for an eight-day cruise, still less for an
eight-day cruise interrupted by the disaster which befell
the 'Mikhail Lermontov'. What she contracted for was a
relaxing holiday experience. It is this that she failed to
secure. The contract of carriage was properly categorised
as an entire contract. I agree with the judge that there
is a good analogy to Sir George Jessel MR's statement in
Re Hall and Barker ((7) (1878) 9 Ch D 538, at p 545):
'... If a shoemaker agrees to make a pair of shoes, he cannot
offer you one shoe, and ask you to pay one half of the price.'" He

7. In the Court of Appeal, the appellant also relied upon cl.9 of the printed ticket terms and conditions. That clause incorporated a right to proportional return of the consideration in certain circumstances ((8) In part the clause read:

"If, for any reason beyond the control of the Company during the
voyage hereunder, it is impossible for the vessel to continue to
perform the advertised voyage then the Company will use its best
endeavours to substitute for the vessel named on the Passenger
Ticket another vessel whether belonging to the Company or
whether or not in the same class.
In the event of such substitution the Passenger shall have the
option of accepting such substitute or of cancelling this
contract. In the event of such cancellation or in the event of
its inability to arrange a substitute the Company agrees to make
travel arrangements for the onward passage to the place of
scheduled disembarkation and return to the Passenger a
proportional amount of his passage money less expenses incurred
by the Company in respect of such onward passage.").

8. Accordingly, the Court of Appeal, by majority, held that the respondent was entitled to restitution of the balance of the fare.

9. In this Court, the appellant contends that the majority in the Court of Appeal erred in holding that the respondent was entitled to restitution of the whole of the fare. In support of this contention, the appellant submits that there was not a total failure of consideration arising from the fact that the contract of carriage was entire. The appellant also submits that a plaintiff cannot pursue both a claim for restitution of the consideration paid under a contract and a claim for damages for breach of that contract. It seems that this argument was not presented to, or considered by, the courts below. The merits of this argument, which will be considered below, do not necessarily depend on the availability of damages for disappointment and distress. That is but one head of damages whose recoverability is in question. However, if restitution is available and such damages are recoverable, questions of double compensation arise. Is the fare recoverable on the ground of total failure of consideration or otherwise?

10. An entire contract or, perhaps more accurately, an entire obligation is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. In Steele v. Tardiani ((9) [1946] HCA 21; (1946) 72 CLR 386, at p 401), Dixon J. cited the general proposition stated in EV. Williams' Notes to Saunders ((10) 6th ed. (1845), vol.1: Pordage v. Cole (1669) 1 Wms Saund 319, at p 320, n.(c) (85 ER 449, at p 453)):

"Where the consideration for the payment of money is entire
and indivisible, as where the benefit expected by the
defendant under the agreement is to result from the
enjoyment of every part of the consideration jointly, so
that the money payable is neither apportioned by the
contract, nor capable of being apportioned by a jury, no
action is maintainable, if any part of the consideration has
failed; for, being entire, by failing partially, it fails
altogether."

11. The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other's liability to pay the stipulated price or to render an agreed counter-performance ((11) Hoenig v. Isaacs (1952) 2 All ER 176, at pp 180-181; Glanville Williams, "Partial Performance of Entire Contracts", (1941) 57 Law Quarterly Review 373; Beck, "The Doctrine of Substantial Performance: Conditions and Conditions Precedent", (1975) 38 Modern Law Review 413). If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant's obligations were entire, on the facts as I have stated them, the appellant's incomplete performance of its obligations would not entitle it to recover.

12. When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract- breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration ((12) Goff and Jones, The Law of Restitution, 3rd ed. (1986), p 449; Birks, An Introduction to the Law of Restitution, rev. ed. (1989), pp 242-248). If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.

13. In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration ((13) Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) AC 32, at p 48). In that context, the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract. So, in Whincup v. Hughes ((14) (1871) LR 6 CP 78), the plaintiff apprenticed his son to a watchmaker for six years for a premium which was paid. The watchmaker died after one year. No part of the premium could be recovered. That was because there was not a total failure of consideration ((15) See also Hunt v. Silk [1804] EngR 356; (1804) 5 East 449 (102 ER 1142)). A qualification to this general rule, more apparent than real, has been introduced in the case of contracts where a seller is bound to vest title to chattels or goods in a buyer and the buyer seeks to recover the price paid when it turns out that title has not been passed. Even if the buyer has had the use and enjoyment of chattels or goods purportedly supplied under the contract for a limited time, the use and enjoyment of the chattels or goods has been held not to amount to the receipt of part of the contractual consideration. Where the buyer is entitled under the contract to good title and lawful possession but receives only unlawful possession, he or she does not receive any part of what he or she bargained for. And thus, it is held, there is a total failure of consideration ((16) Rowland v. Divall (1923) 2 KB 500; Butterworth v. Kingsway Motors Ltd. (1954) 1 WLR 1286). As this Court stated in David Securities Pty. Ltd v. Commonwealth Bank ((17) [1992] HCA 48; (1992) 66 ALJR 768, at p 779; [1992] HCA 48; 109 ALR 57, at p 78):

"the notion of total failure of consideration now looks to
the benefit bargained for by the plaintiff rather than any
benefit which might have been received in fact".

14. An alternative basis for the recovery of money paid in advance pursuant to a contract in expectation of the receipt of the consideration to be provided by the defendant may arise when the defendant's right to retain the payment is conditional upon performance of his or her obligations under the contract. This basis of recovery has a superficial, but not a close, resemblance to the concept of an entire contract. In this class of case the plaintiff may be entitled to recover so long as the payment remains conditional.

15. So, in Dies v. British and International Mining and Finance Corporation ((18) (1939) 1 KB 724), the plaintiff bought arms for the price of 135,000 pounds, paying 100,000 pounds in advance. Though unwilling or unable to take delivery, the plaintiff succeeded in recovering the payment, notwithstanding that Stable J. held that there was not a total failure of consideration. There can, of course, be no such failure when the plaintiff's unwillingness or refusal to perform the contract on his or her part is the cause of the defendant's non-performance. The decision is explicable either on the ground that the seller accepted the plaintiff's repudiation and thus itself effected the discharge of the contract ((19) Birks, op cit, p 237) or on the ground that the payment was a mere part payment, the right to which depended upon performance of the contract and was thus conditional ((20) Beatson, The Use and Abuse of Unjust Enrichment, (1991), p 54). Of the two explanations, the second is to be preferred because it is in closer accord with the judgment of Stable J. His Lordship said ((21) (1939) 1 KB, at p 743):

"(W)here the language used in a contract is neutral, the
general rule is that the law confers on the purchaser the
right to recover his money, and that to enable the seller to
keep it he must be able to point to some language in the
contract from which the inference to be drawn is that the
parties intended and agreed that he should".

"When a contract stipulates for payment of part of the
purchase money in advance, the purchaser relying only on the
vendor's promise to give him a conveyance, the vendor is
entitled to enforce payment before the time has arrived for
conveying the land; yet his title to retain the money has
been considered not to be absolute but conditional upon the
subsequent completion of the contract."

16. The question whether an advance payment, not being a deposit or earnest of performance, is absolute or conditional is one of construction. In determining that question it is material to ascertain whether the payee is required by the contract to perform work and incur expense before completing this performance of his or her obligations under the contract. If the payee is so required then, unless the contract manifests a contrary intention, it would be unreasonable to hold that the payee's right to retain the payment is conditional upon performance of the contractual obligations ((24) See Hyundai Shipbuilding and Heavy Industries Co. Ltd. v. Pournaras (1978) 2 Lloyd's Rep 502; Hyundai Heavy Industries Co. Ltd . v. Papadopoulos (1980) 1 WLR 1129; and the discussion in Beatson, op cit., pp 56-57).

17. I have come to the conclusion in the present case that the respondent is not entitled to recover the cruise fare on either of the grounds just discussed. The consequence of the respondent's enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was "entirely negated by the catastrophe which occurred upon departure from Picton" ((25) (1989) 21 NSWLR, at p 668), to repeat the words of the primary judge.

18. Nor is there any acceptable foundation for holding that the advance payment of the cruise fare created in the appellant no more than a right to retain the payment conditional upon its complete performance of its entire obligations under the contract. As the contract called for performance by the appellant of its contractual obligations from the very commencement of the voyage and continuously thereafter, the advance payment should be regarded as the provision of consideration for each and every substantial benefit expected under the contract. It would not be reasonable to treat the appellant's right to retain the fare as conditional upon complete performance when the appellant is under a liability to provide substantial benefits to the respondent during the course of the voyage. After all, the return of the respondent to Sydney at the end of the voyage, though an important element in the performance of the appellant's obligations, was but one of many elements. In order to illustrate the magnitude of the step which the respondent asks the Court to take, it is sufficient to pose two questions, putting to one side cl.9 of the printed ticket terms and conditions. Would the respondent be entitled to a return of the fare if, owing to failure of the ship's engines, the ship was unable to proceed on the last leg of the cruise to Sydney and it became necessary to airlift the respondent to Sydney? Would the fare be recoverable if, owing to a hurricane, the ship was compelled to omit a visit to one of the scheduled ports of call? The answer in each case must be a resounding negative.

19. The respondent sought to derive support from authorities relating to the contracts for the carriage of goods by sea which hold that freight is due on the arrival of the goods at the agreed destination. More to the point is the principle that an advance by the shipper on account of the freight to be earned is, in the absence of any stipulation to the contrary, "an irrevocable payment at the risk of the shipper of the goods" ((26) Allison v. Bristol Marine Insurance Co. (1876) 1 App Cas 209, per Lord Selborne at p 253; see also Greeves v. The West India and Pacific Steamship Company (1870) 22 LT 615). The result of this rule is that an advance on account of freight may be retained, notwithstanding that, because of a failure to complete the voyage and to deliver the goods, the freight remains unearned ((27) See Compania Naviera General S.A v. Kerametal Ltd. (The "Lorna I") (1983) 1 Lloyd's Rep 373) and that a payment due as an advance on account of freight is recoverable (if not duly paid) even after frustration of the voyage ((28) See Goff and Jones, op cit, p 451, n.14 . This does not mean that freight is earned prior to delivery: it will be earned upon shipment only if the parties expressly so stipulate). This rule, although it has been said to be a stipulation introduced into such contracts by custom and not the result of applying some abstract principle ((29) Fibrosa (1943) AC, at p 43), would certainly exclude a restitutionary claim on facts analogous to those in the present case. The combination of a claim for restitution and a claim for damages

20. In view of my conclusion that the respondent cannot succeed in her restitutionary claim for recoupment of the fare, there is no necessity for me to consider whether the two claims can be maintained. However, as the question has been argued, I should record my view of the question. There is authority to suggest that the claims are alternative and not cumulative ((30) e.g., Walstab v. Spottiswoode (1846) 15 M. and W. 501, per Pollock CB at p 514 (153 ER 947, at p 953)). But Lord Denning M.R. was clearly of the view that the claims may be concurrent. In Heywood v. Wellers, he said ((31) [1975] EWCA Civ 11; (1976) QB 446, at p 458):

"(The plaintiff) could recover the 175 pounds as money paid on a
consideration which had wholly failed. She was, therefore,
entitled to recover it as of right. And she is entitled to
recover as well damages for negligence. Take this instance.
If you engage a driver to take you to the station to catch a
train for a day trip to the sea, you pay him 2 pounds - and then
the car breaks down owing to his negligence. So that you
miss your holiday. In that case you can recover not only
your 2 pounds back but also damages for the disappointment, upset
and mental distress which you suffered".

"Some reduction should be made for the fact that if the
(defendants) had done their duty ... it would have cost her
something."

21. Similarly, in Millar's Machinery Company Limited v. David Way and Son ((33) (1935) 40 Com.Cas. 204), the Court of Appeal dismissed an appeal from a decision of Branson J. in which such a dual award was made. The case concerned a contract for supply of machinery. It was held that there had been a total failure of consideration and that the purchasers were entitled to recover the amount paid on account. In addition, the purchasers were held to be entitled to damages, the proper measure of which was ((34) ibid., at p 208):

"the sum which the (purchasers) had to spend to put
themselves in the position which they would have been if the
(suppliers) had carried out their contract".

22. And Treitel says in relation to claims for loss of bargain, reliance loss and restitution ((35) The Law of Contract, 8th ed. (1991), p 834. However, elsewhere he appears to treat the claims as alternatives: pp 932-933):

"There is sometimes said to be an inconsistency between
combining the various types of claim ...
The true principle is not that there is any logical
objection to combining the various types of claim, but that
the plaintiff cannot combine them so as to recover more than
once for the same loss ... The point has been well put by
Corbin: 'full damages and complete restitution ... will not
both be given for the same breach of contract' ((36) Corbin on
Contracts, para 1221. Emphasis added by Treitel)."

23. The action to recover money paid on a total failure of consideration is on a common money count for money had and received to the use of the plaintiff ((37) Fibrosa (1943) AC, at pp 61-63. To the extent that it is necessary to say so, this decision correctly reflects the law in Australia and, to the extent that it is inconsistent, should be preferred to the decision of this Court in In re Continental C. and G. Rubber Co. Proprietary Ltd. [1919] HCA 62; (1919) 27 CLR 194). The action evolved from the writ of indebitatus assumpsit ((38) See Lucke, "Slade's Case and the Origin of the Common Counts - Part 3" (1966) 82 Law Quarterly Review 81). It is available only if the contract has been discharged, either for breach or following frustration ((39) Goff and Jones, op cit, p 449, states that the law in either case is "fundamentally similar". The House of Lords in Fibrosa drew no distinction), and if there has been a total, and not merely partial, failure of consideration ((40) The action in debt based on a partial failure of consideration (Anon, (1293) YB 21-22 Edw I (R.S.) 110-111) disappeared in the middle ages. See Stoljar, A History of Contract at Common Law, (1975), p 7). It is now clear that, in these cases, the discharge operates only prospectively, that is, it is not equivalent to rescission ab initio. Nor is rescission ab initio a precondition for recovery ((41) Fibrosa (1943) AC, at pp 49, 53, 57, 60, 70, 73, 83). Unconditionally accrued rights, including accrued rights to sue for damages for prior breach of the contract ((42) McDonald v. Dennys Lascelles Ltd. (1933) 48 CLR, per Dixon J. at p 477), are not affected by the discharge. Prepayments can, in general, be recovered, but the position of deposits or earnests is not entirely clear, the better view being that they are not recoverable if paid to provide a sanction against withdrawal ((43) Birks, op cit, pp 223-224; Mayson v. Clouet (1924) AC 980).

24. In 1846, when Pollock CB held in Walstab v. Spottiswoode that it was not possible to combine a claim for damages with one for restitution, the restitutionary action was brought on the writ of indebitatus assumpsit ((44) Stoljar, op cit, pp 116-117, notes that the availability of indebitatus assumpsit (from the late seventeenth century) in such quasi- contractual situations supplementing and eventually supplanting debt and account (see Jackson, The History of Quasi-Contract in English Law, (1936), p 18 et seq. and Stoljar, op cit, p 181), was essentially a procedural development, simplifying recovery and providing a more convenient or more summary remedy). Subsequently, Lord Wright said in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. ((45) (1943) AC, at p 63):

"The writ of indebitatus assumpsit involved at least two
averments, the debt or obligation and the assumpsit. The
former was the basis of the claim and was the real cause of
action. The latter was merely fictitious and could not be
traversed, but was necessary to enable the convenient and
liberal form of action to be used in such cases."

25. But, in the circumstances prevailing in 1846, it is not difficult to see that a plaintiff would necessarily be put to an election between the real and fictitious promises. In cases of tort it is equally plain that there had to be a choice between an action on a fictitious assumpsit (waiving the tort) and seeking damages for the tort.

26. The decision in Walstab v. Spottiswoode may also be seen as a consequence of two historical threads. The first is the competition in the latter part of the sixteenth century between the judges of the King's Bench and those of the Common Pleas as to the relationship between debt and assumpsit. The critical decision in the resolution of the conflict was Slade's Case ((49) [1598] EngR 39; (1602) 4 Co Rep 92b (76 ER 1074); also reported as Slade v. Morley Yelv 21 [1792] EngR 2268; ; (80 ER 15), MooKB 433 [1688] EngR 1020; (72 ER 677)). While the precise contemporary import of the decision is a matter of controversy ((50) See Lucke, "Slade's Case and the Origin of the Common Counts", (1964) 81 Law Quarterly Review 422 and 539, (1966) 82 Law Quarterly Review 81; Baker, "New Light on Slade's Case", (1971) Cambridge Law Journal 51 and 213; Ibbetson, "Sixteenth Century Contract Law: Slade's Case in Context", (1984) 4 Oxford Journal of Legal Studies 295.), it was taken in the seventeenth century as deciding that indebitatus assumpsit lay as well as debt to recover sums due under a contract in the absence of an express subsequent promise to pay ((51) See Ibbetson, op cit). The assumpsit o r promise was founded "not upon any fiction of law, but upon an interpretation of facts by the court which led it to the genuine conclusion that the parties had actually agreed (to make the payment)" ((52) Winfield, The Law of Quasi-Contracts, (1952), p 7).

27. The second is the decision at around the same time that indebitatus assumpsit lay in circumstances where the assumpsit was necessarily imputed rather than genuinely implied from the facts ((53) See Winfield, op cit , p 8; Jackson, op cit, pp 40-41). Arris v. Stukley ((54) (1677) 2 Mod. 2 60 (86 ER 1060)) is an example. In that case, the defendant, who had been granted by letters patent the office of comptroller of the customs at the port of Exeter, continued to pretend title to that office after its termination and grant to the plaintiff. The Court held that indebitatus assumpsit lay to recover the profits received by the defendant after the grant of the office to the plaintiff. In Holmes v. Hall ((55) (1704) 6 Mod 161 (87 ER 918); Holt KB 36 [1695] EngR 28; [1695] EngR 28; (90 ER 917)), Holt C.J. refused to nonsuit the plaintiff who sued on an indebitatus assumpsit to recover moneys he paid as executor to the defendant who held certain writings of the testator. The defendant failed to perform his promise to deliver up the writings ((56) According to the Modern Reports, the plaintiff was nonsuited when it became clear that the money was paid in discharge of a debt owed by the testator to the defendant: (1704) 6 Mod., at p 161 (87 ER, at p 919)).

28. But it was recognized early on that cases like Holmes v. Hall were equally cases of breach of contract in which a special assumpsit lay, and the question was raised whether the plaintiff should be required to bring his or her action in that form. In Moses v. Macferlan, Lord Mansfield said ((57) (1760) 2 Burr, at p 1010 (97 ER, at pp 679-680)) that the plaintiff would be permitted to proceed on an indebitatus assumpsit, although an action for damages in covenant or on a special assumpsit was available. He continued:

"If the plaintiff elects to proceed in this favourable way
(on the indebitatus assumpsit), it is a bar to his bringing
another action upon the agreement; though he might recover
more upon the agreement, than he can by this form of
action."

"(T)he defendant by a refusal to execute, or by a complete
and selfevident inability to perform, or by a fraudulent
execution he has given the plaintiff an option to disaffirm
the contract, and recover the consideration he was paid for
it in the same manner as if it had never existed ... But
then the contract must be totally rescinded, and appear
unexecuted in every part at the time of bringing the action;
since otherwise, the contract is affirmed by the plaintiff's
having received part of that equivalent for which he has
paid his consideration, and it is then reduced to a mere
question of damages proportionate to the extent to which it
remains unperformed."

29. This insistence on rescission or the non-existence of an "open" contract makes it easier to understand how the decision in Chandler v. Webster ((60) (1904) 1 KB 493. It was overruled in Fibrosa) was reached. We now know the effect of discharge to be different and, as Fibrosa indicates, nothing more than that usual effect is necessary to ground the action to recover money paid on a total failure of consideration. Conclusion: the respondent cannot recover the fare and damages for breach of contract

30. The old forms of action cannot provide the answer today. But, in my view, Walstab v. Spottiswoode and the earlier cases support the view expressed by Corbin and Treitel that full damages and complete restitution will not be given for the same breach of contract. There are several reasons. First, restitution of the contractual consideration removes, at least notionally, the basis on which the plaintiff is entitled to call on the defendant to perform his or her contractual obligations. More particularly, the continued retention by the defendant is regarded, in the language of Lord Mansfield, as "against conscience" or, in the modern terminology, as an unjust enrichment of the defendant because the condition upon which it was paid, namely, performance by the defendant may not have occurred ((61) See Fibrosa (1943) AC, per Lord Wright at pp 65-67). But, equally, that performance, for deficiencies in which damages a re sought, was conditional on payment by the plaintiff. Recovery of the money paid destroys performance of that condition. Secondly, the plaintiff will almost always be protected by an award of damages for breach of contract, which in appropriate cases will include an amount for substitute performance or an amount representing the plaintiff's reliance loss. It should be noted that nothing said here is inconsistent with McRae v. Commonwealth Disposals Commission ((62) [1951] HCA 79; ; (1951) 84 CLR 377).

31. I would therefore conclude that, even if the respondent had an entitlement to recover the cruise fare, Carruthers J. and the majority of the Court of Appeal erred in allowing restitution of the balance of the fare along with damages for breach of contract. The consequences of this conclusion will be considered below in light of the conclusion to be reached with regard to the award of damages for disappointment and distress. THE CLAIM FOR DAMAGES FOR DISAPPOINTMENT AND DISTRESS

32. Pain and suffering is a well-known common law head of damage recoverable in actions for damages for personal injury, whether awarded for tortious conduct or conduct which constitutes a breach of statutory duty. And, in some circumstances at least, a plaintiff can recover damages for injury to his or her feelings caused by tortious conduct; assault, false imprisonment, malicious prosecution and defamation are causes of action in which a plaintiff may recover damages on that score. This is not surprising. As Lord Cranworth V.-C. observed in Kemp v. Sober ((63) [1851] EngR 487; (1851) 1 Sim(NS) 517, at p 520 [1851] EngR 487; (61 ER 200, at p 201)), "the feeling of anxiety is damage". No doubt his Lordship, by that statement, intended to convey that damages could be recovered by a plaintiff for anxiety, disappointment or distress when those feelings were the consequence of conduct for which damages are recoverable and the damages recoverable for that actionable wrong include compensation for injured feelings of that kind.

33. Even more significant for the purposes of the present case was Lord Cranworth's conclusion that the owner of an estate having the benefit of a negative covenant against the carrying on of a business or calling suffered actual damage when a school was carried on in breach of the covenant. The basis of his Lordship's conclusion was expressed in these terms ((64) ibid):

"But a person who stipulates that her neighbour shall not
keep a school stipulates that she shall be relieved from all
anxiety arising from a school being kept and the feeling of
anxiety is damage."

34. Despite Kemp v. Sober, for a long time it was considered that, in general, damages for injured feelings of the kind just mentioned could not be awarded in an action for breach of contract. So, in Hamlin v. Great Northern Railway Company ((65) (1856) 1 H. and N. 408 [1856] EngR 918; (156 ER 1261)), where the plaintiff recovered pecuniary loss and nominal damages but was refused damages for distress arising from the defendant's failure to carry him by train to Hull in breach of contract resulting in his being delayed for days and missing appointments with customers, Pollock CB said ((66) ibid., at p 411 (p 1262 of ER)):

"(G)enerally in actions upon contracts no damages can be
given which cannot be stated specifically, and ... the
plaintiff is entitled to recover whatever damages naturally
result from the breach of contract, but not damages for
the disappointment of mind occasioned by the breach of
contract". (emphasis added)

"(F)or the mere inconvenience, such as annoyance and loss
of temper, or vexation, or for being disappointed in a
particular thing which you have set your mind upon, without
real physical inconvenience resulting, you cannot recover
damages".

35. Subsequently, in Addis v. Gramophone Company Limited ((68) [1909] UKHL 1; (1909) AC 488), the House of Lords held that the plaintiff could not recover in an action for damages for breach of contract in respect of his injured feelings and loss of employment prospects arising from the harsh and humiliating manner of his dismissal. The same approach has been adopted in the United States ((69) Southern Express Co. v. Byers [1916] USSC 106; (1915) 240 US 612; Farnsworth on Contracts, (1990), vol.3, section 12.17, pp 274-276; Restatement, Second, Contracts, para 353) and Canada ((70) Vorvis v. Insurance Corporation of British Columbia (1989) 58 DLR (4th) 193, but cf. the strong dissenting judgment of Wilson J. (L'Heureux-Dube J. concurring) at pp 212-220), but it has not been followed in New Zealand ((71) Whelan v. Waitaki Meats Ltd. (1991) 2 NZLR 74; see also Horsburgh v. NZ Meat Processors Union (1988) 1 NZLR 698, per Cooke P at pp 701-702; Hetherington v. Faudet (1989) 2 NZLR 224, per Cooke P at p 227). The only consideration of the principle in this Court is the approval by Dixon and McTiernan JJ. in Fink v. Fink ((72) [1946] HCA 54; (1946) 74 CLR 127, at pp 142-143) of the statement of Pollock CB in Hamlin v. Great Northern Railway Company set out above ((73) The principle was referred to briefly and without decision in Mann v. Capital Territory Health Commission [1982] HCA 10; (1982) 148 CLR 97, at p 103). The general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract is, in any event, subject to exceptions to which I shall refer shortly. The scope of the exceptions has been expanded by judicial decision in recent years, so much so that the authority of the general rule is now somewhat uncertain.

36. The conceptual and policy foundations of the general rule are by no means clear. It seems to rest on the view that damages for breach of contract are in essence compensatory ((74) See Whitfield v. De Lauret and Co. Ltd. [1920] HCA 75; (1920) 29 CLR 71, per Isaacs J. at p 80) and that they are confined to the award of that sum of money which will put the injured party in the financial position the party would have been in had the breach of contract not taken place. On that approach, anxiety and injured feelings do not, generally speaking, form part of the plaintiff's compensable loss which flows from a breach of contract.

37. At bottom, this approach to the problem is based on a policy of excluding the recovery of compensation for injured feelings in cases of breach of contract or confining recovery to cases of a limited class or classes, viz., those where physical inconvenience is caused by the breach of contract. This policy is based on an apprehension that the recovery of compensation for injured feelings will lead to inflated awards of damages in commercial contract cases, if not contract cases generally ((75) Hayes v. Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, per Staughton LJ. at p 823). Treitel suggests that this approach is sensible because "anxiety is an almost inevitable concomitant of expectations based on promises, so that a contracting party must be deemed to take the risk of it" ((76) op cit, p 878).

38. But one might ask why the injured party should be deemed to take the risk of damage of a particular kind when the fundamental principle on which damages are awarded at common law is that the injured party is to be restored to the position (not merely the financial position) in which the party would have been had the actionable wrong not taken place. Add to that the fact that anxiety and injured feelings are recognized as heads of compensable damage, at least outside the realm of the law of contract. Add as well the circumstance that the general rule has been undermined by the exceptions which have been engrafted upon it. We are then left with a rule which rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages, the more so now that the approaches in tort and contract are converging.

39. It is convenient now to take stock of the exceptions to the general rule ((77) For the exceptions to the general rule in the United States, see Farnsworth, op cit, vol.3, section 12.17, pp 274-275; Restatement, Second, Contracts, section 353). First, damages for injured feelings were recoverable in the action for damages for breach of promise of marriage. Secondly, it is beyond question that a plaintiff can recover damages for pain and suffering, including mental suffering and anxiety, where the defendant's breach of contract causes physical injury to the plaintiff ((78) Damages for pain and suffering consequent upon physical injury caused by breach of contract may be awarded: Godley v. Perry (1960) 1 WLR 9, at p 13; and damages for pain and suffering may include compensation for injured feelings. The class of physical injury for which damages are available includes nervous shock: Mount Isa Mines Ltd. v. Pusey [1970] HCA 60; (1970) 125 CLR 383). Thirdly, there are cases in which damages for breach of contract have included compensation for the physical inconvenience suffered by the plaintiff in certain circumstances. They include the physical inconvenience suffered by a plaintiff when the defendant's train did not carry him to the stipulated destination ((79) Hobbs v. London and South Western Railway Co.; but cf. Hamlin v. Great Northern Railway Company) and that suffered by a plaintiff who purchased property with defects not revealed in the surveyor's report upon which the plaintiff relied ((80) Perry v. Sidney Phillips and Son (1982) 1 WLR 1297; Watts v. Morrow [1991] EWCA Civ 9; (1991) 1 WLR 1421). Fourthly, courts have included compensation for an element of subjective mental suffering where the plaintiff has sustained physical inconvenience as a result of the defendant's breach of contract and the mental suffering is directly related to that physical inconvenience ((81) Hobbs v. London and South Western Railway Co. (1875) LR 10 QB, per Cockburn C.J. at p 116; Archibald J. at p 124; Bailey v. Bullock (1950) 2 All ER 1167, at pp 1171-1172; Athens-MacDonald Travel Service Pty. Ltd. v. Kazis (1970) SASR 264, per Zelling J. at pp 274- 275; and see Watts v. Morrow (1991) 1 WLR, per Ralph Gibson LJ. at pp 1439-1440; Bingham LJ. at p 1445). Finally, there are other cases in which the plaintiff has recovered damages for distress, vexation and frustration where the very object of the contract has been to provide pleasure, relaxation or freedom from molestation. So, in Heywood v. Wellers ((82) [1975] EWCA Civ 11; (1976) QB 446), where the plaintiff instructed a solicitor to obtain an injunction to protect the client from molestation and the solicitor negligently failed to do so, the client recovered damages for the mental distress she suffered in consequence of being molested. The contract between the client and the solicitor had as its object the protection of the client from molestation of the kind which occurred ((83) ibid., per Lord Denning M.R. at pp 458-459; James L.J. at pp 461-462; Bridge L.J. at pp 463-464). Likewise, plaintiffs have recovered damages for disappointment and distress caused by the breach of a contract to provide a stipulated holiday, entertainment or enjoyment, the object of the contract being to provide pleasure or relaxation ((84) Jarvis v. Swans Tours Ltd. [1972] EWCA Civ 8; (1973) QB 233, per Lord Denning M.R. at pp 237-238; Edmund Davies LJ. at pp 238-240; Jackson v. Horizon Holidays Ltd. (1975) 1 WLR 1468).

40. The approach which has been taken in the more recent English decisions, particularly those decisions which vindicate the last three of the exceptions set forth above, is based on the rule in Hadley v. Baxendale ((85) [1854] EngR 296; (1854) 9 Ex 341 (156 ER 1 5)). Thus, in Cox v. Philips Industrie s Ltd. ((86) (1976) 1 WLR 638, at p 644; see also Heywood v. Wellers (1976) QB, per Lord Denning M.R. at p 459; James LJ. at p 461), Lawson J. concluded that there was:

"no reason in principle why, if a situation arises which
within the contemplation of the parties would have given
rise to vexation, distress and general disappointment and
frustration, the person who is injured by a contractual
breach should not be compensated in damages for that
breach".

"But the rule is not absolute. Where the very object
of a contract is to provide pleasure, relaxation, peace of
mind or freedom from molestation, damages will be awarded if
the fruit of the contract is not provided or if the contrary
result is procured instead. If the law did not cater for
this exceptional category of case it would be defective. A
contract to survey the condition of a house for a
prospective purchaser does not, however, fall within this
exceptional category.
In cases not falling within this exceptional category,
damages are in my view recoverable for physical
inconvenience and discomfort caused by the breach and mental
suffering directly related to that inconvenience and
discomfort."

41. The rule in Hadley v. Baxendale ((90) (1854) 9 Ex, per Alderson B. at p 354 (156 ER, at p 151)) presents a somewhat narrower test than that posed by the concept of foreseeability and therefore avoids some of the criticisms to which that concept is exposed. The rule in Hadley v. Baxendale would entitle the plaintiff to damages for disappointment and distress when those damages are ((91) ibid):

"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".

42. In C. Czarnikow Ltd. v. Koufos ((92) [1967] UKHL 4; (1969) 1 AC 350), the House of Lords held that damage in the reasonable contemplation of the parties must be "a serious possibility", "a real danger", "liable to result" or "not unlikely" to occur. In Wenham v. Ella ((93) [1972] HCA 43; (1972) 127 CLR 454, at pp 471-472), Gibbs J. found it unnecessary to decide which of these expressions conveyed most precisely the desired shade of meaning but stated that a person suing for breach of contract did not need to establish that the loss was "a near certainty or an odds-on probability".

43. Wilson J., in her dissenting judgment in Vorvis v. Insurance Commission of British Columbia ((94) (1989) 58 DLR (4th), at pp 218-219), accepted that the principle stated in Czarnikow was the test to apply in determining whether damages for disappointment and distress should be awarded for breach of contract. The merits of this approach to the problem are obvious. Damages for disappointment and distress are put on precisely the same footing as other heads of damage in cases of breach of contract.

44. On the other hand, as a matter of ordinary experience, it is evident that, while the innocent party to a contract will generally be disappointed if the defendant does not perform the contract, the innocent party's disappointment and distress are seldom so significant as to attract an award of damages on that score. For that reason, if for no other, it is preferable to adopt the rule that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation. In cases falling within the last-mentioned category, the damages flow directly from the breach of contract, the promise being to provide enjoyment, relaxation or freedom from molestation. In these situations the court is not driven to invoke notions such as "reasonably foreseeable" or "within the reasonable contemplation of the parties" because the breach results in a failure to provide the promised benefits. In my view, this approach to the problem is to be preferred to the artificial expedient of saying that damages of the kind under consideration will be awarded for breaches of non-commercial contracts but not for breaches of commercial contracts. That expedient requires a distinction to be drawn between commercial and non-commercial contracts; that distinction is by no means easy to draw and, in any event, it is not a distinction which should necessarily be decisive in determining whether such damages are available or not.

45. In the present case, the contract, which was for what in essence was a "pleasure cruise", must be characterized as a contract the object of which was to provide for enjoyment and relaxation. It follows that the respondent was entitled to an award of damages for disappointment and distress and physical inconvenience flowing from that breach of contract. Indeed, an award for disappointment and distress consequential upon physical inconvenience was justified on that account alone.

46. No submission was addressed to the Court that, in the event that the claim for restitution of the fare was disallowed, the award of damages for disappointment and distress should be increased. In this regard, it is pertinent to refer to Kirby P.'s comments. His Honour said ((95) (1991) 22 NSWLR, at p 31):

"Whilst I would not myself have awarded the sum of
$5,000 for disappointment etc, particularly after having
ordered the return of the whole of the ticket price, I have
to defer to his Honour's advantage in weighing the effect of
disappointment of the respondent whom he saw. Unless there
is some exceptional circumstance increasing the sting of the
failure to provide the enjoyment and pleasure promised, I
would be inclined to suggest that no more than half the sum
awarded in this case should be the norm for the ordinary
passenger. I refrain from disturbing the sum which his
Honour fixed in this case only because it might have been
influenced (as assessments of the benefit and loss of
enjoyment and pleasure typically are) by the impression
which his Honour derived from seeing the respondent give
evidence of her disagreement."

47. On the hearing of the appeal, the respondent was given leave to raise the contention that, in the event that it was held that the award of $1,417 as restitution of the balance of the fare ought not to have been made as such, nonetheless the verdict ought not be disturbed since the sum so awarded as restitution damages was in any event recoverable, although properly identified under a different head. I agree with McHugh J., whose judgment I have had the benefit of reading since writing this judgment, that this contention must be rejected for the reasons arising out of the passage from the judgment of Kirby P. set out above. If the respondent were to retain that sum and the sum of $5,000 awarded as compensation for disappointment and distress, her compensation would be excessive. CONCLUSION

48. In the result, the appeal should be allowed and the order of the Court of Appeal, so far as it dismissed the appeal to that Court, be set aside. In lieu of that part of the order of the Court of Appeal, it should be ordered that the appeal to that Court be allowed and that the order made by Carruthers J. for restitution of the fare and so much of the award of interest as relates to the order for restitution be set aside. Although the appeals to this Court and to the Court of Appeal have been allowed, the actual success of the appellant has been limited. I see no reason to disturb the order for costs made by the Court of Appeal. The appellant should pay 75 per cent of the costs of the respondent in this Court.

BRENNAN J. The Chief Justice has stated the relevant facts in this appeal and has defined the issues for determination. It is clear that, until the ship foundered, the plaintiff (the respondent) was receiving "the benefit bargained for under the contract" ((96) Rover International Ltd. v. Cannon Film Ltd. (1989) 1 WLR 912, at p 923). Whether or not the contract was entire, the consideration did not totally fail. Therefore, I respectfully agree with the Chief Justice, for the reasons which his Honour gives, that the plaintiff was not entitled to a return of the fare as money paid for a consideration that totally failed.

2. There remains the question of the plaintiff's entitlement to damages described as "compensation for disappointment and distress". In Hamlin v. Great Northern Railway Company ((97) (1856) 1 H.and N.408, at p 411 (156 ER 1261, at p 1262) followed in Fink v. Fink [1946] HCA 54; (1946) 74 CLR 127, at p 143), Pollock CB said that a plaintiff in an action for breach of contract "is entitled to recover whatever damages naturally result from the breach of contract, but not damages for the disappointment of mind occasioned by the breach of the contract". Damage and disappointment of mind may be caused equally by the breach, but damages are not generally recoverable for disappointment of mind. (It will aid our analysis of principle if we confine the meaning of "damage" hereafter to the phenomenon in respect of which an assessment of damages is made, excluding the assessment itself.) The distinction between damage naturally resulting and disappointment of mind is based not on causation, but on remoteness ((98) See Vorvis v. Insurance Corporation of British Columbia (1989) 58 DLR (4th) 193, per Wilson J. (dissenting) at pp 218-219; Heywood v. Wellers [1975] EWCA Civ 11; (1976) QB 446, at p 461; and cf. Wilson v. United Counties Bank Ltd. (1920) AC 102, at p 132 (a case of damage to reputation)). That distinction accords with the observation of Pollock CB in Hamlin v. Great Northern Railway Company which confined the plaintiff's damages for breach of contract to "damages of a pecuniary kind as he may have really sustained as a direct consequence of the breach of contract" (emphasis added) ((99) (1856) 1 H. and N., at p 411 (156 ER, at p 1262)).

3. Remoteness is governed by the rules in Hadley v. Baxendale((100) [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145)) which prescribe the measure of damages in respect of breach of contract to include not only damage naturally resulting from the breach ("i.e., according to the usual course of things"((101) ibid., at p 354 (p 151)) but also damage which might "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"((102) ibid.). Additional or special knowledge known to both parties may widen or contract the scope of liability for breach. These rules have been merged in a single principle((103) The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 CLR64, at p 92) expressed by Lord Reid in C. Czarnikow Ltd. v. Koufos((104) (1969) AC350, at p 385) and adopted in this Court((105) Wenham v. Ella (1972) 127 CLR454, at p 471; Burns v. M.AN. Automotive (Aust.) Pty. Ltd. (1986) 161 CLR653, at p 667; The Commonwealth v. Amann Pty. Ltd. (1991) 174 CLR, at pp 92, 99):

"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."

4. In one sense, a promisee's disappointment of mind flows naturally whenever a contractual promise is not fulfilled. This is the point made by Lord Atkinson in Addis v. Gramophone Company Limited((106) [1909] UKHL 1; (1909) AC 488, at pp 495-496). But where disappointment of mind is no more than a mental reaction to a breach of contract and damage flowing therefrom, the law has treated such a mental reaction as too remote((107) Cf. Hobbs v. London and South Western Railway Co. (1875) LR 10 QB 111, at p 122). Thus, in Fink v. Fink, Dixon and McTiernan JJ. held((108) (1946) 74 CLR, at p 144; and see Vivian v. Coca-Cola Export Corporation (1984) 2 NZLR 289; but cf. Whelan v. Waitaki Meats (1991) 2 NZLR 74, per Gallen J. at pp 86-89) that, in assessing the amount to be awarded for breach of contract, "(r)esentment, disappointment and the loss of esteem of friends are not proper elements". In my opinion, there is a sound policy underlying this rule.

5. The institution of contract, by which parties are empowered to create a charter of their rights and obligations inter se, can operate effectively only if the parties, at the time when they create their charter, can form some estimate of liability in the event of default in performance. But no approximate estimate of liability could be formed if the subjective mental reaction of an innocent party to a breach and resultant damage were added on as further damage without proof of pecuniary loss by the innocent party. If the mental reaction to breach and resultant damage were itself a head of damage, the liability of a party in breach would be at large and liable to fluctuation according to the personal situation of the innocent party. If a promisor were exposed to such an indefinite liability in the event of breach, the making of commercial contracts would be inhibited((109) Addis v. Gramophone Company Limited (1909) AC, at p 495), the assignment of a contractual right would carry new risks for the party subject to the reciprocal obligation, and trade and commerce would be seriously impeded((110) Hayes v. Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, at p 823; Treitel, The Law of Contract, 8th ed. (1991), p 878).

6. This policy has no relevance to the measure of damages in tort. The rights infringed by a wrongdoer are not acquired by bargain but are imposed by law in order to keep an innocent party secure from the consequences of proscribed acts or omissions. Unlike a party entering into a contract who negotiates to protect himself from a risk of injury, the wrongdoer's victim has no opportunity to negotiate protection((111) Per Lord Reid in C. Czarnikow Ltd. v. Koufos (1969) AC, at p 386). The policy of the law would fail if the wrongdoer were to be exempt from liability for "resentment, disappointment and the loss of esteem" suffered by the innocent party in consequence of the wrong done.

7. If I have correctly apprehended the policy underlying the contractual rule, it is clear that the Hamlin v. Great Northern Railway Company principle has no application when (to adopt the words of Pollock CB) the "disappointment of mind" is itself the "direct consequence of the breach of contract". In such a case the disappointment is not merely a reaction to the breach and resultant damage but is itself the resultant damage. If a contract contains a promise, express or implied, that the promisor will not cause the promisee, or will protect the promisee from, disappointment of mind, it cannot be said that disappointment of mind resulting from breach of the promise is too remote. Such a promise is expressed or implied in many contracts the object of which is to provide a service or facility conducive to peace of mind, tranquillity of environment or ease of living((112) Branchett v. Beaney (1992) 3 All ER 910, at p 916; Bliss v. South East Thames Regional Health Authority (1987) ICR 700, at p 718) and damages have been awarded accordingly. Analogously, damages have been awarded without proof of pecuniary loss for damage caused in direct breach of a contractual promise where the damage consists in a general loss of reputation((113) Wilson v. United Counties Bank Ltd.; and cf. Herbert Clayton and Jack Waller Ltd. v. Oliver (1930) AC 209 (a case of loss of publicity: see pp 220, 221)) but, except in the "direct breach" cases, damages are not awarded for general loss of reputation without proof of pecuniary loss((114) Foaminol Ltd. v. British Plastics Ltd. (1941) 2 All ER 393, at pp 399-400). The distinction between a case where a contract is expressed to protect a promisee from disappointment of mind and a case where disappointment of mind is merely a mental reaction to a breach and resultant damage appears in Heywood v. Wellers. That was a case of a solicitor's negligence in prosecuting proceedings in accordance with his retainer. Bridge LJ. said((115) (1976) QB, at pp 463-464):

"There is, I think, a clear distinction to be drawn
between mental distress which is an incidental consequence
to the client of the misconduct of litigation by his
solicitor, on the one hand, and mental distress on the
other hand which is the direct and inevitable consequence
of the solicitor's negligent failure to obtain the very
relief which it was the sole purpose of the litigation to
secure. The first does not sound in damages: the second
does."

8. The principle applies to cases where peace of mind is promised. In Kemp v. Sober((116) [1851] EngR 487; (1851) 1 Sim(NS) 517, at p 520 (61 ER 200, at p 201)) Lord Cranworth VC. observed that:

"a person who stipulates that her neighbour shall not keep
a school stipulates that she shall be relieved from all
anxiety arising from a school being kept; and the feeling
of anxiety is damage."

"Take a very simple case where the contract is strictly
confined to the making of a promise, for a consideration,
that the person receiving the consideration would not annoy
the other person, e.g., where a householder with a serious
case of illness in his house paid a bandmaster not to play
in front of the house, and it was shown that the bandmaster
had broken the contract; here the very breach involves
proof of the thing in the contemplation of the parties,
i.e., the creation of a risk of disturbance to the sick
person. Could it be said that if nothing else was proved
only nominal damages could be recovered? In my opinion the
mere breach of such a contract brings about the very
consequence contemplated by the parties."

"Where the very object of a contract is to provide pleasure,
relaxation, peace of mind or freedom from molestation,
damages will be awarded if the fruit of the contract is not
provided or if the contrary result is procured instead. If
the law did not cater for this exceptional category of case
it would be defective."

9. In the present case, the plaintiff was promised a holiday cruise, an interlude to relax the mind and refresh the spirits. Or, at the least, the defendant promised to exercise all reasonable care to provide such a cruise. In breach of the contract, she was shipwrecked: an event provoking severe tension of mind and depression of spirit. The damage inevitably and directly consequent on the breach of the implied promise to carry her safely (or to use all reasonable care to carry her safely) to her destination was not simply a non-performance of the carriage but an exposure of the plaintiff to danger and an infliction of mental distress. The "disappointment and distress" in respect of which the trial judge awarded an amount of damages was a result of the shipwreck that occurred in breach of the defendant's contractual obligation. It was such an inevitable and direct result of that breach that it is proper to hold that it flowed naturally from the breach. An award of damages for "disappointment and distress" was therefore right in principle. The amount of that award is in issue.

10. Damages for breach of contract, the measure of which is governed by Robinson v. Harman((120) [1848] EngR 135; (1848) 1 Ex 850, at p 855 (154 ER 363, at p 365), followed in The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 CLR, at pp 80, 98, 117, 134, 148, 161), are intended to restore the plaintiff to the same situation as if the contract had been performed. As Mason C.J. and Dawson J. said in The Commonwealth v. Amann Aviation Pty. Ltd.((121) (1991) 174 CLR, at p 82):

"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."

11. I agree with the orders proposed by the Chief Justice.

DEANE AND DAWSON JJ. These proceedings arise out of the sinking of the "Mikhail Lermontov" off the South-Eastern coast of New Zealand in the late afternoon and evening of 16 February 1986. The respondent, Mrs Dillon, who was a passenger on the ship on a Sydney to Sydney pleasure cruise, suffered physical injuries and emotional trauma and lost items of personal property in the course of the shipwreck. She was also distressed and disappointed by reason of the fact that what had been planned and purchased as a happy holiday experience had ended in catastrophe.

2. Shortly after the shipwreck, the appellant ("Baltic"), who was the owner of the ship and the operator of the cruise, refunded $787.50 to Mrs Dillon as a "full refund ... of the unused portion of (the) passage money". Subsequently, in response to claims made by Mrs Dillon, Baltic paid her a further $4,786 by way of "settlement" of any claim she might have against it. Mrs Dillon accepted that amount and executed a deed of release. Notwithstanding that settlement, Mrs Dillon instituted the present proceedings against Baltic in the Admiralty Division of the Supreme Court of New South Wales. Ultimately, the appellant admitted negligence. However, it denied any further liability to Mrs Dillon.

3. The learned Judge in Admiralty (Carruthers J.) held that the settlement which Mrs Dillon had made and the deed of release which she had executed should be declared void ab initio pursuant to the provisions of ss.7 and 9 of the Contracts Review Act 1980 (N.S.W.) and of s.87 of the Trade Practices Act 1974 (Cth). He also held that Baltic's standard conditions limiting liability had not, in the circumstances of the case, formed part of the contract between Baltic and Mrs Dillon. After making allowance for the $4,786 which Mrs Dillon had received on account of the "settlement", he made a total award of damages in her favour in the amount of $51,396, calculated as follows:

"Restitution of (balance of)
fare $1,417
Loss of (items of personal
property) 4,265
Compensation for disappointment
and distress at the loss of
the entertainment, etc 5,000
Damages for personal injuries
(including emotional trauma) 35,000
Interest 10,500
56,182
Less paid by the defendant 4,786
$51,396"

4. Two issues now remain for determination on this appeal. The first is whether Mrs Dillon was entitled to the order made in her favour for "(r)estitution" of the amount of $1,417 being the balance of the fare after the refund of $787.50, that is to say, being that part of the fare which Baltic claims to be attributable to the period of the cruise which had expired before the shipwreck. The second is whether Mrs Dillon was entitled to "(c)ompensation for disappointment and distress at the loss of the entertainment, etc.". Restitution of balance of the fare

5. The learned trial judge and the majority of the Court of Appeal held that Mrs Dillon was entitled to a refund of the whole fare. The money had, in their Honours' view, been paid under a contract of passage which was an entire contract. It had been paid for an indivisible consideration which had wholly failed. In the words of Kirby P. (with whom Gleeson C.J. agreed on this aspect of the case), Mrs Dillon "did not contract with the appellant for an eight day cruise, still less for an eight day cruise interrupted by the disaster which befell the "Mikhail Lermontov". What she contracted for was a relaxing holiday experience. It is this that she failed to secure." Both the learned trial judge and the majority of the Court of Appeal thought that there was a good analogy between the present case and Sir George Jessel M.R.'s well known example in In re Hall and Barker((122) (1878) 9 Ch D 538, at p 545.):

"(I)f a shoemaker agrees to make a pair of shoes, he cannot
offer you one shoe, and ask you to pay one half the price".

6. The fact that the promised consideration under a contract is "entire" or "entire and indivisible"((123) See, e.g., Steele v. Tardiani [1946] HCA 21; (1946) 72 CLR 386, at p 401) will, subject to any applicable provision of the contract, prevent recovery, in an action in contract, of part of the promised purchase price in circumstances where there has been a failure to provide part of that consideration. In such a case, the purchase price represents the contractual quid pro quo for the whole of the promised indivisible consideration and the promisee is not, in the absence of any applicable provision in the contract, under a contractual obligation to accept or pay for part only thereof. If, in such a case, the promisee accepts the benefit of part only of the consideration, any enforceable obligation to pay for it must arise from some new contract or from the operation of principles of unjust enrichment in the particular circumstances.

7. The present case is not, however, one in which a party who has provided part only of the promised consideration seeks to recover part of the agreed purchase price. In the present case, it is the promisee, Mrs Dillon, who seeks to recover the whole of a prepaid purchase price on the ground that the consideration for which it was paid has wholly failed. Mrs Dillon does not rely upon any provision of the contract between Baltic and herself under which Baltic was obliged to refund the whole of the fare in the events which happened. There was no such contractual provision. The basis of her claim is the obligation of restitution which the law prima facie imposes upon the recipient of a payment made under a contract which has become "abortive for any reason not involving fault on the part of the plaintiff" in a case "where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue"((124) Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) AC 32, per Lord Wright at pp 64-65). Such a claim is not a claim on the contract((125) See Pavey and Matthews Pty. Ltd. v. Paul [1987] HCA 5; [1987] HCA 5; ; (1987) 162 CLR 221, at pp 256-257; Lipkin Gorman v. Karpnale Ltd. [1988] UKHL 12; (1991) 2 AC 548, at pp 572, 578; and, generally, Birks, "The Independence of Restitutionary Causes of Action", (1990) 16 University of Queensland Law Journal 1, at pp 19-20.). Its historical antecedent in terms of forms of action is the old indebitatus count for money had and received to the use of the plaintiff((126) See, e.g., Moses v. Macferlan [1760] EngR 713; (1760) 2 Burr 1005, at p 1012 [1760] EngR 713; [1760] EngR 713; (97 ER 676, at pp 680-681); Fibrosa (1943) AC, at pp 62-64; Bullen and Leake, Precedents of Pleadings, 3rd ed. (1868), pp 44-50.). Its modern substantive categorization is as an action in unjust enrichment. In other words, the receipt of a payment of money for a consideration which wholly fails "is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution ... to the person who has sustained the countervailing detriment"((127) Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation [1988] HCA 17; [1988] HCA 17; [1988] HCA 17; (1988) 164 CLR 662, at p 673.).

8. The principle which underlies the claim of the payer for restitution of the whole purchase price in that category of case is "the most ordinary principle of law" identified by Brett L.J. in Wilson v. Church((128) (1879) 13 Ch D 1, at p 50):

"(W)here money is paid for a consideration which is to be
performed after the payment, if that consideration wholly
fails, the money becomes money in the hands of the borrowers
held to the use and for the benefit of the lenders, and must
be returned"((129) See, also, Fibrosa (1943) AC, per Lord
Porter at p 81).

9. The critical question on this aspect of the present case is whether the consideration for which Mrs Dillon paid the stipulated fare to Baltic wholly failed. That consideration was not, for the purposes of her action in unjust enrichment, the contractual promise which she received from Baltic. Technically, it can be argued that Baltic's bare promise to provide the pleasure cruise itself represented some consideration for Mrs Dillon's fare and that, that being so, it is wrong to say that the consideration for the prepayment wholly failed. As has been said, however, the law of unjust enrichment is concerned with substance rather than technical form. If a bare promise to provide consideration were regarded as the provision of consideration, "there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled"((131) See Fibrosa (1943) AC, per Viscount Simon L.C. at p 48). Prima facie, where a simple promise of future performance is involved, the law of unjust enrichment looks to the future performance and not the bare promise as the relevant consideration((132) See, e.g., Rowland v. Divall (1923) 2 KB 500, at pp 506-507; Shaw v. Ball (1962) 63 SR (N.S.W.) 910, at p 915; Rover International Ltd. v. Cannon Film Ltd. (1989) 1 WLR 912, at pp 923-924; Birks, An Introduction to the Law of Restitution, rev ed (1989), pp 222-223; Goff and Jones, The Law of Restitution, 3rd ed. (1986), pp 369-370; Beatson, The Use and Abuse of Unjust Enrichment, (1991), pp 3, 63). Thus, the consideration for which Mrs Dillon paid the fare was the substance of Baltic's contractual promise, namely, the actual provision of the components of the promised fourteen-day pleasure cruise upon the "Mikhail Lermontov". If all that Mrs Dillon had relevantly received had been Baltic's bare promise, unperformed and unenforced, the consideration for the whole of the fare would have wholly failed. In fact, however, Baltic provided and Mrs Dillon accepted the accommodation, the sustenance, the entertainment and the transport involved in the first eight clear days of the fourteen-day cruise. We turn to consider the significance of that fact.

10. It is arguable that the promised consideration of the pleasure cruise was severable in the sense that, subject to the obligation to transport passengers back to Sydney, the fare could be apportioned or allocated on a day by day basis. As has been seen, however, the view that has prevailed in the courts below is that the consideration was entire and indivisible and it may be assumed, for the purposes of this appeal, that that view is correct. The fact that the promised consideration was entire and indivisible may be important in an action in unjust enrichment for restitution of money paid for a consideration that has failed. Thus, as the above extract from the speech of Lord Wright in Fibrosa indicates((133) See above fn.(124). See, also, (1943) AC, at pp 56, 60, 77; and cf. The Commonwealth v. Amann Aviation Pty. Ltd. [1991] HCA 54; (1991) 174 CLR 64, at p 117), the weight of authority supports the approach that in such an action that fact will automatically preclude recovery of part of the purchase price in a case of partial failure of consideration((134) See, generally, Goff and Jones, op cit, pp 54-55, 369-371, 449-454, 458-465, 480-481) with the result that the innocent party is confined to suing in contract for the difference in value between what was promised and what was provided((135) In many, and possibly most, cases, there will be no practical difference in the result in that the difference in value between what was promised and what was provided will be equivalent to that part of the purchase price which can be attributed to that which was not provided.). It is, however, unnecessary to consider that question here since it has not been argued that, if Mrs Dillon is not entitled to restitution of the full fare on the basis of a complete failure of consideration, the refund by Baltic of part of the fare was inadequate compensation for the failure to provide the final days of the cruise. Again, the fact that the consideration was entire and indivisible will prima facie entitle the promisee to reject a tender of only part of the consideration((136) See, e.g., Giles v. Edwards [1797] EngR 392; (1797) 7 TR 181 (101 ER 920)) and may, depending upon the circumstances, support a conclusion that part only of the consideration, if provided, was worthless and, for the purposes of the law of unjust enrichment, no consideration at all((137) See, e.g., Heywood v. Wellers [1975] EWCA Civ 11; (1976) QB 446, at pp 458-459). Ordinarily, however, an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted. If, for example, the customer of Sir George Jessel's shoemaker, having paid in advance, had accepted one shoe and worn it with a matching shoe from another pair, it could not be said that the consideration for the prepayment had wholly failed. On the other hand, if the customer, having paid in advance, had refused to accept the tender of a single shoe on the ground that the agreed consideration of a pair of shoes was entire and indivisible, the money which he had paid would have been recoverable for a total failure of consideration.

11. There can be circumstances in which there is, for relevant purposes, a complete failure of consideration under a contract of transportation notwithstanding that the carrier has provided sustenance, entertainment and carriage of the passenger during part of the stipulated journey. For example, the consideration for which the fare is paid under a contract for the transportation of a passenger by air from Sydney to London would, at least prima facie, wholly fail if, after dinner and the inflight film, the aircraft were forced to turn back due to negligent maintenance on the part of the carrier and if the passenger were disembarked at the starting-point in Sydney and informed that no alternative transportation would be provided. Thus, in Heywood v. Wellers, Lord Denning M.R. regarded it as self-evident that, in some circumstances where part of a journey had been completed, money paid to the carrier or "driver" was recoverable "as of right" for the reason that it was "money paid on a consideration which had wholly failed"((138) ibid., at p 458).

12. However, the promised consideration in the present case was not, as a matter of substance, the transportation of Mrs Dillon from Sydney to Sydney. As has been said, it was the provision of all that was involved in the promised pleasure cruise as a holiday experience. Even on the assumption that that promised consideration was entire and indivisible, it did not wholly fail. Baltic provided and Mrs Dillon accepted and enjoyed eight complete days of the cruise. It is true that Mrs Dillon would have been entitled to decline to board the ship or to accept only part of the promised consideration if it could have, and had, been known in advance that all that Baltic would in fact provide was eight days of cruising culminating in the sinking of the ship off New Zealand as a result of Baltic's breach of its contractual duty to take reasonable care. If, in that necessarily hypothetical situation, Mrs Dillon had wisely decided to stay at home, the consideration for the fare would have failed completely and, subject to any applicable provisions of the contract between herself and Baltic((139) See, e.g., Fibrosa (1943) AC, at p 67), she would have been entitled to succeed in an action in unjust enrichment for the recovery of the whole fare. In circumstances where Mrs Dillon accepted and enjoyed the major portion of the pleasure cruise, however, there was no complete failure of the consideration for which she paid the fare. The catastrophe of the shipwreck and its consequences undoubtedly outweighed the benefits of the first eight complete days. It did not, however, alter the fact that those benefits, which were of real value, had been provided, accepted and enjoyed.

13. There is a further reason, which would appear not to have been raised in argument in the courts below, why Mrs Dillon's action for restitution of the fare paid to Baltic must fail. It is that she has sought and obtained an order against Baltic for compensatory damages for Baltic's failure to perform its contractual promises to her. In particular, she has received a refund of a proportionate part of the fare and has obtained and will retain (see below) the benefit of an award of damages for the disappointment and distress which she sustained by reason of Baltic's failure to provide her with the full pleasure cruise which it promised to provide. In these circumstances, Mrs Dillon has indirectly enforced, and indirectly obtained the benefit of, Baltic's contractual promises.

14. Ordinarily, as has been seen, "when one is considering the law of failure of consideration and of the ... right to recover money on that ground, it is ... not the promise which is referred to as the consideration, but the performance of the promise"((140) ibid., per Viscount Simon L.C. at p 48). That statement has nothing to say, however, to the situation which exists when the promisee has sought and obtained an award of full compensatory damages for the failure to perform the promise. In that situation, the damages are awarded and received as full compensation for non-performance or breach of the promise and represent the indirect fruits of the promise. That being so, it would be quite wrong to say either that the only quid pro quo which has been obtained for the payment by the promisee is the bare promise or that the promise and the recovery of compensatory damages for its breach can realistically be seen as representing no consideration at all. In such a case, the promise has been indirectly enforced and the award of compensation has, as a matter of substance, been received in substitution for the promised consideration. In those circumstances, the promisee, having received full compensation for non-performance of the promise, is not entitled to a refund of the price upon payment of which the performance of the promise was conditioned((141) See, e.g., Moses v. Macferlan (1760) 2 Burr, at p 1010 (97 ER, at p 679)). Were it otherwise, the promisee "would have the equivalent" of performance of the contractual promise "without having borne the expense" which he or she had agreed to pay for it((142) See T.C. Industrial Plant Pty. Ltd. v. Roberts Q'ld Pty. Ltd. [1963] HCA 57; (1963) 37 ALJR 289, at p 293; (1964) ALR 1083, at p 1090). Damages for Distress and Disappointment

15. The general principle underlying the ascertainment of damages for breach of contract is that a successful plaintiff is entitled to the monetary sum which provides reasonable compensation for the breach "without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept"((143) Wenham v. Ella [1972] HCA 43; (1972) 127 CLR 454, per Walsh J. at p 466). The various rules which have been enunciated by the courts in an endeavour to provide guidance and to promote consistency in the assessment of such damages have, to some extent, been self-fulfilling in that, particularly in the case of commercial contracts, the parties to a contract are likely to make their bargain on the basis that, in the absence of any contrary provision in the contract, damages will, in the event of breach, be assessed on the basis of those rules. In that context, and notwithstanding the validity of Walsh J.'s comment in Wenham v. Ella((144) ibid) to the effect that many of the "rules which constitute useful guidance in the ascertainment of damages" should not be treated as other than "prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve" an appropriate result, the courts should tread warily before disturbing general rules which have come to be regarded as settled.

16. One of the general rules relating to the assessment of compensatory damages for breach of contract which has been accorded the status of settled principle is the rule that a plaintiff is not entitled to recover damages for the "disappointment of mind", distress and injured feelings "occasioned by the breach of contract"((145) Hamlin v. Great Northern Railway Co. (1856) 1 H. and N. 408, at p 411 [1856] EngR 918; (156 ER 1261, at p 1262); and see, e.g., Addis v. Gramophone Co. Ltd. [1909] UKHL 1; (1909) AC 488). That rule, where applicable, represents an essentially pragmatic and judicially imposed assumption which is to be made for the purposes of the application of the second limb of the rule in Hadley v. Baxendale((146) [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145)), that is to say, it is to be assumed that disappointment or distress flowing from the breach of contract would not have been in the contemplation of the parties, at the time they made the contract, as a likely result of breach. As Kirby P. commented in the Court of Appeal, it is a result of history, rather than logic, that a different rule evolved in the law of torts. Notwithstanding that the rule is based upon pragmatism rather than logic, we are unable to agree with the suggestion to be found in some recent judgments that it should now be effectively abolished by judicial decision((147) See, in particular, Vorvis v. Insurance Corporation of British Columbia (1989) 58 DLR (4th) 193, at pp 212-220; Rowlands v. Collow (1992) 1 NZLR 178, at p 208.). There are, however, established qualifications of or exceptions to the general rule. The question which arises on this aspect of the case is whether disappointment and distress sustained by reason of breach of a contract to provide a pleasant and relaxing holiday experience comes within them. In our view, it does.

17. The many cases in which an award of damages for breach of contract has included compensation for mental distress can be grouped (sometimes a little uncomfortably) into a number of different categories, including breach of promise of marriage, breach of contract causing physical injury and breach of contract directly causing physical inconvenience. There is something to be said for the approach that those different categories of case in which the general rule is inapplicable should be seen as manifestations of some more general qualification or confinement of the prima facie rule. It has, for example, been suggested that the prima facie rule excluding damages in contract for mental distress should be seen as confined to ordinary commercial contracts and contracts involving proprietary rights as distinct from contracts relating to personal and social services and relationships((148) See, e.g., Horsburgh v. New Zealand Meat Processors Union (1988) 1 NZLR 698, at pp 701-702; Whelan v. Waitaki Meats Ltd. (1991) 2 NZLR 74, at pp 87-89.). It is, however, unnecessary to pursue that question for the purposes of the present case since we consider that regardless of whether it be possible to identify some such overall confinement of the general rule, it should be accepted that the present case falls within a category to which the general rule does not apply. That category of case encompasses cases where the disappointment and distress have been caused by breach of a contract under which the party allegedly in breach is shown expressly or impliedly to have agreed to provide pleasure, entertainment or relaxation or to prevent molestation or vexation((149) See, e.g., Silberman v. Silberman (1910) 10 SR (N.S.W.) 554, at pp 557-560; Stedman v. Swan's Tours (1951) 95 Sol J 727; Athens-MacDonald Travel Service Pty. Ltd. v. Kazis (1970) SASR. 264, at pp 270-275; Jarvis v. Swans Tours [1972] EWCA Civ 8; (1973) QB 233, at pp 237-238, 239, 240-241; Jackson v. Horizon Holidays Ltd. (1975) 1 WLR 1468, at p 1472; Heywood v. Wellers (1976) QB, at p 459; Falko v. James McEwan and Co. [1977] VicRp 51; (1977) VR 447, at p 451; Sampson v. Floyd (1989) 2 EGLR 49, at p 50; Hayes v. James and Charles Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, at pp 824, 826.). In cases falling within that category, an assumption that the disappointment and distress occasioned by breach would not have been within the contemplation of the parties is particularly unjustifiable. In that regard, we agree with the comment of Bingham LJ. in Watts v. Morrow((150) [1991] EWCA Civ 9; (1991) 1 WLR 1421, at p 1445):

"Where the very object of a contract is to provide pleasure,
relaxation, peace of mind or freedom from molestation,
damages will be awarded if the fruit of the contract is not
provided or if the contrary result is procured instead. If
the law did not cater for this exceptional category of case
it would be defective."

18. The object of the contract between Baltic and Mrs Dillon in the present case was to provide Mrs Dillon with the relaxing enjoyment and entertainment of a fourteen-day pleasure cruise. It was an implied term of the contract that Baltic would take all reasonable steps to provide such a cruise. The direct consequence of Baltic's admitted breach of contractual duty was that Baltic failed to provide the latter part of that promised pleasant holiday. Instead, it provided an extraordinarily unpleasant experience. Subject to the ordinary need to avoid double compensation, Mrs Dillon was entitled to recover damages for the disappointment and distress which she suffered as the result of Baltic's breach of contract. Conclusion

19. It follows from what has been said above that the award of damages in Mrs Dillon's favour should be reduced by eliminating the award of $1,417 which represented "(r)estitution" of that part of the fare which Baltic had retained as attributable to the eight clear days of the cruise before the shipwreck. The interest component of the award should consequently be reduced to the extent that it is attributable to that $1,417.

20. There remains for consideration the question whether the amount of $5,000 awarded for "disappointment and distress at the loss of the entertainment, etc." should be increased for the reason that, in the context of the need to avoid double compensation, that amount may have been adjusted down to take account of the fact that Baltic was also being required to make restitution of the whole of the fare. Both the learned trial judge and the majority of the Court of Appeal were clearly conscious of the need to avoid overlapping or double compensation. Nonetheless, we have come to the conclusion that any upwards adjustment of the amount of $5,000 could not be justified. Viewed against the "emotional scars" and "psychological trauma" (including "sense of panic, continued preoccupation with the event, nightmares, jumpiness, poor concentration and hyper-vigilance") which the learned trial judge found that Mrs Dillon had sustained as a result of the shipwreck, any disappointment and distress caused by Baltic's failure to provide the whole of the pleasure cruise seems to us to have necessarily been comparatively insignificant. In a context where Mrs Dillon has received a refund of part of the fare to cover the lost final days and has been compensated, under another head of damages, for those "emotional scars" and that "psychological trauma", the award of an additional $5,000 damages represents more than adequate compensation for any "disappointment and distress at the loss of the entertainment" and other benefits of those final days.

TOOHEY J. I agree with the judgment of the Chief Justice and with the orders he proposes. In particular, I agree that the consideration for the contract of voyage into which the respondent entered did not totally fail; that the respondent was not entitled to a return of her fare as money paid for a consideration that totally failed; and that, in accordance with the principles enunciated by the Chief Justice, the respondent was entitled to an award of damages for disappointment and distress and physical inconvenience flowing from the appellant's breach of contract. I have nothing to add to the Chief Justice's reasons.

GAUDRON J. The facts of this matter are set out in the judgment of the Chief Justice. The question that arises by reference to those facts is what, if anything, Mrs Dillon is entitled to by way of compensation as a result of a fourteen-day holiday cruise being brought to a premature end when, on the tenth day, the ship, the "Mikhail Lermontov", sank off the coast of New Zealand. Baltic Shipping Company arranged alternative transport for Mrs Dillon's return to Sydney, her point of embarkation and the point of her intended disembarkation.

2. There is no dispute as to Mrs Dillon's entitlement to damages for the property she lost, for the injuries she sustained and for the trauma she suffered when the cruise ship went down. All that is in issue is the entitlement that arises by reason that she did not receive what she paid for, namely, a fourteen-day holiday cruise. Mrs Dillon claims that she is entitled to a refund of the full amount of her fare, together with damages for disappointment and distress.

3. Mrs Dillon's claim for a refund of the fare was made on the basis of total failure of consideration. That claim was determined in her favour at first instance and on appeal in the Court of Appeal of the Supreme Court of New South Wales, it being held on both occasions that the contract was an entire contract.

4. The expression "entire contract" is a convenient description of a contract involving an obligation which cannot be and, thus, is not performed at all unless it is fully or completely performed((151) A contract may be entire as to one aspect and not as to another. So, for example, a contract for the carriage of goods by sea with freight payable on arrival is entire with respect to delivery at the stipulated port: Cook v. Jennings [1797] EngR 563; (1797) 7 TR 381 (101 ER 1032); Metcalfe v. Britannia Iron Works Company (1877) 2 QBD 423, but is not entire with respect to the quantity of the cargo delivered: Ritchie v. Atkinson [1808] EngR 366; (1808) 10 East 295 (103 ER 787); Dakin v. Oxley [1864] EngR 203; (1864) 15 CB (N.S.) 646 (143 ER 938). See also Hoenig v. Isaacs (1952) 2 All ER 176, at p 181 for an example of a contract containing both entire and non-entire obligations.). It has been said that, if the party whose obligation makes the contract an entire contract fails to carry out his or her part of the contract, the other party is "thereby discharged from his part"((152) Sinclair v. Bowles (1829) 7 LJKB 178, at p 179). That statement requires analysis but, for the moment, it may be accepted as correct. And on that basis, special provision and prepayment aside, a party is not obliged to pay for anything proffered under an entire contract unless it constitutes complete performance. And consistency requires that, unless some special provision governs the question, a party who has paid a deposit or paid in advance should be entitled to a refund in those same circumstances.

5. The nature and consequences of an entire contract were explained in a passage in E.V. Williams' Notes to Saunders((153) 6th ed. (1845), vol.1; Pordage v. Cole (1669) 1 Wms Saund 319, at p 320 n.(c) (85 ER 449, at p 453)(153) 6th ed. (1845), vol.1; Pordage v. Cole (1669) 1 Wms Saund 319, at p 320 n.(c) (85 ER 449, at p 453)), cited with approval by Dixon J. in Steele v. Tardiani((154) [1946] HCA 21; (1946) 72 CLR 386, at p 401):

"Where the consideration for the payment of money is entire
and indivisible ... no action is maintainable, if any part
of the consideration has failed; for, being entire, by
failing partially, it fails altogether."

6. Two important features emerge from that statement. The first is that failure to perform any part of the obligation which makes a contract an entire contract necessarily amounts to a total failure of consideration. Conversely, it follows that, unless it can be said that failure to perform a contract in its entirety amounts to a total failure of consideration, the contract is not an entire contract. And because partial failure necessarily involves a total failure of consideration, it also follows that, special provision aside, moneys paid in advance are, on that account, recoverable((155) See, generally as to total failure of consideration, Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) AC 32. See, with respect to recovery under an entire contract, Giles v. Edwards [1797] EngR 392; (1797) 7 TR 181 (101 ER 920); Scurfield v. Gowland [1805] EngR 70; (1805) 6 East 241 (102 ER 1279).). Of course, the right to recover depends on the contract being brought to an end, for, otherwise, the other party might still perform his or her part of the bargain((156) See Weston v. Downes (1778) 1 Dougl. 23, at pp 24-25 (99 ER 19, at p 20); Towers v. Barrett [1786] EngR 51; (1786) 1 TR 133, at p 136 [1786] EngR 51; (99 ER 1014, at p 1016); Kwei Tek Chao v. British Traders and Shippers Ltd. (1954) 2 QB 459, at p 475; Fibrosa (1943) AC, at p 64).

7. The second feature that emerges from the statement from Williams is that the obligation to pay under an entire contract is conditional upon full performance. The parties may provide otherwise but, unless they do, a term is implied in the contract to that effect. Thus, it is not accurate to say that a party is "discharged" from his or her obligation if the other party does not fully perform his or her part of the bargain. Rather, there is no obligation to pay until that happens((157) See, for example, Cutter v. Powell [1795] EngR 4125; (1795) 6 TR 320, at p 325 (101 ER 573, at p 576) where it was said that "the condition (precedent) must be performed before the other party is entitled to receive any thing under it" and Hoenig v. Isaacs (1952) 2 All ER, at p 181 where Lord Denning described "entire performance" as a "condition precedent to payment" in respect of some obligations.). Of course, if there is an acceptance of the benefit of work done or services provided, even though not amounting to full performance of the contract, considerations based on the notion of unjust enrichment may lead to the conclusion that there is an obligation to pay for what has been accepted. But, if so, it will be an obligation separate and distinct from that which would arise in the event of full performance((158) See Pavey and Matthews Pty. Ltd. v. Paul (1987) [1987] HCA 5; 162 CLR 221, per Mason and Wilson JJ. at p 227, per Deane J. at pp 254-257.).

8. Quite apart from entire contracts, the parties may provide, expressly or impliedly, that the obligation to pay or the right to retain moneys paid in advance is conditional upon completion of the contract. Thus, in McDonald v. Dennys Lascelles Ltd., Dixon J. explained that under a contract for sale of land involving prepayment of some part of the purchase price, the vendor's "title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract"((159) [1933] HCA 25; (1933) 48 CLR 457, at p 477). And the contract considered in Dies v. British and International Mining and Finance Corporation Ltd.((160) (1939) 1 KB 724) seems to have involved a condition of a similar kind((161) See the analysis by Beatson, The Use and Abuse of Unjust Enrichment, (1991), pp 54-55). A contract involving a term having the effect of making an obligation to pay or the right to retain money paid in advance conditional upon completion is, in some respects, similar to an entire contract. But it is different in that the right to have moneys refunded comes about because the condition is unsatisfied, regardless of whether there is a total failure of consideration, whereas, if there is less than full performance of an entire contract, there is necessarily a total failure of consideration which, in the absence of some provision to the contrary, entitles the other party to a refund.

9. In the present case, there can be no doubt that there was an obligation on the part of Baltic Shipping Company to take Mrs Dillon on a journey that began and ended in Sydney. That is an obligation that is either discharged or breached, depending on where the journey ends, and which may well be an entire obligation. And it is one which was satisfied by the arrangements made for Mrs Dillon's return to Sydney or, in any event, is one about which no complaint is made. But the contract was not merely a round-trip journey contract; it was a contract for a fourteen-day pleasure cruise, beginning and ending in Sydney. It seems to me that, in that context and at least insofar as the duration of the cruise is concerned, there is no basis for treating the contract as an entire contract with the premature termination of the cruise constituting a total failure of consideration. And so far as the duration of the cruise is concerned, although it is something of a circular consideration, there are real difficulties in describing the events which happened as involving a total failure of consideration when, plainly enough, Mrs Dillon received the benefit of accommodation, sustenance and other facilities associated with the cruise until the ship went down.

10. It was not argued on behalf of Mrs Dillon that the contract, if not an entire contract, was a contract containing an implied term that the fare would be refunded in the event that the cruise ended prematurely. Had it been, the question whether the fare was to be used to constitute a fund to meet costs associated with the cruise would have been relevant((162) Beatson, op cit, p 57). Even so, it is appropriate that I state my general agreement with the approach of the Chief Justice on this question and with his Honour's conclusion that Mrs Dillon is not entitled to recover her fare on the basis of an implied term to the effect that it would be refunded if the cruise ended prematurely. That being so and the contract not being an entire contract the breach of which amounted to a total failure of consideration, the early termination of the cruise gives rise to an entitlement to damages, but not to a refund of the fare.

11. One other matter should be mentioned. In my view, Mrs Dillon's claim for damages, if successful, precludes a refund of the fare. The claim for damages is a claim to the full benefit of the contract, part of that benefit taking the form of money as compensation for its breach. If Mrs Dillon were to receive damages and a refund of her fare as well, she would, in effect, take the benefit of the contract without an obligation to give consideration for it.

12. I agree with the Chief Justice, for the reasons that his Honour gives, that Mrs Dillon is entitled to damages for disappointment and distress. Disappointment is a natural consequence of the shortening of her holiday. And it may be taken that she was greatly disappointed and distressed. Even so, the sum of $5,000 seems very generous, particularly when it is borne in mind that Mrs Dillon was also awarded damages for the injuries she sustained and the trauma she suffered in the shipwreck.

13. Quite apart from damages for disappointment and distress, Mrs Dillon is entitled to the difference in value between a fourteen-day cruise and what she received. It is possible that that exceeds the amount which Baltic Shipping paid as a pro-rata refund of the fare before this action was commenced. However, the amount of $5,000 is, in my view, adequate compensation for disappointment and distress as well as any additional amount that may be referable to the difference in value between a fourteen-day holiday cruise and what was received under the contract. There is, thus, no merit in the contention made at the close of argument that the sum of $1,417 which was awarded to Mrs Dillon by way of refund of the balance of her fare should be allowed as general damages.

14. I agree with the orders proposed by the Chief Justice.

McHUGH J. Baltic Shipping Company ("Baltic") appeals against an order of the Supreme Court of New South Wales (Court of Appeal). The order in question dismissed an appeal by Baltic against so much of an order made in the Admiralty Division of the Supreme Court as awarded damages to the respondent, Mrs Joan Norma Dillon, for breach of contract by Baltic. The action for breach of contract arose out of the sinking of the "Mikhail Lermontov", a cruise ship owned by Baltic.

2. Sometime prior to 7 February 1986, Baltic agreed in consideration of the sum of $2,205, payable in advance, to carry Mrs Dillon on the "Mikhail Lermontov" on a fourteen day cruise in the South Pacific. At about 5.30 pm on 16 February 1986, the tenth day of the cruise, the ship struck a rock. It sank later that evening. Mrs Dillon was taken off the ship, shortly before it sank. Subsequently, she commenced an action against Baltic in the Admiralty Division of the Supreme Court of New South Wales for breach of contract. After the hearing of the action had commenced, Baltic admitted liability. Pursuant to the powers conferred by the Contracts Review Act (1980) (N.S.W.), Carruthers J., who heard the action((163) (1989) 21 NSWLR 614.), set aside a deed under which Mrs Dillon released Baltic from liability in consideration of the payment of certain moneys including a partial repayment of her fare. His Honour awarded Mrs Dillon the following damages:

Restitution of the balance of fare $ 1,417
Loss of valuables
4,265
Compensation for disappointment
and distress
5,000
Damages for personal injury
35,000
$45,682

3. The questions for determination in this Court are whether Mrs Dillon was entitled to have her fare refunded and whether she was entitled to claim damages for distress and disappointment because the cruise was not completed. Was there a total failure of consideration?

4. Contrary to the conclusion reached in the Supreme Court of New South Wales, Mrs Dillon was not entitled to have her fare refunded. The advance payment of the fare was not a security for the price of the cruise. Nor was it a payment which was to be earned by Baltic only upon performance of its promise to provide a fourteen day cruise. The fare, with other fares, was payable in advance in order to provide a fund from which Baltic could meet the expense of providing the various benefits associated with the cruise, benefits which were to be enjoyed throughout and from the commencement of the cruise. Consequently, the right of Baltic to retain the amount of the fare became unconditional once Baltic began to provide those benefits to Mrs Dillon. Furthermore, the subsequent sinking of the "Mikhail Lermontov" did not alter Baltic's unconditional right to retain the amount of the fare. Because the common law has no doctrine of apportionment in respect of a partial failure of consideration, Mrs Dillon's remedy in respect of Baltic's failure to complete the cruise was an action for damages for breach of contract and not an action for partial restitution of the sum paid as the price of the fare. Conditional payments

5. When a contractual payment is made conditionally upon the performance of a promise by the payee, the right to retain the moneys after discharge of the contract is dependent upon whether the promise has been performed. If the promise has not been performed, there has been a total failure of consideration by reason of the nonfulfilment of the condition, and the money is recoverable as money had and received to the use of the payer((165) Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) AC 32, at p 65). In this context, consideration is not necessarily the same concept as the consideration which supported the formation of the contract. In a case where a promise and not an act or forbearance is the consideration for the contract, it is the performance of the promise which constitutes the consideration for the purpose of the law of restitution((166) ibid., at p 48; Rover International Ltd. v. Cannon Film Ltd. (1989) 1 WLR 912, at pp 923-924). As Birks((167) An Introduction to the Law of Restitution, (1985), p 223) says:

"Failure of the consideration for a payment ... means that
the state of affairs contemplated as the basis or reason for
the payment has failed to materialise or, if it did exist,
has failed to sustain itself."

6. Furthermore, where the condition upon which the money was paid has failed, the payer is entitled to the return of the money advanced, even though that person has obtained some benefit from the contract. Work done or expense incurred by the payee or benefit enjoyed by the payer will not constitute consideration unless it constitutes a partial performance of the condition upon which the money was paid. Thus, the purchaser of a motor vehicle is entitled to the return of the full purchase price of the vehicle if the vendor has failed to make title even though the purchaser has had the use of the vehicle for a considerable period((168) Rowland v. Divall (1923) 2 KB 500; Warman v. Southern Counties Car Finance Corporation Ltd. (1949) 2 KB 576; Butterworth v. Kingsway Motors (1954) 1 WLR 1286.). The seller cannot retain the purchase moneys because their retention is conditional upon the vendor making good his or her promise to transfer the title of the vehicle to the purchaser. Similarly, a solicitor who is paid money on account of costs to seek a court order cannot retain the costs if he fails to take reasonable care to seek the order even though he has incurred expense or done work on the case((169) Heywood v. Wellers [1975] EWCA Civ 11; (1976) QB 446).

7. Moreover, "once it does appear that the condition for retaining the money has failed the fact that it failed in response to the payer's own breach does not matter"((170) Birks, op cit, p 238). As Birks says((171) ibid., pp 236-237), this is the best explanation of the much discussed case of Dies v. British and International Mining and Finance Corporation((172) (1939) 1 KB 724) where a buyer in default was held entitled to recover instalments of the purchase price of guns and ammunition. Once the seller elected to accept the buyer's repudiation and terminate the contract, the consideration for the advance payment had wholly failed because the seller retained the guns and ammunition.

8. However, when a contractual payment is not subject to any condition or the condition for its retention has been fulfilled, discharge of the contract does not entitle the payer to the return of money advanced even though the payee is in breach of a promise going to the root of the contract. In such a case, the payer's remedy is for breach of contract for non-performance of the promise and not for restitution of the payment. In McDonald v. Dennys Lascelles Ltd.((173) [1933] HCA 25; (1933) 48 CLR 457, at pp 476- 477), Dixon J. pointed out:

"When a party to a simple contract, upon a breach by the
other contracting party of a condition of the contract,
elects to treat the contract as no longer binding upon him,
the contract is not rescinded as from the beginning. Both
parties are discharged from the further performance of the
contract, but rights are not divested or discharged which
have already been unconditionally acquired. Rights and
obligations which arise from the partial execution of the
contract and causes of action which have accrued from its
breach alike continue unaffected." (emphasis added)

9. Whether or not a payment is the subject of a condition at the time a contract is discharged depends upon the express and implied terms of the contract. As a general rule, however, absent an indication to the contrary, a payment, made otherwise than to obtain the title to land or goods, should be regarded as having been made unconditionally, or no longer the subject of a condition, if the payee has performed work or services or incurred expense prior to the completion of the contract. If the payment has been made before the work has been performed or expense incurred, it should be regarded as becoming unconditional once work is performed or expense incurred. In that situation, the advance payment is ordinarily made in order to provide a fund from which the payee can meet the cost of performing the work or services or meeting the expenditure incurred or to be incurred before the completion of the contract. Hyundai Industries v. Papadopoulos((177) (1980) 1 WLR 1129) illustrates the point. A shipbuilder agreed to construct a ship under a contract which provided for the payment of instalments of the purchase price during the progress of the work and gave the builder the right to terminate the contract if an instalment was unpaid. The House of Lords unanimously held that the builder, after terminating the contract for failure to pay an instalment, was entitled to recover the price of the instalment from a guarantor. All their Lordships held that the guarantor was liable having regard to the terms of the guarantee. But a majority of their Lordships held that the guarantor was also liable because the buyer itself was still liable to pay the unpaid instalment even though the contract had been terminated. The right to be paid the instalment was an unconditional right which was not affected by the subsequent discharge of the contract. Lord Fraser of Tullybelton's speech((178) ibid., at p 1148) makes it plain that the right to the instalment was unconditional because its purpose was to compensate the builder who "was bound to incur considerable expense in carrying out his part of the contract long before the actual sale could take place". It would have been a fortiori the case if the buyer had sought to recover an instalment which it had paid prior to breach. The builder would have had an unconditional right to retain the instalment. The consideration for the fare did not totally fail

10. In the present case, the termination of the cruise on the tenth day did not result in a total failure of consideration for the payment of the fare. If the fare had been payable at the end of the cruise, the consideration for the payment, for the purpose of the law of restitution, might possibly have been described as a fourteen day cruise of the South Pacific. But the requirement that the fare be paid in advance makes it impossible, for the purpose of the law of restitution, to construe the consideration in that way.

11. The commercial purpose which is served by the advance payment of a fare for a cruise of the kind involved in this case is that it contributes to a fund which enables the shipowner to meet the cost of providing the benefits associated with the cruise without the necessity of using its working capital to meet the outgoings involved((179) cf. Scandinavian Trading v. Flota Ecuatoriana (1983) 2 AC 694, at pp 702-703.). Much of that cost is incurred before the ship leaves port; almost all of the cost is incurred before the passenger finally disembarks. Furthermore, the passenger commences to enjoy the benefits of the cruise at or about the time of embarkation. The advance payment of such a fare cannot, therefore, be regarded as a security for the price of the services to be provided by the shipowner. Nor should it be regarded as a payment which is earned only upon completion of the cruise in accordance with the terms of the contract of carriage. Properly characterised, the advance payment of the fare is a reimbursement or prepayment of the cost of providing each of the benefits to be enjoyed by the passenger throughout the cruise.

12. The purpose of the advance payment would be negated if the shipowner's right to retain the fare was conditional upon an exact performance of its promise to carry the payee for the duration of the cruise. If that was the basis of the payment, the shipowner would be obliged to refund the fare if the contract was discharged by frustration even though the cruise was almost completed. The proper conclusion, therefore, is that once the passenger commences to enjoy the promised benefits, the right of the shipowner to retain the fare becomes unconditional. If the shipowner fails to fulfil its contractual promise after the passenger has commenced to enjoy the promised benefits, the passenger's remedy is an action for damages for breach of contract. The passenger cannot bring an action for restitution of the payment of the fare: once the passenger commences to receive the promised benefits, he or she receives consideration for the payment.

13. Accordingly, once Baltic began to provide the promised benefits to Mrs Dillon, the right of that company to retain the fare became unconditional. The loss which she suffered, in paying for a cruise which was not completed, was recoverable in an action for breach of contract - not in an action for restitution.

14. In the judgments in the Supreme Court and in the argument in this Court, attention focussed on the question whether the contract of carriage was "an entire contract"((180) cf. Steele v. Tardiani [1946] HCA 21; (1946) 72 CLR 386, at p 401). This approach assumed that, if the contract was an entire one, the price of the fare was recoverable and that, if the contract was not an entire one, the price of the fare was not recoverable. But with great respect to the learned judges of the Supreme Court, the issue here was the basis of the advance payment. If no advance payment had been required, and Baltic had sued to recover the whole of the fare notwithstanding the sinking of the "Mikhail Lermontov", the question whether the contract was an entire one would have had relevance. If the contract was characterised as an entire contract, Baltic would not have been able to recover the price of the fare. But where a payment is made in advance of the completion of a contract, the critical issue is the reason or basis for the payment and not whether the contract was an entire one. A finding that a contract is an entire contract does not necessarily mean that an advance payment is recoverable. Conversely, a finding that a contract is not an entire contract does not necessarily mean that an advance payment is irrecoverable. After discharge of a contract, the recoverability of any payment made before the completion of the contract is dependent on whether the "state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself"((181) Birks, op cit, p 223).

15. The learned trial judge also thought that the price of the fare was wholly recoverable as money had and received to the use of Mrs Dillon because whatever benefits she had enjoyed prior to the sinking were "entirely negated by the catastrophe"((182) (1989) 21 NSWLR, at p 668). Once Baltic had given consideration for the payment, however, its rights to retain the money became unconditional. The subsequent catastrophe could not make Baltic's retention of the money conditional once it had become unconditional.

16. Mrs Dillon was not entitled to recover the price of her fare on the basis of restitution. The appeal must be allowed on this point.

17. During the hearing of this appeal, however, the respondent was given leave to add a notice of contention to the effect that the award of $1,417 should not be disturbed because the money awarded to the plaintiff "as restitution damages should properly have been identified under a different head". I shall postpone discussion of this contention until I deal with the claim for damages for distress and disappointment. The claim for damages for distress and disappointment

18. The appeal against the award of damages for distress and disappointment should be dismissed. Under the common law, damages are not recoverable for distress or disappointment arising from a breach of contract unless the distress or disappointment arises from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection or unless the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience. In the present case, it was an implied term of the contract that the fourteen day cruise in the South Pacific would be an enjoyable experience. The sinking of the "Mikhail Lermontov" resulted in a breach of that term. Consequently, the trial judge was correct in awarding damages to Mrs Dillon for the disappointment which she suffered when the cruise failed to provide the enjoyment which Baltic had promised. The general rule relating to damages for distress and disappointment

19. Damages for breach of contract cannot ordinarily be awarded for distress or disappointment arising from that breach. In Hamlin v. The Great Northern Railway Company((183) (1856) 1 H. and N. 408, at p 411 [1856] EngR 918; (156 ER 1261, at p 1262)), Pollock CB said:

"In actions for breaches of contract the damages must be
such as are capable of being appreciated or estimated ...
but it may be laid down as a rule, that generally in actions
upon contracts no damages can be given which cannot be
stated specifically, and that the plaintiff is entitled to
recover whatever damages naturally result from the breach of
contract, but not damages for the disappointment of mind
occasioned by the breach of contract."((184) This passage was
cited with approval by Dixon and McTiernan JJ. in Fink v. Fink
[1946] HCA 54; (1946) 74 CLR 127, at pp 142-143.)

20. In Hamlin, the defendant, in breach of contract, failed to carry the plaintiff to his destination in accordance with the advertised timetable, forcing the plaintiff to obtain overnight accommodation in the course of his journey and to buy a new ticket to resume his journey. The plaintiff sued for breach of contract alleging that, in consequence of the delay, he failed to keep appointments with customers and was detained for longer than he should have been. The Court of Exchequer held that he was entitled only to nominal damages "and such other damages of a pecuniary kind as he may have really sustained as a direct consequence of the breach of contract"((185) (1856) 1 H. and N., at p 411 (156 ER, at p 1262).).

21. The rule that damages cannot be recovered for distress arising out of a breach of an ordinary contract was substantially confirmed in Addis v. Gramophone Company Limited((186) [1909] UKHL 1; (1909) AC 488) where the House of Lords set aside an award of damages for "the abrupt and oppressive way in which the plaintiff's services were discontinued, and the loss he sustained from the discredit thus thrown upon him"((187) ibid., at p 490). Lord Loreburn L.C. said((188) ibid., at p 491) "that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment". After the decision in Addis, the general rule was so firmly established in England and Australia that in Fink v. Fink((189) [1946] HCA 54; (1946) 74 CLR 127, at p 144) Dixon and McTiernan JJ. could say that, in an action for breach of contract, "(r)esentment, disappointment and the loss of esteem of friends are not proper elements".

22. Various explanations of the rationale of this rule have been proffered. None of them is satisfactory. The rationale implicit in Hamlin was that damages for disappointment (or distress) are not awarded because they cannot be assessed accurately. Yet in many actions of tort((190) e.g. defamation, malicious prosecution and false imprisonment.), damages for distress can be awarded. Although in those actions assessing general damages for distress is a difficult task, courts make such awards "by the exercise of a sound imagination and the practice of the broad axe"((191) Watson, Laidlaw and Co. Ltd. v. Pott, Cassels and Williamson (1914) 31 RPC 104, at pp 117-118, cited by Isaacs J. in Whitfeld v. De Lauret and Co. Ltd. [1920] HCA 75; [1920] HCA 75; (1920) 29 CLR 71, at p 81.). In Addis, however, Lord Atkinson said that((192) (1909) AC, at p 495):

"to apply in their entirety the principles on which damages
are measured in tort to cases of damages for breaches of
contract would lead to confusion and uncertainty in
commercial affairs, while to apply them only in part and in
particular cases would create anomalies, lead occasionally
to injustice, and make the law a still more 'lawless
science' than it is said to be".

23. While it can be accepted that not all principles relating to an award of damages in tort ought to be applicable in an action for breach of contract, it is difficult to see why no damages should be awarded for distress or disappointment arising directly from the breach of contract itself. Difficulty of assessment does not stop courts awarding those damages in actions in tort. If the plaintiff is denied recovery for distress or disappointment in a contract case, the award of damages will fail to fulfil the objective of compensating the plaintiff for the harm which he or she has suffered as the result of the defendant's breach.

24. Another explanation for the general rule is that disappointment and distress arising from breach of contract are not within the contemplation of the parties to ordinary, particularly commercial, contracts((193) Brown v. Waterloo Regional Board of Commissioners of Police (1982) 136 DLR (3d) 49, at p 56). But such an explanation does not accord with everyday experience relating to the making of contracts. The parties to many contracts, including many commercial contracts, are fully aware, when they make them, that breach will result in disappointment and sometimes distress to the innocent party((194) See Watts v. Morrow [1991] EWCA Civ 9; (1991) 1 WLR 1421, at p 1445, and cf. Burrows, "Mental distress damages in contract - a decade of change", (1984) Lloyds Maritime and Commercial Law Quarterly 119, at p 121).

25. Treitel contends that the ordinary rule is sensible because "anxiety is an almost inevitable concomitant of expectations based on promises, so that a contracting party must be deemed to take the risk of it"((195) Treitel, The Law of Contract, 8th ed. (1991), p 878.). However, the proposition that "anxiety is an almost inevitable concomitant of expectations based on promises", while generally true, does not explain why the injured party should have to bear the risk of this particular head of damage while being entitled to be compensated for other damage flowing from breach of contract. Furthermore, the proposition that the "party must be deemed to take the risk of it" merely records the result of the rule and is not an explanation of it.

26. Messrs Greig and Davis contend that to allow damages for distress or disappointment "would lead to an increase in the cost of entering into a contract, without any substantial benefit being derived therefrom"((196) The Law of Contract, (1987), p 1414). This conclusion may well be correct. But the learned authors do not develop any argument in support of it. Allowing damages for distress and disappointment would increase the cost of entering into contracts. But it is at least arguable that the cost of meeting such claims does not outweigh the demands of distributive justice in ensuring that individuals are properly compensated for the harm which they suffer by reason of breaches of contracts.

27. It is difficult to resist the conclusion that the unexpressed((197) But see Hayes v. Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, at p 823 where Staughton LJ. said that he would not view with enthusiasm the prospect that every shipowner, having successfully claimed unpaid freight or demurrage, would be able to add a claim for mental distress suffered while waiting for his money) basis for the general rule was the instinctive fear of the common law judges that to allow damages for disappointment or distress consequent upon breach of an ordinary contract would be to inflate damage awards in contract cases, particularly in commercial cases where the breach has been accompanied by high handed behaviour. At the same time, it must be acknowledged that the common law judges have admitted significant exceptions to the general rule. Moreover, they have often sought to justify these exceptions by propositions which undermine the general rule itself. The exceptions

28. From an early period, the common law allowed damages for injured feelings and wounded pride consequent upon a breach of a promise of marriage((198) Berry v. Da Costa (1866) LR 1 CP 331, at p 333.). Moreover, soon after the decision in Hamlin, the Court of Exchequer held that damages for "inconveniences and annoyances" could be awarded for breach of contract. In Burton v. Pinkerton((199) (1867) LR 2 Ex 340), the plaintiff had agreed to serve as a seaman on a ship "upon an ordinary commercial voyage"((200) ibid., at p 348.). However, in breach of contract, the defendant placed the ship under the control of a foreign government which was at war, causing the plaintiff to leave the ship at a foreign port. The Court held that the plaintiff was entitled to damages for the inconveniences and annoyances arising from the defendant's breach of contract.

29. Nine years after Burton, the Queens Bench held that a plaintiff was entitled to damages for the inconvenience of having to walk home in the early hours of the morning when a train failed to stop at the station for which he had bought a ticket((201) Hobbs v. London and South Western Railway Co. (1875) LR 10 QB 111). Cockburn C.J. said((202) ibid., at p 116) that:

"if the jury are satisfied that in the particular instance
personal inconvenience or suffering has been occasioned, and
that it has been occasioned as the immediate effect of the
breach of the contract, I can see no reasonable principle
why that should not be compensated for".

"that for the mere inconvenience, such as annoyance and loss
of temper, or vexation, or for being disappointed in a
particular thing which you have set your mind upon, without
real physical inconvenience resulting, you cannot recover
damages. That is purely sentimental, and not a case where
the word inconvenience, as I here use it, would apply."

"where the inconvenience is real and substantial arising
from being obliged to walk home, I cannot see why that
should not be capable of being assessed as damages in
respect of inconvenience".

30. Notwithstanding the exceptions admitted in these cases, the general rule laid down in Addis was almost automatically applied until the post-war period((208) See for example, Groom v. Crocker (1939) 1 KB 194 and Fink.). Burton and Hobbs seem to have been largely ignored. In Salmond and Williams on Contracts, which was published in 1945, the learned authors went so far as to say((209) p 579.) that in an action for breach of contract compensatory damages were "given as compensation for and measured by the material loss suffered by the plaintiff" (emphasis added).

31. In Bailey v. Bullock((210) (1950) 2 All ER 1167), however, Barry J. distinguished Addis and applied Burton and Hobbs to award damages for "inconvenience and discomfort" where a solicitor in breach of his retainer had failed to obtain possession of the plaintiff's house and, as a result, the plaintiff was compelled to live with his parents-in-law in circumstances of physical inconvenience. Barry J. said((211) ibid., at p 1171.) that the "inconvenience should have been reasonably contemplated by the defendants as a probable result of their failure to perform their contractual duties".

32. The decision in Bailey was followed in Stedman v. Swan's Tours((212) (1951) 95 Sol J 727) where the English Court of Appeal awarded damages for "appreciable inconvenience and discomfort" arising from a breach of contract by the defendants in failing to arrange first class hotel accommodation at a resort. Stedman was relied upon by Zelling J. in Athens-MacDonald Travel Service Pty. Ltd. v. Kazis((213) (1970) SASR. 264) where the plaintiff was awarded damages for the substantial inconvenience and discomfort which arose during a holiday in Cyprus as the result of the defendant's failure to make the necessary travel arrangements.

33. In Jarvis v. Swans Tours Ltd.((214) [1972] EWCA Civ 8; (1973) QB 233), the Court of Appeal made further inroads to the rule in Addis by making an award of damages for "loss of enjoyment" where the plaintiff's skiing holiday did not measure up to the promises in the defendant's brochure. Lord Denning M.R. thought that Hamlin and Hobbs no longer stated the law accurately. His Lordship said((215) ibid., at pp 237-238):

"In a proper case damages for mental distress can be
recovered in contract, just as damages for shock can be
recovered in tort. One such case is a contract for a
holiday, or any other contract to provide entertainment and
enjoyment. If the contracting party breaks his contract,
damages can be given for the disappointment, the distress,
the upset and frustration caused by the breach."

"an invigorating and amusing holiday and ... returns home
dejected because his expectations have been largely
unfulfilled ... it would be quite wrong to say that his
disappointment must find no reflection in the damages to be
awarded".

"there may be contracts in which the parties contemplate
inconvenience on breach which may be described as mental:
frustration, annoyance, disappointment; and, as ... this is
such a contract, the damages for breach of it should take
such wider inconvenience or discomfort into account".

34. The decision in Jarvis was soon extended beyond the area of holiday contracts. At first, the rationale of an award of damages for distress in contract cases was explained as being the contemplation of the parties that the breach might give rise to distress. In Cox v. Philips Industries Ltd.((219) (1976) 1 WLR 638, at p 644), Lawson J. held that damages could be awarded for vexation, frustration and distress if "it was in the contemplation of the parties" that such damage would result from breach. His Lordship awarded damages for the "depression, vexation and frustration" which arose from the defendant's breach of contract in relegating the plaintiff, its employee, to a position of lesser responsibility. In Heywood v. Wellers((220) [1975] EWCA Civ 11; (1976) QB 446), the Court of Appeal, like Lawson J. in Cox, appeared to regard "the contemplation" of the parties as the basis for awarding damages for distress. The Court awarded the plaintiff damages for the mental distress arising from the failure of her solicitors, in breach of their retainer, to obtain an order restraining a man from molesting her. Although Jarvis and Jackson v. Horizon Holidays((221) (1975) 1 WLR 1468) were cited in argument, Lord Denning M.R. said((222) Heywood (1976) QB, at p 459) that what the plaintiff had suffered was within the contemplation of the defendants "within the rule in Hadley v. Baxendale"((223) [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145).). James LJ.((224) Heywood (1976) QB, at p 461) cited Jarvis for the proposition that the damages were payable because it was "within the contemplation of the contracting parties that a foreseeable result of a breach of the contract will be to cause vexation, frustration, or distress". Bridge L.J. said((225) ibid., at pp 463-464) that the damages were recoverable because the plaintiff had suffered mental distress which was "the direct and inevitable consequence of the solicitor's negligent failure to obtain the very relief which it was the sole purpose of the litigation to secure". His Lordship said that a clear distinction could be drawn between mental distress which arose in that situation and mental distress which arose as an incidental consequence of the misconduct of litigation by a solicitor and which was not recoverable.

35. However, recent English cases have decisively rejected the view that the contemplation of the parties is the basis upon which damages for distress or disappointment are awarded for breach of contract. Instead, they have concluded that such damages are recoverable only when the object of the contract is to provide enjoyment, pleasure or freedom from distress or where the distress is consequent upon the suffering of physical injury or physical inconvenience.

36. In Bliss v. South East Thames Regional Health Authority((226) (1987) ICR 700), the Court of Appeal expressly rejected the statement of Lawson J. in Cox that damages could be recovered for breach of a contract of employment if distress arising from the breach was within the contemplation of the parties. Dillon L.J., who gave the leading judgment, said((227) ibid., at p 718):

"Modern thinking tends to be that the amount of damages
recoverable for a wrong should be the same whether the cause
of action is laid in contract or in tort. But in the Addis
case Lord Loreburn regarded the rule that damages for
injured feelings cannot be recovered in contract for
wrongful dismissal as too inveterate to be altered, and
Lord James of Hereford supported his concurrence in the
speech of Lord Loreburn by reference to his own experience
at the Bar.
There are exceptions now recognised where the contract
which has been broken was itself a contract to provide peace
of mind or freedom from distress: see Jarvis v. Swans Tours
Ltd. and Heywood v. Wellers. Those decisions, do not
however cover this present case."

37. The approach of Dillon L.J. in Bliss was approved by the Court of Appeal in Hayes v. Dodd((228) [1988] EWCA Civ 8; (1990) 2 All ER 815) . Staughton LJ. said((229) ibid., at p 824.):

"I am not convinced that it is enough to ask whether
mental distress was reasonably foreseeable as a consequence,
or even whether it should reasonably have been contemplated
as not unlikely to result from a breach of contract. It
seems to me that damages for mental distress in contract
are, as a matter of policy, limited to certain classes of
case. I would broadly follow the classification provided by
Dillon LJ. in Bliss v. South-East Thames Regional Health
Authority:
'... where the contract which has been broken was
itself a contract to provide peace of mind or freedom
from distress ...'
It may be that the class is somewhat wider than that.
But it should not, in my judgment, include any case where
the object of the contract was not comfort or pleasure, or
the relief or (sic) discomfort, but simply carrying on a
commercial activity with a view to profit."

38. In Watts v. Morrow((230) [1991] EWCA Civ 9; (1991) 1 WLR 1421, at p 1442.), the Court of Appeal held that "in the case of the ordinary surveyor's contract, damages are only recoverable for distress caused by physical consequences of the breach of contract". Bingham L.J. said((231) ibid., at p 1445) that a contract breaker was not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation caused to the innocent party. His Lordship said that the rule was not founded on the assumption that such reactions are not foreseeable but on considerations of policy. However, he said that the rule was not absolute and that where "the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead."

39. No uniformity of approach to the question of damages for distress for breach of contract is discernible in the decisions of other courts in the British Commonwealth. Decisions in Australia, Canada and New Zealand are spread along a spectrum from acceptance of Addis to rejection of that decision.

40. Apart from the decision of Zelling J. in Athens-McDonald Travel Services Pty. Ltd. and the decision of the Court of Appeal in the present case, Australian courts have paid little attention to the developments in England in the last 40 years concerning the award of damages for distress arising from breach of contract. In Allison v. Hewitt((232) (1974) 3 NSWDCR 193) and Falko v. James McEwan and Co.((233) [1977] VicRp 51; (1977) VR 447), Jarvis was distinguished on the basis that it applied to holiday situations and not to ordinary commercial contracts.

41. In Brickhill v. Cooke((234) (1984) 3 NSWLR 396), the New South Wales Court of Appeal, basing itself on Perry v. Sidney Phillips and Son((235) (1982) 1 WLR 1297.), held that damages for inconvenience should be given in an action for negligence arising from the report of an engineer who had been retained to inspect and report to the plaintiff on the condition of a dwelling. However, the decision throws no light on the recovery of damages for inconvenience for breach of contract((236) See also Campbelltown City Council v. Mackay (1989) 15 NSWLR 501, at pp 510-511 where the Court of Appeal again applied Perry to uphold an award of damages for vexation, distress and worry in a negligence action.). Jarvis was applied in another action for tort in Graham v. Voigt((237) (1989) 89 ACTR 11). In Holt v. Biroka Pty. Ltd.((238) (1988) 13 NSWLR 629), Jarvis was also applied to an action brought under the Fair Trading Act 1987 (N.S.W.) but without any real examination of its basis.

42. In Canada, the Supreme Court has taken a view contrary to that taken by the English Court of Appeal in Bliss, Hayes and Watts. In Vorvis v. Insurance Corporation of British Columbia((239) (1989) 58 DLR (4th) 193, at p 204), a majority of the Court said that cases such as Jarvis, Cox and Heywood "stand for the proposition that in some contracts the parties may well have contemplated at the time of the contract that a breach in certain circumstances would cause a plaintiff mental distress". Wilson J., with whose judgment L'Heureux-Dube J. concurred, went much further than the majority. Her Honour said((240) ibid., at p 212) that the absolute rule laid down in Addis and applied by the Supreme Court of Canada in Peso Silver Mines Ltd. (N.PL) v. Cropper((241) (1966) 58 DLR (2d) 1) was no longer the law. She said that what binds "the numerous English and Canadian authorities ... in which damages have been awarded for mental suffering in a variety of different contractual situations" is "the notion that the parties should reasonably have foreseen mental suffering as a consequence of a breach of the contract at the time the contract was entered into".

43. In New Zealand, the demise of the Addis rule seems imminent, if it has not already occurred. In Horsburgh v. New Zealand Meat Processors Industrial Union of Workers((242) (1988) 1 NZLR 698) and Hetherington v. Faudet((243) (1989) 2 NZLR 224), the Court of Appeal indicated that the rule in Addis may require reconsideration. Subsequently, in Whelan v. Waitaki Meats Ltd.((244) (1991) 2 NZLR 74), Gallen J. held that damages for mental distress were available for breach of an employment contract. Most recently, in Rowlands v. Collow((245) (1992) 1 NZLR 178), Thomas J. awarded damages to the plaintiff for mental distress and inconvenience suffered as a result of an engineer's breach of contract in relation to the construction of a driveway. His Honour said((246) ibid., at p 207.):

"It may therefore be timely for the Courts to reassert
in this context the basic principles relating to remoteness
of damages. If this is done the question in relation to all
contracts is whether mental distress was a reasonably
foreseeable consequence of the breach of contract or was
within the reasonable contemplation of the parties in
respect of any such breach at the time they entered into the
contract. With commercial contracts it is most unlikely
that such damage will have been foreseeable or within the
parties' contemplation; with contracts of a more personal
nature, mental distress could well be a foreseeable
consequence and within the contemplation of the parties."

44. If the matter were free from authority, the object((247) See The Commonwealth v. Amann Aviation Pty. Ltd. [1991] HCA 54; (1991) 174 CLR 64, at pp 80, 98, 116, 136, 148, 161) of an award of damages for breach of contract and the principles of causation((248) See March v. E and M.H. Stramare Pty. Ltd. [1991] HCA 12; (1991) 171 CLR 506) and remoteness((249) See Wenham v. Ella [1972] HCA 43; (1972) 127 CLR 454, at pp 471-472; Burns v. M.AN. Automotive (Aust.) Pty. Ltd. [1986] HCA 81; (1986) 161 CLR 653, at p 667) would require the conclusion that damage for disappointment or distress, resulting from breach of contract, was compensable if it was within the reasonable contemplation of the parties when the contract was made. No doubt in most cases, the disappointment would be so negligible that the damage suffered could be regarded as de minimis and ignored. But in other cases, it seems unreasonable that the party in breach should escape liability even though, at the time of making the contract, that person knew that breach might result in the other party suffering disappointment. Suppose, for example, that an agent had agreed to purchase land on behalf of a principal knowing that, for many years, the principal had desired to purchase the land for the purpose of expanding his or her business. It seems unreasonable that the agent should escape liability for damages for disappointment if, in breach of contract, he or she were to fail to buy the land. Yet not only does the general rule, confirmed in Addis, deny recovery in such a case, but it also seems impossible to bring the case within the exceptions now recognised by the English courts. If in such a case, the innocent party has suffered not only disappointment but distress, the argument for damages for disappointment and distress, as well as any pecuniary loss, seems compelling. However, the rule in Addis has stood for the best part of a century. In this country it has suffered little, if any, inroad by judicial decision. Furthermore, in Fink, two((250) Dixon and McTiernan JJ.; see (1947) 74 CLR, at pp 142-143) of the three members of the majority accepted the common law rule to be that stated by Pollock C.B. in Hamlin.

45. It is still open to this Court to declare that damages for distress and disappointment in contract cases are not subject to any special rules. However, I do not think that the step should be taken in this case. Counsel for Mrs Dillon did not argue that the general rule laid down in Hamlin and confirmed in Addis should be rejected. He was content to rely on the modern English decisions. Consequently, the Court did not have the benefit of argument concerning the social and economic consequences of a decision which overturned the rule formulated in Hamlin. On the other hand, having regard to the decisions in Burton and Hobbs, the developments in England, Canada and New Zealand in the last 40 years and the requirements of basic principle, this Court should not accept everything that was said by Pollock C.B. in Hamlin or by the House of Lords in Addis.

46. The application of basic principle concerning the awarding of damages for breach of contract requires an award of damages for distress or disappointment where it is an express or implied term of the contract that the promisor will provide pleasure or enjoyment or personal protection for the promisee. Unless this Court were to refuse to follow Burton, Hobbs and Bailey as well as the decisions in Stedman and Athens-McDonald Travel Services Pty. Ltd., damages must also be recoverable for distress or disappointment consequent upon the suffering of physical inconvenience as the consequence of a breach of contract. Furthermore, because damages for personal injury may be recovered in an action for breach of contract((251) Woolworths Ltd. v. Crotty [1942] HCA 35; [1942] HCA 35; (1942) 66 CLR 603; Cullen v. Trappell [1980] HCA 10; (1980) 146 CLR 1) and because psychiatric illness constitutes personal injury((252) Mount Isa Mines Ltd. v. Pusey [1970] HCA 60; (1970) 125 CLR 383), damages for mental distress associated with a psychiatric illness or physical injury must also be recoverable in an action for breach of contract.

47. In the result, the Court should not presently reject the general rule enunciated in Hamlin and substantially confirmed in Addis. At the same time, it should recognise that damages for distress or disappointment are recoverable in an action for breach of contract if it arises from breach of an express or implied term that the promisor will provide the promisee with pleasure or enjoyment or personal protection or if it is consequent upon the suffering or physical injury or physical inconvenience. The question whether the general rule enunciated in Hamlin should be overruled can be considered when the Court has heard full argument on the question. Mrs Dillon's right to damages for distress and disappointment

48. The contract between Mrs Dillon and Baltic was one in which Baltic impliedly promised to provide a pleasurable and enjoyable cruise for fourteen days. Its failure to do so means that it must pay damages for the distress and disappointment suffered by Mrs Dillon((253) See Jarvis [1972] EWCA Civ 8; (1973) QB 233). However, the sum awarded to her was more than twice the sum paid as the price of the fare. When combined with the return of the fare, it was much too high a figure. I agree with the comment of Kirby P.((254) (1991) 22 NSWLR, at p 31) in the Court of Appeal that in the absence of "some exceptional circumstance increasing the sting of the failure to provide the enjoyment and pleasure promised ... no more than half the sum awarded in this case should be the norm for the ordinary passenger". This sum is, of course, in addition to any damages awarded for the financial loss suffered by a plaintiff in paying for a promise which has not been fulfilled.

49. This is a convenient place to deal with the contention of Mrs Dillon that the $1,417 awarded as restitution of the balance of her fare should not be disturbed because that sum was recoverable as general damages. While I agree that general damages were recoverable by Mrs Dillon for the financial loss which she suffered in paying for a fourteen day cruise which was not completed, nevertheless the notice of contention must be rejected. If Mrs Dillon retained both the sum of $1,417 and the sum of $5,000, her compensation would be unreasonably excessive. If the appeal is allowed on the restitution issue and dismissed on the distress issue, however, the sum of $5,000 will be fair compensation for the general damage which she suffered over and above the loss of her valuables and personal injuries.

50. Accordingly, I agree with the orders proposed by the Chief Justice.

ORDER

Order that the appellant pay 75 per cent of the respondent's costs of the appeal.

Set aside the order of the Court of Appeal of New South Wales in so far as it dismissed the appeal to that Court.

In lieu of that part of the order of the Court of Appeal so set aside, make the following orders:

(1) Appeal allowed
(2) Set aside so much of the judgment of Carruthers, J. as ordered
the defendant (the appellant in this court) pay to the plaintiff
(the respondent in this court) the sum of $51,396.

Direct the parties to bring in, within twenty-one days, minutes of order as to the sum to be paid by the defendant to the plaintiff in accordance with the judgment of this Court.