Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Facts: The plaintiff (P) agreed to provide aerial surveillance of Australia’s northern coastline for 3 years, with the ‘prospect’ of renewal under the contract. Amaan incurred substantial capital expenditure by acquiring planes and surveillance equipment to perform services (e.g. > $5M on aircraft, with resale value of <$1M). The Commonwealth, the defendant (D), repudiated the contract. P terminated the contract and sought damages, arguing that it was necessary to consider the prospect of renewal. The projected costs were $21M and expected revenue was $17M so it would have been a loss-making contract.

Held: The court awarded reliance damages to P as it could not quantify whether P would have made profits on the contract.

Questions:

1. What was Amann’s expectation interest? What was Amann’s reliance interest?

Amann’s expectation interest was $17M (not claimable as loss-making contract) and prospect of contract renewal (couldn’t be quantified). Amann’s reliance interest was that the costs of his capital expenditure (planes and surveillance equipment) would be recuperated had the contract been performed.

2. How were damages assessed? Was it legitimate to have regard to the prospect of renewal?

Damages were assessed based on reliance interest.

According to Mason CJ and Dawson J judgement, yes, it was legitimate to have regard to the prospect of renewal. The Court held that there was an implied promise by the Commonwealth that they would renew. The Commonwealth could not prove that prospect of contract renewal and $17M paid under the current contract was less than total expenditure of $21M – this is their burden to prove.

The test:

1. P must prove that expenditure was made on reasonable reliance of the contract.

2. Onus is then on D to prove that P’s expenditure would not have been recovered even if the contract was performed (i.e. that it was a loss-making contract). If proven, P can only recover the amount they would have recovered had the contract been performed.

Held (Mason CJ and Dawson J:) The general rule at common law, in Robinson v Harman is “that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”. The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff ’s expectation, objectively determined, rather than subjectively ascertained.

“Damages for loss of profits” should not be understood as carrying the implication that no damages are recoverable either when no net profit would’ve been made or where the amount of profit cannot be demonstrated.

If the performance of a contract would have resulted in a P, while not making a profit, nevertheless recovering costs incurred, then P is entitled to recover damages in an amount equal to those costs (this is in accordance with Robinson v Harman, as those costs would have been recovered had the contract been fully performed).

Similarly, where it is not possible for a P to demonstrate whether or to what extent performance of a contract would result in a profit, it will be open to a P to seek to recoup expenses incurred (reliance damages).