THE NATURE AND AVAILABILITY OF 'NEGOTIATING DAMAGES' FOR BREACH OF CONTRACT

THE NATURE AND AVAILABILITY OF 'NEGOTIATING DAMAGES' FOR BREACH OF CONTRACT

The availability of 'negotiating damages' for breach of contract has recently aroused considerable judicial and academic interest across the Commonwealth. Strangely, however, this interest has been largely absent in Australia. After explaining that the essential purpose of such awards is to provide a monetary substitute for performance in circumstances where the usual monetary substitutes are inapposite, this article addresses this lacuna in Australian jurisprudence. More specifically, it is argued that Australian courts should develop the nascent law governing the availability of these awards more consistently with the analysis adopted by the Court of Appeal of Singapore in Turf Club Auto Emporium Pte Ltd v Yeo Boong Hua instead of following the Supreme Court of the United Kingdom's approach in One Step (Support) Ltd v Morris-Garner.

I INTRODUCTION

When, if ever, following the breach of a contractual obligation, should Australian law allow an award calculated by reference to the hypothetical 'release' fee that the reasonable plaintiff would have accepted in order to have released the defendant from performance of that obligation? Multiple labels have been used to describe such an award but, following the terminology preferred in One Step (Support) Ltd v Morris-Garner ('One Step'), the moniker 'negotiating damages' is adopted here. The availability of negotiating damages for breach of contract has received surprisingly little judicial attention in Australia. By contrast, the availability of such awards has been recognised in New Zealand and was recently considered at length by both the Supreme Court of the United Kingdom in One Step and the Court of Appeal of Singapore in Turf Club Auto Emporium Pte Ltd v Yeo Boong Hua ('Turf Club'). The essential aims of this article are to explain the central nature and purpose of such awards and to draw upon these final-appellate-level decisions to advance a particular view as to how the nascent Australian law ought to develop.

The English approach enunciated in One Step is that negotiating damages are available as a response to breach of contract only when a defendant's breach of contract results in the plaintiff losing a 'valuable asset' that is 'created or protected by the contractual right infringed. The Singaporean approach expressed in Turf Club ostensibly allows for recovery on a more liberal basis. In Singapore, such awards will be available following a breach of contract to compensate a plaintiff for the loss of the promised performance where there is a 'remedial lacuna due to the unavailability of orthodox compensatory damages and specific relief'.

One important purpose of this article is to question the cogency of the reasoning, adopted in One Step, that negotiating damages should be available only when a plaintiff loses a valuable asset upon the occurrence of the relevant breach of contract. We argue that an appreciation that negotiating damages are best understood as a substitute for the promised performance reveals that this restriction on availability is unjustifiable. Our conclusion is broadly consistent with the characterisation, and reasoning, in Turf Club as well as Lord Sumption JSC's separate reasoning in One Step (that negotiating damages are compensatory in that they provide a tool for identifying the economic value of the performance of which the plaintiff has been deprived). Additionally, we briefly consider the plausibility of an alternative basis for circumscribing the availability of negotiating damages for breach of contract that is consistent with the results in One Step and Turf Club: namely, that such awards are not justified when the purpose of the relevant obligation is 'solely to protect the covenantee against damage to its commercial interests.

The argument we advance is developed across five substantive Parts. Part Two sets the stage for the arguments that follow, defining key terms and explaining certain important distinctions - in particular, the distinction between damages that substitute for performance and damages concerned with making good certain adverse consequences that can be causally attributed to the breach of a legal duty. Part Three explains why negotiating damages are best conceptualised as an instance of the former phenomenon and can be understood as compensatory only if the relevant loss being compensated is the loss of the performance to which the plaintiff was legally entitled. Part Four outlines the main deficiencies with alternative characterisations of negotiating damages. Part Five then considers - and answers - the critical question: when should negotiating damages be available for a breach of contract? The essential answer provided is that, subject to the possible qualification on availability noted above, such awards ought to be available to compensate a plaintiff for (the value of) their lost performance in circumstances where no alternative monetary substitute for performance is available. Finally, Part Six briefly outlines the principles that should govern the quantification of these awards.