Golf Adelaide Pty Ltd owns the Glen Ormond Golf course which is the site for the
ID: 2561949 • Letter: G
Question
Golf Adelaide Pty Ltd owns the Glen Ormond Golf course which is the site for the Australian Golf Championship this coming July. The Australian Golf Championship is a very prestigious event in the international golfing calendar. Golf Adelaide Pty Ltd are keen to impress the International Golfing Union with the championship as it invariably leads to the course being commended for further high profile and profitable events.
As preparations are underway for the championship the course is undergoing renovations. These included the installation of a major new irrigation pipe network to ensure that the grassed areas are perfectly watered to enhance the course. Golf Adelaide Pty Ltd engaged Wet Wet Pty Ltd ('Wet') as the contractor to undertake the works. It is a small, but high profile, contract for Wet who are engaged to install the irrigation system in June a month before the championship is due to be held. The contract value including materials was $8,000. Wet are informed that the work is required to be finished well ahead of the championship. Wet saw the publicity it would receive as being worth the extra resources required to do the job in that timeframe.
Wet starts the work but there is a delay in the importation of the piping so that the work is not as yet finished the day before the publicity shots are to be taken of the course by the various international television networks telecasting the championship. Golf Adelaide Pty Ltd are seriously embarrassed and want to cancel the contract but as the event is now due in a few days they let Wet finish the installation.
In completing the installation Wet used locally sourced pipe connections materials. On Day 1 of the championship leaks in the piping saw flooding over half the course. Golf Adelaide Pty Ltd say that they had no alternative but to move the championship to the nearby Mount Ormond course where it was completed. Golf Adelaide Pty Ltd suffered badly in the media and the International Golfing Union were not impressed with the championship's organisation at all.
Golf Adelaide Pty Ltd incurred a number of losses as a result of the flooding. These included losses as a result of: -
1 relocating the event to the Mount Ormond course being $50,000;
2 repairing the piping that caused the flooding being $12,000;
3 rebuilding the flooded course of $16,000;
4 refunding membership fees for the lost use of the course for 3 weeks; and further
5 the cancellation of 2 tournaments scheduled for January and May next year which had been scheduled; and
6 the loss of the expected benefits that would have flowed from a favourable report from the International Golf Union.
Wet have informed Golf Adelaide Pty Ltd that the costs of replacing the faulty piping is only $3,000 and that that is all that they are prepared to pay. They maintain that if they were informed of the leak in a timely manner the losses would have been limited to that amount only. In any event the total amount of the contract was only $8,000 so they are prepared to refund the amount as a goodwill gesture!
Are Golf Adelaide Pty Ltd's losses recoverable? Give detailed reasons.
Explanation / Answer
It is a general principle of contract law that damages for breach of contract should put the innocent party in the same economic position that he would have been in if the other party had fulfilled the contract.
The law makes a distinction between “general damages” and “consequential damages.” Lost profits are treated as consequential damages when, as a result of the breach of contract, the innocent party has a loss on other business arrangements. But when the innocent party is seeking to recover money that the breaching party agreed to pay under the contract, any lost profits involved will be general damages.
The classic case on this issue is "Hadley v. Baxendale", an English case decided in 1854. Hadley ran a grain mill. The crankshaft on the steam engine that turned the mill broke, and he ordered a replacement from a supplier who required that the broken shaft be provided in order to make sure the replacement would be fabricated to the correct dimensions. Baxendale was hired to deliver the old shaft to the supplier by a certain date but was late with delivery. Accordingly, Hadley was delayed in receiving the replacement shaft, and during that time he couldn’t operate and he lost business. He sued Baxendale for the lost profits. The court ruled against Hadley, saying that the lost profits were not a reasonably foreseeable result of Baxendale’s failure to perform.
Under English law, parties to a contract will not always recover all of their losses. The party in breach of contract will not be liable for losses that are considered too remote. This means that even if it is shown that that party's breach caused the loss, if that loss was sufficiently unusual or unlikely then he will not usually be liable for it unless he was aware of some special or unusual circumstances when he entered into the contract.
Accordingly, if we apply the above principles in our case, follwoing outcomes are expected to flow:
Serial No Scenario Type of Loss Recoverable/Not recoverable - and reasons there for 1 relocating the event to the Mount Ormond course being $50,000 Direct Loss Recoverable - since this led to direct impact to the tournament and the whole event had to be relocated. Had the contract completed within time, such cost would not have been incurred. 2 repairing the piping that caused the flooding being $12,000 Direct Loss Recoverable - since this led to direct impact to the tournament. Had the contract completed within time, such cost would not have been incurred 3 rebuilding the flooded course of $16,000 Direct Loss Recoverable - since this led to direct impact to the tournament. Had the contract completed within time, such cost would not have been incurred 4 refunding membership fees for the lost use of the course for 3 weeks Direct Loss Recoverable - this is the profit loss/revenue loss. And this loss is directly attributable for non-completion of the contract. Had the contract could be timely completed, the course could have been used for 3 weeks without relocating and membership fees need not be refunded. 5 the cancellation of 2 tournaments scheduled for January and May next year which had been scheduled Indirect Loss Not recoverable - this is the opportunity cost lost. This was not contemplated at the time when both the parties entered into the agreement. Moreover, if we assume that the contract was completed by Wet within timeframe, there is no guaranty that the tournaments would not have been cancelled. They could have been cancelled may be for any other reasons 6 the loss of the expected benefits that would have flowed from a favourable report from the International Golf Union Indirect Loss Not recoverable - this is the opportunity cost lost. This was not contemplated at the time when both the parties entered into the agreement. There is uncerainity involved in the expected benefits. This cannot be easily measure during ordinary course of business. This is sufficiently unusual and hence losses cannot be directly attributable to non-completion of contract by Wet.Related Questions
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