Baltic Shipping Company v Dillon,. the Mikhail Lermontov case, is a leading Australian contract law case, on the incorporation of exclusion clauses and damages for breach of contract or restitution for unjust enrichment.
Facts A widow, Mrs Joan Dillon, bought a cruise from a charterer's travel brochure on the cruise ship (named after the Russian poet, Mikhail Yuryevich Lermontov). She paid a deposit and on 6 December 1985 received a booking form that said the ticket would be issued subject to conditions. On 24 January 1986 she received the ticket, which limited liability for personal injury. The ship sank. Mrs Dillon was injured and lost some valuables. She was sent a loss form without reference to personal injuries. The company offered her an ex gratia sum to settle if she signed a release form. She accepted and signed. In 1987 the insurance company and Mrs Dillon sued to recover damages for personal injury and other losses.
Judgment
Trial court Carruthers J awarded Mrs Dillon (1) restitution of the sum paid for the cruise (2) damages for loss of valuables (3) compensation for disappointment and distress (4) damages for personal injury (5) interest, all totaling $51,000.Dillon v Baltic Shipping Co (1989) 21 NSWLR 614. Award (1) was, however, reversed in the High Court (below).
So far as incorporation of the exclusion clause went, he held that the contract was made on 6 December, so no new terms could be introduced when the balance of the cruise fare was paid. The terms were insufficiently notified. The Trade Practices Act 1974, s 74 applied to loss of luggage and s 68(1)(c) said the clauses limiting liability for its loss were void. By s 87, the widow was entitled to treat the release form as void ab initio because the company had intended to deceive and mislead the widow into thinking her rights under the contract of carriage were limited to the points under the loss form. The form was substantially and procedurally unfair and void ab initio under the Contracts Review Act 1980.
Carruthers J said this.
High Court The Baltic Shipping Company's appeal to the High Court was unsuccessful, except that they were able to establish that the purchase price of the ticket did not need to be returned in full. There had been merely a "partial failure of consideration", not total, and therefore restitutionary damages were barred. Another important point was that Mrs Dillon was not allowed to recover the balance of the fare and damages for breach of contract at the same time. The restitutionary and compensatory damages, thought the Court, should be alternatives. Mason CJ's judgment on this point was as follows.
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". By cl.7 of the defence, the appellant simply denied that there had been a 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, and said:
"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."
In the Court of Appeal,. the appellant challenged the finding that there was a total failure of consideration. The challenge was rejected. Kirby P, with whom Gleeson CJ agreed on this point, noted that the appellant had urged that there was no total failure of consideration as "(t)he respondent had had the benefit of eight of fourteen days of an idyllic cruise." He concluded that the contract of carriage was an entire one. Kirby P said:
"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 MS 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:Re Hall and Barker (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 then observed that, in order to avoid over-compensation, a claim for restitution of money paid on a total failure of consideration will succeed only if accompanied by counter-restitution of benefits bargained for and received by the claimant.
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.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." Kirby P. held that the clause, while it could exclude the right to restitution in certain circumstances, was inapplicable for two reasons: first, the clause was not incorporated into the contract of carriage; secondly, by reason of the admission of negligence by the appellant, the reason for the impossibility of continuation of the voyage was not "beyond the control" of the appellant and, therefore, a precondition of its operation was not satisfied. Gleeson CJ agreed generally that the ticket terms and conditions were not incorporated.
However, he said that sufficient notice may have been given of some terms and conditions printed on the ticket so as to incorporate them. He did not consider cl.9 separately.
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,. Dixon J. cited the general proposition stated in Edward Vaughan Williams's Notes to Saunders: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.Hoenig v Isaacs 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. 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.Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd 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,(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.See also Hunt v Silk (1804) 5 East 449 (102 ER 1142)