D. Reliance as an Alternative Measure

Author:John D. McCamus
Profession:Professor of Law. Osgoode Hall Law School, York University

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As an alternative to relief in the expectancy measure, a victim of a breach of contract who has incurred expenditures or other losses in reliance on the agreement but who cannot establish that a profit would have been made as a result of full performance of the agreement may wish to seek recovery of those expenses and losses through a claim for reliance damages. Such claims have occasionally enjoyed success, though the circumstances in which they are likely to do so must be examined with some care.

The leading illustration of a successful claim of this type is the decision of the Australian High Court in MCRAE v. Commonwealth Disposals Commission,66a case arising in the context of an unsuccessful salvage expedition. During the Second World War, a number of ships, including oil tankers, had been wrecked or stranded in the seas near New Guinea. The defendant commission was empowered to dispose of these vessels. It sold the rights to the vessels to salvers, who, after

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the expenditure of significant sums of money, would hope to enjoy a profit from the sale of the salvaged vessel and its contents. The salvers were purchasing, in effect, a chance to make a profit. The plaintiff had purchased from the defendant an oil tanker said by the commission to be located "on Jourmand Reef which is approximately 100 miles north of Samarai."67In order to carry out this project, the plaintiff refitted one of its vessels, the Gippsland, for salvage work, purchased certain salvage equipment, engaged a crew and a salvage expert and sailed from Sydney toward the Jourmand Reef. In the course of the voyage, the Gippsland foundered. Fortunately, no lives were lost. The plaintiff then chartered a second vessel and proceeded to the Jourmand Reef where it was discovered that no sunken vessel was to be found in the location identified by the commission.

The commission’s belief that there was such a vessel on Jourmand Reef was erroneous, indeed, recklessly so. The High Court held that the commission was in breach of an implied promise that there was a tanker in the location specified. Obviously, the plaintiff could not establish that if there had been a sunken vessel at that location, the salvage operation would have been successful and enjoyed a profit. Accordingly, the plaintiff framed its claim as one for wasted expenditures and sought to recover the investment it had made in the search for the tanker. The commission defended the claim on the basis that the plaintiff, being unable to disprove the possibility that the expenditures might have been wasted even if a vessel had been found, could not discharge its burden to establish that the damages suffered flowed from the breach. The High Court held, however, that the reliance claim was valid. The Court reasoned that the plaintiff could make out a prima facie case for recovery simply by establishing, first, that the expenditures had been incurred because of the commission’s promise that such a tanker was in existence and, second, that the fact that there was no such vessel made it certain that the expenditures would be wasted. Once this was established by the plaintiff, the burden would then be thrown upon the defendant to establish that "if there had been a tanker, the expense incurred would equally had been wasted. This, of course, the Commission cannot establish."68Thus, in a case where it is the nature of the defendant’s breach that has prevented the plaintiff from being able to establish that the agreement would have been profitable, the plaintiff is relieved of the normal burden to establish profitability and the onus shifts to the defendant to establish that the agreement would not have

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been profitable.69...

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