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Contractual damages for anxiety and distress September 8, 2021

The appellant was not entitled to damages for inconvenience and distress caused by the respondent’s failure to indemnify for the same reasons as her consequential business loss claim. Nor was this a case in which the exception to the non-recovery of contractual damages for anxiety, distress and disappointment was engaged, as her losses did not involve mental suffering “directly related to” physical inconvenience: at [6] (Macfarlan JA), [200]-[203] (Meagher JA), [207] (McCallum JA).

Baltic Shipping Company v Dillon (1993) 176 CLR 344, applied; Moore v Scenic Tours Pty Ltd (2020) 377 CLR 209; [2020] HCA 17; Archibald v Powlett (2017) 53 VR 645; [2017] VSCA 259, considered.

Worth v HDI Global Specialty SE [2021] NSWCA 185

Damages for inconvenience and distress

  1. As a claim to damages for a failure to pay damages, this claim is not sustainable for the same reasons as the consequential business loss claim. Furthermore, for the reasons which follow, it would not have been sustainable as a claim to damages for a failure to indemnify by making payment in accordance with the policy.
  2. It is not controversial that damages for anxiety, distress and disappointment are ordinarily not recoverable in an action for breach of contract. The rule is subject to exceptions, including where the object of the contract is to provide pleasure, relaxation or freedom from molestation or “where the plaintiff has suffered physical inconvenience as a result of the defendant’s breach of contract and the mental suffering is directly related to that physical inconvenience”: Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 363-364 (Mason CJ, Toohey and Gaudron JJ agreeing), 381 (Deane and Dawson JJ), 405 (McHugh J); [1993] HCA 4.
  3. The first of these exceptions is most commonly engaged in “holiday cases”: see eg Moore v Scenic Tours Pty Ltd (2020) 377 CLR 209; [2020] HCA 17. The appellant relies on the second. She contends that as a result of the insurer’s refusal to indemnify, her house was not rebuilt and “she and her son [therefore] had to live with [her] parents for a number of years … and she lost the capacity to live independently”. (Reference is also made to the rebuilding of her home as the “object” of the deed of release, but even if that were correct, which I doubt, it would not bring her claim within the first exception.)
  4. The typical case for the application of this exception is breach of a building contract: Archibald v Powlett(2017) 53 VR 645; [2017] VSCA 259 at [62]-[67]. Physical inconvenience may often be the direct and natural consequence of defective home construction, “whether by virtue of having to live with offensive odours or a leaking roof, or in unsanitary or dirty conditions, or being obliged to vacate the defective premises”: Archibald at [63]. The appellant’s claim is quite different. It is that because of the insurer’s non-payment of indemnity for property damage she has been unable to rebuild (and live in) her home and operate her childcare business, and that she has consequently suffered mental distress due to her dissatisfaction with her alternative employment, the loss of “independence” attributable to living with her parents and the “cloud hanging over [her]” by reason of the insurer’s allegations. None of those losses involves mental distress “directly related to” physical inconvenience caused by the insurer’s refusal to pay money in accordance with the policy.

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