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. 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.
<blockquote>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: '...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.'"