I. CONTRACT DAMAGES: GENERAL PRINCIPLES

2.1 Before examining the development, rationale and operation of the Rule in Bain v Fothergill, it is first necessary to outline briefly the common law principles governing the award of damages for breach of contract and, in particular, the bases on which the amount (or quantum) of damages is assessed.

2.2 Damages for breach of contract are a monetary sum awarded by the Court as compensation to the promisee for the promisor’s breach of his or her obligations under the contract. The general principle for determining the quantum of such damages is that:

where a person sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.¹

This principle is said to protect the promisee’s expectation interest by giving the promisee “the value of the expectancy which the promise created”.² This includes profits which the promisee expected to receive as a result of the contract: in other words, the promisee is entitled to compensation for the loss of a bargain gained by the contract.

2.3 While the expectation interest is the one normally compensated, there are other bases on which damages may be assessed. Damages may also be awarded to protect the promisee’s reliance interest by placing the promisee in as good a position as before the promise was made. Thus expenses made and effectively wasted in the belief that the contract would be performed, and which would not have been incurred apart from a reliance on the contract, are recoverable on this basis. Normally such reliance expenses are less than the expectation loss, and would therefore be adequately compensated by an award for loss of bargain, but they are sometimes used as the basis for assessment when there is no means of quantifying the loss of bargain damages.³ When damages are awarded on this basis, expenses may be recovered even though the promisee was not required to incur them. In some cases the promisee may also recover amounts expended before a proposed agreement became a binding contract.⁴

2.4 In allowing the purchaser of an interest in land to recover only the deposit together with interest and expenses reasonably incurred in investigating the title, the Rule in Bain v Fothergill arbitarily restricts the promisee (the purchaser) to obtaining damages for part of his or her reliance loss, but precludes recovery for expectation loss. Not all elements of the purchaser’s reliance loss are recoverable under the Rule: for example, the costs of arranging a loan or mortgage, drawing up building plans, arranging development approval and obtaining a survey of the property are excluded.⁵

II. ORIGINS AND DEVELOPMENT OF THE RULE

A. Origins: Flureau v Thornhill

2.5 The Rule was originally laid down in 1776 in the case of Flureau v Thornhill. The plaintiff had purchased a long-term lease at auction, apparently for much less than its value. After the auction the vendor found that the title was defective and that he was therefore unable to convey the interest as sold. He offered the plaintiff the choice of either taking the defective title or being repaid the deposit together with interest and the costs incurred. But the plaintiff insisted on being paid to compensate him “in the loss of so good a bargain”: in other words the difference between the sale price and the supposed value of the leasehold interest. On appeal, the full bench of the Court of Common Pleas held that the plaintiff was not entitled to recover more than the deposit and interest. The report of the case is sketchy, and only two judges gave reasons. De Grey CJ (who had presided over the case at first instance) simply asserted that as a matter of law:

Upon a contract for a purchase, if the title proves bad, and the vendor is (without fraud) incapable of making a good one, I do not think that the purchaser can be entitled to any damages for the fancied goodness of the bargain, which he supposes he has lost.⁶

Evidence had been adduced that the leasehold was not sold below its value; De Grey CJ’s comments suggest that he considered an evaluation of the plaintiff’s loss of bargain as groundless or pure speculation.

2.6 Blackstone J decided on different grounds:

These contracts are merely upon condition, frequently expressed, but always implied, that the vendor had a good title. If he had not, the return of the deposit, with interest and costs, is all that can be expected.⁷

The use of the term “condition” is ambiguous, but it would appear that Blackstone J found an implied term in the contract which limited damages if the title which had been contracted for could not be conveyed. An alternative interpretation of this decision is that such contracts are subject to an implied condition precedent, such that if the vendor cannot convey a good title the contract is void.⁸ This view is, however, open to criticism on the grounds that if there were no contract the purchaser would only be entitled to the deposit as restitution, and because the vendor is clearly under a duty to make a good title.⁹ As the author of the great Commentaries on the Laws of England (and, incidentally, the author of the sole report of the case), Blackstone’s pre-eminent reputation as a jurist no doubt led to his view being adopted in later cases as settled law.

2.7 The decision in Flureau v Thornhill seems to have been original: no authorities were cited by the judges and there are no previous decisions which support it.¹⁰ There is some doubt that the principle it stated was in accordance with the general view of contract law at the time. Legal historians disagree as to whether judges in the eighteenth century accepted that damages for breach of contract could be awarded on the basis of expectation loss. The decision in Flureau v Thornhill can be explained as either an instance of a series of rules which limited damages to actual loss, or as an aberration resulting from the contradictory evidence produced in the case and the conjectural nature of the loss claimed.¹¹ The Courts at the time seem to have disapproved of damages awards based on losses that were merely speculative or were incapable of quantification. But as damages were awarded at the complete discretion of the jury, judges found little need to develop general principles on which damages would be assessed. Also, in contracts for sale of land especially, the rule of caveat emptor was applied rigorously unless the vendor had specifically convenanted that the title was good. Without such a covenant, if the title proved bad the purchaser was not entitled to any damages.¹² Apart from the Rule, if no title was conveyed the purchaser could only recover the deposit in a quasi-contractual action for money had and received.¹³ In some respects, then, the decision in Flureau v Thornhill was more generous to the purchaser than eighteenth-century contract principles otherwise allowed.

B. Reception

2.8 The decision in Flureau v Thornhill was quickly accepted by conveyancers and was followed in two unreported cases.¹⁴ It may have been bolstered by the tendency of the Court of Chancery, at least for a time, to award damages which included the purchaser’s expenses if specific performance of a contract to sell land could not be decreed because the vendor had already sold the property.¹⁵ Also, courts of common law established that in the case of land transactions a purchaser could recover interest on the deposit, contrary to the general rule that interest was not recoverable unless specifically provided for in the contract.¹⁶ While these cases were not founded on Flureau v Thornhill, they were consistent with it. It is important to remember that at the same time as the Rule was established, the modern general principles for the assessment of damages for breach of contract were only beginning to be formulated. As property in land was subject to complex legal rules and practices, and carried a social significance distinct from other forms of property, it was considered reasonable in the case of conveyancing to adopt a special rule as an exception to the principles governing contracts generally.

2.9 The Rule was first questioned judicially in 1826 in Hopkins v Grazebrook.¹⁷ The defendant, who was a sub-purchaser under an uncompleted contract, sold the subject property to the plaintiff at auction. At the time of the auction the defendant possessed at best only an equitable title and was aware that he might never obtain the full legal title to the property, although it was found that he did not act fraudulently in selling to the plaintiff. When he was unable to convey the legal title the defendant vendor refused to recompense the purchaser for the value of his bargain. The Court of King’s Bench, on appeal, distinguished Flureau v Thornhill and allowed substantial damages for the plaintiff’s loss of bargain, on the ground that the earlier case only applied to cases where the vendor possessed a legal title, however imperfect. The Court clearly disapproved of the defendant’s conduct in re-selling the property before obtaining the full estate. Bayley J further contradicted Blackstone J’s earlier dictum that sales of real property were conditional upon the vendor having a good title, and said:

where a vendor holds out an estate as his own, the purchaser may presume that he has had a satisfactory title, and if he holds out as his own, that which is not so, I think he may fairly be compelled to pay the loss which the purchaser sustains by not having that for which he contracted.¹⁸

That the Court regarded the defendant’s conduct as, if not fraudulent in the common law sense, at least culpable so as to invite full liability, is illustrated by a converse case which came before it three years later.¹⁹ There the plaintiff had purchased real estate from the defendant and, before inspecting the title, sold it to several sub-purchasers. When the title deeds were finally perused, an outstanding interest was discovered which made the defendant’s (and therefore the plaintiff’s) title defective. The plaintiff then brought an action in contract for his lost profits and his liability to the sub-purchasers. The Court refused his claim, following Flureau v Thornhill and saying that since “each party cannot but know that the title may prove defective”²⁰ the plaintiff had acted at his peril in re-selling so hastily. Bayley J reconciled the decision with Hopkins v Grazebrook by suggesting that a plaintiff might recover the full measure of damages if there had been bad faith on the part of his vendor; but here, the damage resulted not from the defendant’s misrepresentation but from the plaintiff’s premature acts.

2.10 The decision in Flureau v Thornhill was thus confirmed as an exception to the emerging general principles governing contract damages. In turn, Hopkins v Grazebrook was accepted as an exception to the exception, applying only if the vendor knew he had no title, which allowed the purchaser to recover the full measure of damages. The case which finally established the general principle to be applied in determining the amount of damages to be awarded for a breach of contract, Robinson v Harman,²¹ involved the sale of a lease to which the vendor knew he had no title. Baron Parke, after stating the rule that a party who suffers loss by reason of a breach of contract must be placed in the same position as if the contract had been performed, went on to recognise that Flureau v Thornhill qualified this rule but held that the purchaser in the instant case was, as the result of the exception to the special rule, entitled to damages for the loss of his bargain.

2.11 Over time the weight of the authority of the two decisions led to their being given the status of rules of law, both in England and in the United States.²² There were, however, misgivings since the distinction between them was tenuous and depended upon a finding of fault. By the nineteenth century, liability in contract was generally supposed to be absolute and independant of any misconduct on the part of the party in breach. The older rules which applied to the sale of land were inconsistent with this philosophy and could not be justified in terms of modern contractual theory. For example, in Sedgwick’s influential American contracts text, it was stated that “the damages in actions of contract are to be limited to the consequence of the breach of contract alone, and that no regard is to be had to the motives which induce the violation of the agreement”. But he added:

To this general rule there undoubtedly exists an important exception which has been introduced from the civil law in regard to damages recoverable against a vendor of real estate who fails to perform and complete the title. In these cases the line has been repeatedly drawn between parties acting in good faith, and failing to perform because they could not make a title, and parties whose conduct is tainted with fraud or bad faith. In the former case, the plaintiff can only recover whatever money has been paid by him, with interest and expenses. In the latter, he is entitled to damages resulting from the loss of his bargain. The exception cannot, I think, be justified or explained in principle, but it is well settled in practice.²³

The eminent conveyancer, Edward Sugden (later Lord St Leonards LC), resolved the problem by criticising Hopkins v Grazebrook as wrongly decided because the vendor had an equitable title, and wrote that “short of circumstances amounting to fraud, the case seems to fall within the general rule”.²⁴ If there were actual fraud, he argued, the contract was voidable and the purchaser would have an action in deceit, so there was no reason for the exception; if there were no fraud, the rule in Flureau v Thornhill should apply.

2.12 The importation of a concept of fault, similar to the broader notion of fraud recognised by courts of equity, into the law of damages in such cases appears to have served a number of purposes. Firstly, it was used to discourage the purchase of interests in land without full investigations into the title. Secondly, it was a means of limiting a purchaser’s recovery to damage that was attributable to the vendor. The Rule thus acted as a test of remoteness of damage. For it was not until 1854 with Hadley v Baxendale²⁵ that the general rules as to remoteness of damage in contract were laid down, and it was established that a plaintiff could only recover for such damage as arose “according to the usual course of things” or could reasonably be supposed to have been in the contemplation of the contracting parties. Older, more specific rules, such as that in Flureau v Thornhill, were accommodated to this new regime by presuming that the parties must have been aware of the special rules.²⁶

2.13 Thirdly, the Rule in its limited form was used to protect vendors from the complexity of English land law. Thus, in one case, where a vendor’s title was defective through a lack of formality, the vendor was liable for only limited damages because, as a layman, “he had a fair right to believe he had the power to sell [that] which he professed to have.”²⁷ The circumstances in which the Rule was excluded were later reduced when it was established that the exception laid down in Hopkins v Grazebrook applied only when the vendor knew of the defect but withheld this knowledge from the purchaser.²⁸

2.14 Two further exceptions to the Rule were also established by the mid-nineteenth century. Firstly, the vendor was liable for the full measure of damages if the defect was a problem of conveyancing rather than of title. In Engell v Fitch²⁹ the defendant sold the leasehold of two houses to the plaintiff under a mortgagee’s power of sale, with vacant possession to be given on completion. The mortgagor claimed that the power of sale had been incorrectly exercised and refused to leave, so the defendant failed to complete the sale rather than incur the considerable expense of ejecting him. The Court awarded the plaintiff damages for lost profit on a resale because the defendant’s failure to convey was not the result of an inability to make out a good title. Secondly, where the contract was uncompleted and the plaintiff sued on the express covenants in the contract, such as a covenant in a lease not to disturb the lessee’s possession (the covenant for quiet enjoyment), subtantial damages for loss of the bargain could be recovered.³⁰ The reason for this exception would seem to be that the express covenant ousted the condition implied by law, so the Rule did not apply. All these exceptions were really limitations on the Rule, so that until the position was re-examined in Bain v Fothergill, the Rule only applied when the vendor had, without any specific covenant of good title, unwittingly contracted to convey a defective title which could not be perfected.

C. Restatement: Bain v Fothergill

2.15 The first opportunity for a reconsideration of the Rule by a court of sufficient authority to overrule the original decision came with Bain v Fothergill in 1874.³¹ The defendants had arranged to purchase the lease of a mining royalty containing a condition that the lessor’s consent was required for any transfer of the lease. The lessors had not consented to this purchase so it remained uncompleted. The defendants then contracted to sell their interest to the plaintiffs, without informing them of the condition or seeking to obtain the lessors’ consent to the transfer. The defendants later found that the lessors refused to consent to the transfer of the lease to them unless the defendants sold it to another party. After trying unsuccessfully to obtain the lessors’ consent to the sale, the defendants sold their interest to the third party and purported to terminate their contract with the plaintiffs. The plaintiffs then sought to recover damages for loss of bargain on the ground that the case was governed by the exceptions to the Rule since the defendants had contracted to sell property which they knew they did not own, though admittedly without fraud. The questions whether the Rule was good law and should apply in the circumstances were taken to the House of Lords, which summoned the judges to give their opinions.

2.16 Five judges thought that the case fell squarely within the Rule, which they expressed as being that where a vendor “without his default is unable to make a good title”, the purchaser is not entitled to damages for loss of bargain.³² By formulating the Rule in this way, they left open the type of conduct by the vendor which would exclude the Rule. Baron Pollock thought the Rule applied only when the vendor had acted bona fide; while Baron Pigott argued that a vendor’s default which caused the breach would amount to fraud and oust the Rule, although he concluded that in the instant case the Rule applied even if the defendants knew of the defect but honestly believed that they would obtain the lessors’ consent to the sale.³³ Denman J dissented, believing Flureau v Thornhill to have been correctly decided but limited to cases involving a vendor in possession and with a holding title without any knowledge of any defect in the title “discovering for the first time, on investigation of the matter, that he had not such a title as a purchaser could be compelled to take.” The present case did not come within the Rule thus defined because the defendant knew of the defect but expected it to be cured.³⁴

2.17 The case was decided by the judgments of two law lords after consideration of the judges’ opinions. Lord Hatherley appeared to approve Engel v Fitch in saying that whenever the obstacle to completion of the contract

is a matter of conveyancing, and not a matter of title, it is the duty of the vendor to do everything that he is enabled to do by force of his own interest, and also by force of the interest of others whom he can compel to concur in their conveyance.³⁵

Expressly overruling Hopkins v Grazebrook, Lord Chelmsford said:

the rule as to the limits within which damages may be recovered upon the breach of a contract for the sale of a real estate must be taken to be without exception. If a person enters into a contract for the sale of real estate knowing that he had no title to it, nor any means of acquiring it, the purchaser cannot recover damages beyond the expenses he has incurred by an action for the breach of the contract; he can only obtain other damages by an action for deceit.³⁶

This formulation appears to go far beyond the original statement of the Rule by Grey CJ in Flureau v Thornhill since it would seem to limit damages even in cases of actual fraud; indeed, his Lordship accepted that any distinction as to damages based on whether the vendor acted bona fide could not be justified.³⁷ The purchaser’s remedy in all cases lay rather in the tort of deceit. At that time this statement was made, there was doubt whether this remedy was available for careless as well as wilful misrepresentations. Lord Chelmsford himself, when Lord Chancellor, had said that “if an untrue statement is made founded upon a belief which is destitute of all reasonable grounds, or which the least inquiry would immediately correct, I do not see that it is not fairly and correctly characterized as misrepresentation and deceit”.³⁸ This statement was taken as importing the notion of equitable or constructive fraud into the tort of deceit,³⁹ and it was not until the landmark case of Derry v Peek⁴⁰ in 1889 that it was finally settled that only wilfully false representations founded an action for deceit. Thus Lord Chelmsford may have contemplated tort damages for situations, as in Bain v Fothergill itself, where a vendor believed without foundation though without fraud that his title would be perfected automatically. Yet fifteen years later this possibility was overturned. In any case, it has often been pointed out that deceit is an inadequate remedy in such circumstances since damages for loss of bargain are not available in tort. The measure of tort damages for deceit aims to put the plaintiff in the same position as if the misrepresentation had not been made, so a vendor could only recover for expenses incurred on the basis of the contract. As Professor Treitel has said, “it is hard to see why the fact that the defendant is guilty of the tort of deceit should affect the damages for which he is liable in a contractual action.”⁴¹

2.18 Their Lordships gave several reasons for the continuation of the Rule. It was thought that the Rule was so well-established and acted upon for so long that all vendors and purchasers must be assumed to bargain on the basis that it was a term of the conveyance. Given the uncertainty of titles, it was said to be assumed that the purchaser will not re-sell until the title is fully investigated. Unlike the sale of goods, interests in land were not thought to be made with a view to re-sale. Lord Chelmsford also considered that the loss of bargain in contracts for the sale of land is of a “purely speculative character” and would be too difficult to determine; even if it could be proved, he thought that the loss of a profitable resale was too remote from the breach to be compensable.⁴²

D. Later Qualifications

2.19 The restatement of the Rule by the House of Lords was received with misgivings, especially the statement that loss of bargain damages in cases of fraud could only be recovered in tort.⁴³ Later cases laid down a number of limitations on the statement of the Rule by Lord Chelmsford. In Day v Singleton⁴⁴ the plaintiff had agreed to purchase a hotel lease, subject to the consent of the lessors. The vendor died before the contract was completed and his personal representative, anxious to annul the sale, persuaded the lessors to refuse their consent to the transfer of the lease, and subsequently re-sold the lease for a price above that of the original contract. The English Court of Appeal held that it was the defendant’s duty to use his best endeavours to obtain the lessor’s consent to the sale. If he was unable to do so, the Rule applied; but if it was within his power to obtain consent and he omitted to do so, he was liable for the full measure of damages. The court distinguished Bain v Fothergill, where the vendors had done all they could to obtain the lessor’s consent. While it conceded that this approach was at odds with some of the statements in Bain v Fothergill, the Court thought it prevented the Rule “from leading to grievous injustice.”⁴⁵ As the Rule was an anomalous one based on the difficulties of showing a good title to real property, it should not be extended to cases in which the reasons for it did not apply. The extent of the restriction of the Rule was illustrated in In Re Daniel⁴⁶ where the refusal of mortgagees to consent to a conveyance was held not to invoke the Rule because it was caused by the vendor’s financial inability to discharge the mortgage.

III. THE PRESENT STATE OF THE RULE

A. When is the Rule Applied?

2.20 In view of the small number of cases in which the Rule has been argued successfully, and the circumstances in which it has been held to be inapplicable, there is some doubt as to the true extent of the Rule at present. Broadly speaking, the Rule applies only if the vendor, acting in good faith, is unable to complete the conveyance because of a defect in the vendor’s title. It applies to the sale of all interests in land, whether freehold, leasehold, easements or profits a prendre, including options to purchase land or to renew a lease.⁴⁷

1. Defects in Title

2.21 The Rule only applies in cases where the inability of a vendor to complete the conveyance is caused by a defect in title, as opposed to a matter of conveyancing. The smallest defect in the vendor’s title, such as a restrictive convenant, is sufficient to invoke the Rule; but the defect must truly relate to the title which the vendor has agreed to sell, and must be a defect which cannot be remedied by the vendor. Conveyancing matters are generally those which the vendor has power to resolve by performing an act either solely or with the concurrence of another person whose co-operation may be compelled by law, and the act relates to the form of the conveyance or transfer document. Examples of conveyancing matters include cases where the vendor has failed or refused to:

• have a caveat removed;⁴⁸
• deliver an abstract of title;
• pay off a subsisting mortgage;
• acquire the legal estate which the vendor has the equitable right to obtain;
• sell under a power of sale in order to eject a mortgagor;
• apply to the courts to eject an occupier.⁴⁹

If the contract was breached by the vendor’s own repudiation, as by wrongfully selling the property to another person, the Rule does not apply.⁵⁰ Nor does it apply where the vendor fails to give vacant possession as promised: this is an express contractual provision on which the purchaser is entitled to rely, even where the purchaser knew that there was an occupant on the premises at the time of the contract.⁵¹ And where the conveyance has been completed though without the full title contracted for, the purchaser may obtain full damages in an action on the covenants for title.⁵²

2.22 In Wroth v Tyler⁵³ Megarry J held that a wife’s statutory personal right against the vendor husband not to be evicted from the property was not within “the spirit or the letter” of the Rule. This decision has been criticised as over-zealous,⁵⁴ but it has not been overruled; so the class of title defects covered by the Rule could now be limited to those stemming from the inherent uncertainty of showing title.

2. Bona Fides of Vendor

2.23 If the obstacle is a conveyancing matter the vendor cannot rely on the Rule. But even if there is a true defect in title, in order to be protected by the Rule the vendor must show that he or she has done all that could reasonably have been done to perfect the title. Unless this is proved, the purchaser is entitled to full damages because the vendor did not act bona fide. In short, the Rule does not apply when the vendor was “the author of his own misfortunes”.⁵⁵

2.24 The Rule most commonly arises when a transaction is blocked because the assignor has failed to obtain the approval of a co-owner or the consent of a lessor or mortgagor. Where the consent of another person is required for the transfer to be completed, the vendor must have used his or her best endeavours in order to obtain that consent. The courts will closely scrutinise the efforts of the vendor to have the defect removed. However, the vendor is not required to embark on difficult or uncertain litigation in order to secure consent or vacant possession.⁵⁶

2.25 The older cases are divided as to the degree of culpability by the vendor which is sufficient to displace the Rule. Since Day v Singleton it has been settled that bad faith not amounting to actual fraud will render the vendor liable to full damages. The test was expanded in Malhotra v Choudhury where it was held that the burden of proof is upon the defendant vendor to prove that he or she has done everything that could reasonably be done to remove the defect and

unwillingness to use best endeavours to carry out a contractual promise is bad faith and for there to be bad faith which takes the case out of this exceptional rule, it is not necessary that there should be either a deliberate attempt to prevent title being made good or anything more than the unwillingness which I find it inevitable to infer in this case. If a man makes a promise and does not use his best endeavours to keep it, it cannot take much and... may not need more to make him guilty of bad faith and to entitle the victim of his bad faith to his full share of damages to compensate him for what he has lost by reason of that breach of contract and bad faith.⁵⁷

That decision was followed in Sharneyford Supplies Ltd v Edge,⁵⁸ although their Lordships differed as to whether a vendor should be required to pay whatever sum a lessee required in order to obtain vacant possession. As was noted by Balcombe LJ in that case, if a vendor were required to seek to perfect his or her title at any cost, the circumstances in which the Rule applied would effectively disappear. Yet if the courts imposed some test of reasonable payment which the vendor might be expected to pay, the difficulties of determining the requisite amount in individual cases could prove insuperable.

B. What Damages may be Recovered?

2.26 When the Rule applies the measure of general damages is the amount of the deposit paid, plus interest on the deposit calculated from the date of payment to the date of judgment,⁵⁹ and limited expenses incurred in investigating the title. Within the last category, recoverable expenses have included:⁶⁰

• preparing, executing and stamping the contract;
• searching the title;
• preparing the conveyance (if the preparation was not premature);
• insuring the property.

If no deposit was paid and no such expenses were incurred, the purchaser is not entitled to more than nominal damages.⁶¹

2.27 The purchaser may also, as in any contract, recover for such consequential losses as are held to have been within the contemplation of the parties; but as general damages are curtailed by the Rule, the consequential losses are confined to further expenses actually incurred and are very limited. Usually costs associated with the conveyance or other expenses have been disallowed because it has been thought that a prudent purchaser should wait until the vendor shows title before acting. Expenses considered premature and too remote have included:⁶²

• the cost of obtaining a survey of the property;
• the cost of preparing the conveyance in anticipation of completion;
• expenses incurred in compensating sub-purchasers;
• costs of negotiating the contract, and other pre-contract expenses;
• alterations and improvements made after entering into possession before completion, as agreed in the contract;
• costs associated with the purchaser’s intended use of the land, such as the creation of a business association.

It may be, however, that the costs of obtaining surveys and inspections together with the preparation of the conveyance would now be considered as sufficiently within the contemplation of the parties to be recoverable under the Rule, particularly as there is authority that pre-contract expenses may be recovered in ordinary contract actions.⁶³ Also, since it is now normal conveyancing practice to obtain surveys and inspections before completion, such expenses would fall within the traditional ambit of the Rule as “proper conveyancing expenses”.⁶⁴

2.28 It is clear, then, that the full measure of reliance loss is not compensated under the Rule. Other losses that presumably could not be recovered, even though incurred on the faith of the contract being completed, would include those associated with:

• the preparation of building plans;
• obtaining development approval;
• financing the purchase of the property;
• preparations for commercial use of the property, such as advertising for tenants.⁶⁵

1. Robinson v Harman (1848) 1 Exch 850 at 855; 154 ER 363 at 365.

2. L L Fuller and William R Purde “The Reliance Interest in Contract Damages” (1936-37) 46 Yale LJ 52 at 54.

3. See for example McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; see K E Lindgren, J W Carter and D J Harland Contract Law in Australia, Butterworths, Sydney, 1986, at 691; A S Burrows “Contract, Tort and Restitution - A Satisfactory Division or Not” (1983) 99 Law Quarterly Review 217 at 228.

4. Lloyd v Stanbury [1971] 1 WLR 535.

5. Harvey McGregor McGregor on Damages 15th ed, Sweet & Maxwell, London, 1988 at 573-574.

6. Flureau v Thornhill (1776) 2 W Bl 1078 at 1078; 96 ER 635 at 635.

7. Ibid.

8. This view was preferred by Isaacs J in Coronet Homes Pty Ltd v Bankstown Finance and Investment Co Pty Ltd (1966) 85 WN (NSW) 69 at 75, 78; [1966] 2 NSWR 351 at 358, 360-361.

9. A I Ogus The Law of Damages, Butterworths, London, 1973, at 303-304. For a discussion of “condition” see F M B Reynolds “Warranty, Condition and Fundamental Term” (1963) 79 Law Quarterly Review 534-555.

10. Brig’s Case (1623) Palmer 364; 81 ER 1125 bears a factual similarity to Flureau v Thornhill. The plaintiff paid a lump-sum in return for the defendant’s promise to grant a lease; but before the lease could be executed, the defendant was dispossessed. The Court of King’s Bench held that the plaintiff could recover in assumpsit “for loss of the benefit of the bargain, and will recover not only as much money as he gave for the lump sum, but also damages for the breach of contract” (translated from the law French). Insofar as it is relevant, therefore, it is at odds with Flureau v Thornhill, although nothing was said about the actual quantum recoverable.

11. Grant Gilmore The Death of Contract Columbus State University Press, Columbus, 1974, at 51; Morton J Horwitz “The Historical Foundations of Modern Contract Law” (1974) 87 Harvard Law Review 917 at 921; P S Atiyah The Rise and Fall of Freedom of Contract, Clarenden Press, Oxford, 1979, at 195; 200, 428-9; cf A W B Simpson “The Horwitz Thesis and the History of Contracts” (1979) 46 University of Chicago Law Review 533 at 547-553; A W B Simpson A History of the Common Law of Contract, Clarendon Press, Oxford, 1975, at 123, 582.

12. Bree v Holbech (1781) 2 Dougl 655, 99 ER 415; Cripps v Read (1796) 6 TR 606; 101 ER 728.

13. Johnson v Johnson (1802) 3 B & P 162; 127 ER 98.

14. Bratt v Ellis and Jones v Dyke, both noted briefly in appendixes to Edward Sugden The Law of Vendors and Purchasers of Estates 14th ed, 1862, at 812-813, and earlier editions.

15. Denton v Stewart (1786) 1 Cox 258; 29 ER 1156; Greenway v Adams (1806) 12 Ves Jun 395; 33 ER 149; per contra Todd v Gee (1810) 17 Ves Jun 273; 34 ER 106; Sainsbury v Jones (1839) 5 My & Cr 1; 41 ER 272 at 273.

16. De Bernales v Wood (1812) 3 Camp 258; 170 ER 1375; Farquahar v Farley (1817) 7 Taunt 592, 129 ER 236; cf Carlton v Bragg (1812) 15 East 223; 104 ER 828.

17. (1826) 6 B & C 31; 108 ER 364.

18. (1826) 6 B & C 31 at 34; 108 ER 364 at 365.

19. Walker v Moore (1829) 10 B & C 416; 109 ER 504.

20. (1829) 10 B & C 416 at 422; 109 ER 504 at 506 per Littledale J.

21. Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365.

22. For American authorities, see the argument of Serjeant Shee in Pounsett v Fuller (1856) 17 CB 660 at 668-673; 139 ER 1235 at 1239-1240.

23. Theodore Segdwick A Treatise on the Measure of Damages 2nd ed, 1852 at 208; 4th ed, 1868 at 234.

24. Edward Sugden Vendors and Purchasers 14th ed, 1862, at 360.

25. (1854) 9 Ex 341; 156 ER 145.

26. see Hadley v Baxendale (1854) 9 Ex 341 at 355; 156 ER 145 at 151 per Alderson B, where the rules as to non-payment of money and the sale of land are mentioned.

27. Pounsett v Fuller (1856) 17 CB 660; 139 ER 1235 at 1242 (supposed incorporeal hereditament not executed by deed).

28. Sikes v Wild (1863) 4 B & S 423; 112 ER 517. This development was probably the result of the retreat by courts of common law from the broader equitable notion of fraud adopted by Lord Mansfield.

29. Engell v Fitch (1868) LR 3 QB 314, affirmed (1869) LR 4 QB 659.

30. Lock v Furze (1866) LR 1 CP 441.

31. (1870) LR 6 Ex 59, affirmed (1874) LR 7 HL 158.

32. (1874) LR 7 HL 158 per Pollock B (with whom four judges agreed) at 170, per Pigott B at 193.

33. (1874) LR 7 HL 158 per Pollock B at 174, per Pigott B at 194, 200.

34. (1874) LR 7 HL 158 at 178, 184-186. Denman J cited as support the dissenting opinion of Erle CJ in Sikes v Wild (1861) 1 B & S 587; 121 ER 832.

35. (1874) LR 7 HL 158 at 209.

36. (1874) LR 7 HL 158 at 207.

37. (1874) LR 7 HL 158 at 206, discussing the statement by Sedgwick quoted in para 2.11.

38. Western Bank of Scotland v Addie (1867) LR 1 HL(Sc) 145 at 162.

39. Weir v Bell (1878) 3 Ex D 238 per Cotton LJ at 242; Smith v Chadwick (1882) 20 Ch D 27 per Jessell MR at 44.

40. (1889) 14 App Cas 337, HL(E).

41. G H Treitel Law of Contract 7th ed, Stevens, London, 1987, at 767.

42. (1874) LR 7 HL 158 at 202, 209, 211.

43. See for example Colonial Investment and Agency Co Ltd v Cobain (1888) 14 VLR 740 at 747.

44. [1899] 2 Ch 320.

45. [1899] 2 Ch 320 at 330.

46. In Re Daniel: Daniel v Vassall [1917] 2 Ch 405.

47. Bain v Fothergill (1874) LR 7 HL 158, Day v Singleton [1899] 2 Ch 320, J W Cafes v Brownlow Trust [1950] 1 All ER 894 (lease); Rowe v School Board for London (1887) 36 Ch D 619 (right of way); Morgan v Russell [1909] 1 KB 357 (right to take cinders); Ontario Asphalt Block Co v Montreuil (1916) 27 DLR 514, Wright v Dean [1948] Ch 686 (option to purchase); Gas Light and Coke Co v Towse (1887) 35 Ch D 519 (option to renew lease).

48. Noske v McGinnis (1932) 47 CLR 563 per Rich J at 583.

49. Jones v Gardiner [1902] 1 Ch 191; Engel v Fitch LR 4 QB 659; In Re Daniel [1917] 2 Ch 405; Braybrooks v Whaley [1919] 1 KB 435.

50. Ridley v De Geerts [1945] 2 All ER 654; Diamond v Campbell-Jones [1961] 1 Ch 22; ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512.

51. Wroth v Tyler [1974] Ch 30; Hensley v Reschke (1914) 18 CLR 452 at 464; Kahlbetzer v Cincotta (1983) CCH NSW Conv R 56-806.

52. Locke v Furze (1866) LR 1 CP 441; Beard v Porter [1948] 1 KB 321.

53. Wroth v Tyler [1974] Ch 30.

54. C T Emery “In Defence of the Rule in Bain v Fothergill” [1978] Conveyancer 338; A J Oakley “Pecuniary Compensation for Failure to Complete a Contract for the Sale of Land” (1980) 39 Cambridge Law Journal 58 at 69; Law Commission of England and Wales Transfer of Land: The Rule in Bain v Fothergill: Report, Law Com No 166; Cm 192, 1987, at 16.

55. ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512 per Needham J at 516.

56. Williams v Glenton (1866) 1 Ch App 200 at 208; Wroth v Tyler [1974] Ch 30 at 50.

57. Malhotra v Choudhury [1980] Ch 52 per Stephenson LJ at 72-73, also 71, 76; Cumming-Bruce LJ at 77.

58. Sharneyford Supplies Ltd v Edge [1987] 1 Ch 305 per Balcombe LJ at 322-323, per contra Parker LJ at 326.

59. Keen v Mear [1920] 2 Ch 574.

60. Hanslip v Padwick (1850) 5 Ex 615; Keen v Mear [1920] 2 Ch 574; Conn v Bartlett [1923] GLR 729; Staples v Lomas [1944] NZLR 150; see G W Hinde, D W McMorland and P B A Sim Land Law, Butterworths, Wellington, 1979, vol 2 at 1087.

61. Gas Light and Coke Co v Towse (1887) 35 Ch D 519.

62. For a summary of the cases, see Harvey McGregor McGregor on Damages 15th ed, Sweet & Maxwell, London, 1988, at 573-574.

63. Law Commission of England and Wales, note 54 at 14.

64. Jones v Gardiner [1902] 1 Ch 191 per Byrne J at 195.

65. Charles Harpum “Bain v Fothergill in Chains” [1983] Conveyancer 435 at 436; cf MP Thompson “The Impact of Bain v Fothergill on Raineri v Miles” [1982] Conveyancer 191.