Remedies for breach of contract (Third parties (historically, a claimant…
Remedies for breach of contract
historically, a claimant has been unable to claim for damages incurred by a third party
when acting as an agent or a trustee;
when buying goods for the benefit of a group
where acting under a duty to act in the interest of a third party
where the contracting party states that the benefit of the contract is held on trust for another person.
Common law provisions overtaken by the provisions of the Contract Act 1999, which allows 3rd parties to sue where:
the contract expressly states that they may do so;
the contract 'purports to confer a beneft' on the 3rd party
the parties may chose to exclude the provisions of the Act, in which case the common law rules will apply
Court decision on damages
1/ Are damages payable?
the extent to which the losses are a direct result of the breach of a contract (remoteness)
Hadley v Baxendale
could the damage be reasonably viewed as arising naturally from the breach
was the damage such as might reasonably have been contemplated by the parties when the contract was made
Baxendale was not liable for the additional losses as he didn't know that the mill could not operate without the crankshaft and that the mill did not have a spare.
Victora Laundry Ltd v Newman Industries Ltd
The claimants could only recover losses which were in the reasonable contemplation of the parties which included the loss of profit that could be expected from the lack of use of the boiler, but the claimant could not recover for the loss of the exceptionally lucrative contract since the defendant was unaware of this contract.
When assessing damages for the late redelivery of a chartered vessel, the court should in the usual case restrict the charterer’s liability to the difference between the market rate and the charter rate for the overrun period.
2/ How much should be awarded
Measure of damages
general rule - the claimant should be placed in the same position as he expected to be in if the contract had been performed (
Robinson v Harman
market rule prevails - if a seller fails to supply goods and the price then rises he will be required to pay the difference.
if a buyer refuses to accept the goods, the seller is entitled to the amount by which the contract price exceeds the market price.
if a person contracts to buy goods with a view of selling them on at a profit he may also be entitled to recover any loss of profit if he is unable to obtain a substitute (
Thompson v Robinson
the claimant claims for the expenses he has incurred in reliance on the contract (
Anglia Television v Reed
* the claimant cannot claim for both expectation and reliance loss
damages are either:
liquidated (the contract stipulates an actual amount to be paid in case of breach of the terms of the contract
unliquidates (an amount not stated in the contract but decided later and based on the amount actually lost
Cost of cure basis
how much it would cost the claimant to get the party inn breach to rectify the breach (
Ruxley Electronics v Construction Ltd v Forsythe (swimming pool)
Liquidated damages and penalty clauses
the the clause is a genuine attempt at pre-estimating the loss, then it will be enforceable, whatever the loss suffered
if the clause is deemed to be a penalty clause, it will be invalid and the award of damages will be determined by the ordinary principles of contact law
Guidelines for determining whether a clause is a penalty or a genuine attempt to pre-estimate the loss
- Dunlop Pheumatic Tyre & Co v New Garage and Motor Co Ltd
1/ the clause will be penal if the sum stipulated is extravagant or on unconscionable in comparison with the greatest loss which would arise
2/ the clause is a liquidated damage clause if the consequences of the breach are such as to make a precise pre-estimate and the actual amount specified bears a reasonable relation to the probable consequence of the breach
3/ even though the parties describe the damages as #liquidated' or 'penalty', this is not conclusive and the court will look at the substance of the agreement and decide if there was a genuine attempt to pre-estimate the consequences of the breach