Week 9 Common Law Remedies
Damages are the quintessential common law remedy
Nature and objectives of damages
damages are intended to provide a form of compensation not punishment
The general objective of damages is to compensate the original party for the losses which they have suffered as a result of the other party’s failure to complete their obligations under the contract
The burden of proof for these things falls upon the plaintiff.
The plaintiff must show that there was a breach at law, and the plaintiff must show what losses were suffered as a result of that breach.
It follows, of course, that damages can only be awarded if a breach is established, and if the plaintiff is able to show a loss.
Quantum and assessment of damages
text
Date of assessment
harm will usually be assessed as at the day of the breach itself
The rationale for this is that once the breach has occurred, the innocent party will be able to look out for their own interests and prevent further losses.
Damages are “once and for all”
Parties are not entitled to subsequently come back for more, even if it turns out that they later incur additional harm as a result of the breach (which they had perhaps not anticipated or known about at the time of their initial court action).
Commonwealth v Amann Aviation (1991) 174 CLR 64
Radford v De Froberville [1977] 1 WLR 1262
De Froberville purchased a house adjoining the block of flats owned by Radford. As part of the purchase, she covenanted (i.e. promised) to erect a very substantial wall on the boundary between the properties. She failed to do so, and Radford sued for damages. De Froberville, however, argued that no damage had been suffered. The court found that Radford should receive damages sufficient to cover the cost of building the wall himself.
Let’s think about this. When did the breach occur? Effectively, the breach occurred when De Froberville failed to build the wall. Radford’s efforts to build the wall himself came afterwards. The cost of the building materials etc may have fluctuated in the meanwhile – however the court found that in these circumstances, the proper date of assessment related to when the new wall was built, not when the breach occurred.
Example of a case where the date may be assessed not when the breach occurred - rare situation
Exceptions
If there is more than one cause of action.
OK, this isn’t really an exception, I guess. It makes sense that if there are two causes of action, then the resolution of the first cause of action doesn’t stop the plaintiff from proceeding with the second.
If there is a continuing breach.
Sometimes, a contract may require a definite act be done within the time allowed. If a warranty in that contract is breached, there will be an entitlement to damages, but the contract is not terminable; if a condition is breached this will give rise to both a right to terminate and seek damages.
Larking v Great Western (Nepean) Gravel (1940) 64 CLR 221
Larking gave the company the right to extract gravel from part of the Nepean river bed (a profit a prendre contract). As part of the deal, the company was to (a) erect some fences and gates, and (b) maintain them in good order. Failure to do so gave rise to the right to terminate (condition). The respondent did not erect the fences or gate. After the respondent went into liquidation the appellant sought to terminate and reclaim possession. The contract eventually came before the courts. One question was whether the breach – failing to erect the fences and gate – was a once-and-for-all breach, or a continuing breach. The court found that the breach was a once-and-for-all breach, not a continuing breach. Given that the plaintiff had accepted royalties after the breach occurred, the appellant had lost the opportunity to terminate the contract.
Here, the distinction between types of breach was not too difficult: the duty to erect the fences and gate was in the nature of “an act of solitary performance” (per Rich ACJ, 228) even though a particular date was not contractually specified (as opposed to the obligation to maintain same, which would likely be considered a continuing breach).
Liquidated damages and penalties
Sometimes prudent parties will agree, in the contract itself, what damages should be paid in the event of specified breaches of the contract.
Where parties have agreed to liquidated damages, the court will enforce the liquidated damages clause, and the parties will lose any right to common law damages arising from the breach. In other words, not only will liquidated damages be enforced, they will also cancel out any common law remedy.
For a sum to qualify as liquidated damages, it must be a genuine predictive estimate of the likely loss
the liquidated damages must bear some reasonable relationship to the likely harm
From our perspective, the test will always be whether the amount of damages prescribed in the liquidated damages clause is a genuine and reasonable estimate of the damages likely to be suffered in the event of a breach.
If it does not – if the liquidated damages are obviously higher than the likely actual losses – then the liquidated damages will be regarded as a penalty
If a liquidated damages clause has the effect of penalising the defaulter, of imposing consequences which quite obviously exceed the potential harm, then the liquidated damages clause will be void. It will still, under those circumstances, be open to the innocent party to seek common law damages.
Dunlop Pneumatic Tyre Co v New Garage & Motor Co [1915] AC 79
Dunlop supplied tyres, tyre tubes and tyre covers to New Garage, which then sold them on to consumers. Part of the contract specified that there was a minimum price for each article, and that New Garage was not able to sell Dunlop’s products for less than that minimum price (a practice that would now be prohibited in Australia by the Competition and Consumer Act 2010 (Cth) as “resale price maintenance”). The contract included a liquidated damages clause which imposed damages of five pounds per item sold below the minimum cost. Controlling for inflation and currency conversion, that amounts to approximately the equivalent of $900 Australian per unit.
New Garage, as you may have guessed, sold Dunlop products without adhering to the price-maintenance part of the contract. Dunlop sued to enforce the liquidated damages clause, and it came before the courts. So, what do you say? Was this liquidated damages, or was it a penalty?
The court found that this was liquidated damages, not a penalty.
Expectation damages
Under some circumstances, the innocent party will be able to obtain “expectation damages” to compensate them not only for the losses they have incurred, but also for the profits they will now never see.
C.Czarnikow v Koufos (1969) 1 AC 350.
In this situation, Czarnikow chartered a ship owned by Koufos, to carry a load of sugar for sale to merchants in the Middle East. However the shipowners caused deviations to the ship’s route, with the result that the sugar arrived in its destination port nine days after it should have.
Ordinarily, one might think this was not too much of a problem; the sugar could still be sold, and a profit realised. The shipowners acknowledged that they would be liable to pay interest on the value of the sugar for the nine days. So where’s the problem? Well, during those nine days, another boat load of sugar had arrived in the same port. The market was now oversupplied with sugar, and the price had therefore dropped. As a result, Czarnikow did not just want nine days’ interest – they wanted the difference between the price they actually obtained, and the price they would have obtained had the contract been completed in a timely manner.
Lord Reid set out the test, in his judgment, which has since been used in Australian cases:
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.
So, if a reasonable person could foresee the loss of expectation at the time the contract was formed, the expectation loss will most likely be compensable.
Causation
remoteness and causation
any damage which is not “in the natural course of things” and which cannot reasonably be supposed to have been in the contemplation of both parties, will not be compensable.
Hadley v Baxendale (1854) 156 ER 145
plaintiff contracted with the defendant to carry a broken crankshaft to a manufacturer, who was to use the broken shaft as a model to make a new one to replace the broken one. The crankshaft was a key component of a flour mill operated by Hadley. Baxendale did not know that the crankshaft was the only one which Hadley had, and that as a result the flour mill would be sitting idle until the new one could be manufactured and installed.
Delivery of the broken crankshaft to the manufacturer was delayed, with the result being an additional five days in which the mill was unable to operate. This, of course, meant five days without profit for the mill owner. The question was therefore whether Baxendale was liable for the lost profits as well as for the delay itself.
two limbs
• Second, the defendant should be liable for damage such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
This second limb requires a little unpacking. For the damage to reasonably be in the contemplation of both parties, then one of two things must occur:
• Either the plaintiff must tell the defendant the special knowledge required to foresee the loss; or
• The plaintiff must know that the defendant has learned the special knowledge from some other source.
• First, the defendant should be liable for damage which occurs “naturally … according to the usual course of things.” This damage is the direct and immediate damage which is clearly and demonstrably linked to the breach.
Another example of Hadley Baxendale test applied;
Victoria Laundry v Newman Industries [1949] 2 KB 528
Victoria Laundry operated a laundry (obviously!) and also a dyeing business. Apparently the dyeing side of the business was more lucrative, and they had just obtained contracts with the Ministry of Supply which would allow the business to expand in both capacity and profitability. In order to meet this contract, they needed an additional boiler. They contracted to purchase one from Newman Industries, who knew nothing about boilers but had two available for sale, second hand. The boiler was inspected, and everyone was happy, but then after it had been dismantled for transport, the boiler was damaged. This resulted in a delay, which in turn led to a delay in the expansion of the business and its ability to profit from the lucrative Ministry of Supply contracts.
It found that the normal profits of the laundry during the delay were “according to the usual course of things” and should be compensated by damages. However, the court found that the additional profits to flow from the more lucrative dyeing business were not “according to the usual course of things” and were not known to Newman Industries at the time of the contract. Accordingly, those additional profits fell outside the rule in Hadley v Baxendale, and could not be compensated by damages.
Non financial loss / Non Economic Loss
Most of the time, nonfinancial losses or harm (for instance, stress and anxiety) are not able to be compensated for by damages.
The exception to this is where the contract itself is intended to provide for pleasure, and fails to do so
Baltic Shipping Co v Dillon (1992) 176 CLR 344
In this case, Baltic Shipping contracted with Mrs Dillon to provide her with a 14 day cruise, and the ship sank on the tenth day.
Mrs Dillon successfully argued that the whole purpose of the contract had been to provide her with pleasure. This was a pleasure cruise – not, for instance, a mere contract for transportation – and the company failed to provide her with the contracted pleasure, because she found herself aboard a sinking ship! On its face this seems pretty reasonable. You should be aware, however, that circumstances such as these are quite rare, and unless it is fairly obvious that a contract was for pleasure, don’t be too hasty about arguing that a plaintiff should be compensated for nonfinancial loss.
Mitigating Measures
Let’s imagine for a moment that a contract between Party A and Party B has gone pear-shaped. Party B has failed to complete their obligations, and Party A is suffering damage as a result. Now let’s imagine that Party A can take steps to limit or prevent further damage (or they can do nothing, in which case the damage will get worse). What should Party A’s obligation be?
A few rules apply here.
Rectification and repair
First and foremost, if a breach leaves the innocent party in a situation where they must take steps to rectify or repair the breach, they will be able to obtain damages to compensate them for whatever expenditure was involved in the repair or rectification.
Mitigation proper
if there are reasonable steps open to the innocent party to minimise the extent of the harm, they should take those steps.
if the party takes those steps to mitigate, and those steps costs the innocent party money, the innocent party may be compensated for that expenditure.
Bellgrove v Eldridge (1954) 90 CLR 613.
In this case, Bellgrove was a builder, who contracted to build a house. Once building of the house was well underway it was discovered that the concrete used for both the foundations and the bricklaying was seriously deficient in cement. The result was that both the foundations and the walls themselves were unsafe. Eldridge wished to have the house demolished and reconstructed; Bellgrove argued that some form of underpinning, or replacement of the foundations would be adequate.
The court found that the most appropriate solution in this situation was to have the house demolished and rebuilt.
The defaulting party, Bellgrove, was therefore liable to pay all of the costs associated with demolition, and with the rebuilding of the new structure.
Banco de Portugal v Waterlow & Sons [1932] AC 452
The Banco de Portugal was the central bank of Portugal, responsible for the issue of banknotes. They decided to release a new banknote worth 500 escudo featuring explorer Vasco da Gama, so they made a contract with Waterlow & Sons, printers, to print 600,000 of the banknotes.
A syndicate of criminals sent a representative to Waterlow & Sons. The criminal representative convinced Waterlow he was also a credentialed representative of the Banco de Portugal, and he placed an order for a further 580,000 of the notes.
They argued that the expenditure made by the bank in honouring the counterfeit notes was the bank’s own decision. The court disagreed. The bank’s decision to honour all of the notes was a reasonable mitigating measure. If the bank had attempted to honour none of the notes, this would have utterly undermined confidence in the economy, with disastrous results. As a result, the measures taken by the bank were reasonable mitigating measures, and Waterlow & Sons had to foot the entire bill – over £600,000.
Contributory Negligence
In short, if a plaintiff is negligent in relation to a breach and their negligence contributes to the harm, they will be unable to recover damages for that part of the harm which was due to their own negligence
Lexmead v Lewis [1982] AC 225
a farmer purchased a towbar which would allow him to tow a trailer behind his farm vehicle. The hitch as delivered and installed was defective, and the farmer knew it. So, at this point, we quite clearly have a breach on the part of the supplier. What the farmer should have done at this point is return the car to the supplier and demand that the defect be repaired or replaced. However he did not do so. In fact, he continued to use the towbar for months.
Eventually, the worst happened. The towbar failed dramatically and the trailer tumbled free. The trailer crashed into a moving car and killed two people in the car. A third person in the car sued the trailer in tort. The farmer, in turn, took action against the supplier of the towbar, claiming damages for the defective towbar.
In the end, the court found that the farmer’s negligence had broken the chain of causation in this case.
Anticipatory Breach
This occurs when a party has, either explicitly or by implication, repudiated the contract, but has done so before the time their obligation falls due.
Even though a party may choose to terminate a contract early due to anticipatory breach, the date at which damages are calculated remains the date at which the obligation was due.
as soon as the innocent party has chosen to terminate the contract, they become subject to the usual duties to mitigate their losses.
There is no duty to mitigate damages before there has been an actual breach or an anticipatory breach which has been accepted.
Shindler v Northern Raincoat [1960] 2 All ER 239
The court found that even though the company had repudiated the contract by indicating its intent to dismiss Shindler, Shindler had not initially accepted the repudiation, so the contract had not initially been terminated. As a result, when the subsequent job offers were made, the initial contract still existed. Since the initial contract still existed, Shindler was not under any obligation to mitigate his damages.
Shindler was unemployed for 12 months after the dispute with Northern Raincoat, but had found employment at a lower level with a different company at the time of trial. The judge was “optimistic” about Shindler’s prospects of employment at a higher level in the term that his employment contract had left to run (8 years). He therefore awarded £7,500 – just over two years’ salary to Shindler.
If Shindler had terminated the contract as soon as he had been told he was to be sacked, then he would have been obliged to take reasonable steps to mitigate his loss – including accepting the offered substitute positions.
Equitable Remedies
First, an important equitable principle states that equity follows the law. In other words, equitable remedies will only be available if the court is satisfied that the common law remedy (damages) is inadequate, and if there is no satisfactory remedy in statute law (such as the Australian Consumer Law). If either of those will work, equitable remedies will not be used.
Second, equitable remedies are discretionary. A party can establish the cause of action, and yet a court of equity may still decide that their desired remedy is not available to them.
Rescission
Rescission occurs where a contract, ie all contractual obligations, are treated as void ab initio. The contract is essentially treated as if it were never formed. The parties must be returned to substantially their original positions, if necessary by means of court orders.
For note;
Termination occurs where a contract, ie all contractual obligations, are ended from the termination date onwards. The contract and all its obligations up to the date of termination remain on foot.
Specific Performance
in this situation, the contract has not been fully executed as yet. The breach most likely consists of a part of the contract that has not been completed.
court’s “jurisdiction to order specific performance” arises, for example, if damages are very difficult to assess, or wouldn’t do justice between the parties.
Turner v Bladin (1951) 82 CLR 463
specific performance is very unlikely to be granted, even if damages are inadequate.
First, specific performance is unlikely to be granted if the obligation is not sufficiently clearly spelt out in the contract. That makes sense: the court must be certain about what it is requiring the party to specifically perform
Second, the court may not require specific performance if this in turn would require the ongoing supervision of the court. This is held to especially apply to contracts for “personal services” where performance would be ongoing for some period of time.
Injunction
An injunction is an order to undertake, or refrain from, some specific act
interlocutory injunction,
which is almost like an emergency measure to freeze the parties in their current positions and prevent further harm while the whole legal mess is sorted out
final injunctions
test for the application of interlocutory injunctions
• Second, the court must be satisfied that there is a serious question to be tried. This does not mean the court must be satisfied that the plaintiff will win; rather, the court must be satisfied that the plaintiff has at least a prima facie case
• Third, the interim relief must be justified, taking into account the potential future harm, and the limits upon the defendant if the injunction is granted (this is called the balance of convenience).
• First, the application of equity must be appropriate. So, the plaintiff must show that damages would not be an appropriate remedy in the ultimate case
Castlemaine Tooheys v South Australia (1986) 161 CLR 148,
In this case, South Australia had amended its legislative scheme for the recycling of bottles, to impose much higher penalties. Castlemaine Tooheys sought an injunction to prevent South Australia from prosecuting under the new provisions, while a constitutional question (relating to tariffs on interstate trade) was tried
In this case damages were not available, so the first question was disposed of. The court was satisfied that there was a serious question to be tried. However, balancing the danger to the environment of littered bottles against the plaintiff’s interests in avoiding prosecution, the court found that the balance of convenience did not favour the plaintiff. The injunction was not granted
Restitution
In essence, the concept of restitution is that if one party is unjustly enriched at the expense of the other party, then the court may make an order in restitution to correct the injustice.
Alati v Kruger (1955) 94 CLR 216
Remember in that case, a misrepresentation was made in negotiations for the sale of a fruit shop. As soon as this became clear the purchasers sought rescission of the purchase contract. Despite the fact that the business had ceased trading, the court still allowed rescission, and made orders focused on returning the parties to the financial position they had occupied prior to the formation of the contract. That was rescission in action. Rescission does not require the intervention of the courts. Simply put, once a condition is breached or a contract repudiated, the innocent party may elect to rescind or “unravel” the contract and communicate this election to the other party.
The other party can, of course, sue on the basis that the rescission was wrongful. If they win, the court will hold that the party that wrongfully rescinded the contract has in fact repudiated the contract – and they will be liable for damages!
Consequently, rescission is only a good idea if one is absolutely sure that it is justified.
In its modern sense, restitution is really only applied in a few limited situations:
• To recover money paid by mistake (for instance, under the mistaken impression that a debt was due);
• To recover money paid when there has been a total failure of consideration;
• To recover money which was to have been paid for work preceding a contract (so, for instance, someone has commenced work in anticipation of a contract being formed, but the contract then fails to be formed); and
• To recover money for work done under a contract which cannot, for some reason, be enforced (for instance, because the contract is or becomes void).
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