Please enable JavaScript.
Coggle requires JavaScript to display documents.
Contract Law - Remedies (8) Damages - Concentrate - Coggle Diagram
Contract Law - Remedies (8) Damages - Concentrate
I. Compensation principle and measure of lost expectation
Damages normally assessed by ref to the claimant's loss, no recovery of more than actual loss and if no loss -> nominal
:red_cross: aim to punish D even they have profited from the breach
Morris-Garner v One Step (Support) Ltd (2018) SC, in light of Attorney General v Blake (2001) where damages with punitive flavour could be award in exceptional situations
To be placed in the situation the contract had been performed
Don't forget the causation before seeking to measure loss
Actual loss
Trad = date of breach
Golden Strait Corporation v Nippon Yusen Kubishika Kaisha, The Golden Victory (2007) damages may be reduced where subsequent events are known to the court at the date of the court hearing and those events would have reduced the actual loss suffered
Put in position, ct properly performed
Measuring lost expectation
Starting pt: difference in value between what a party expected to receive and what that party in fact received due to the breach.
Damages for non-perf
Practical eg, (car, obtaining a substitute one, market price, difference)
Cancellation of a contract to supply services
Anticipated net profit (price - fixed and variable costs)
Damages for defective performance
Value perf promised and value received
Is it ever possible to recover the cost of putting right the non-performance or defective performance rather than being limited to the difference in value?
When can the cost of repair be awarded?
Ruxley Electronics and Construction Ltd v Forsyth (1996) (HL) (pool)
Recovery of cost of replacement had to be reasonable, i.e. not out of all proportion to the benefit to be obtained.
Intention to rebuild was relevant to assessing the loss for which compensation was required —and hence was relevant to the reasonableness of awarding cost of replacement.
Recovery for wasted expenditure (reliance loss)
incurrend in preparing for / performing ct, wasted bc breach
only recoverable if it would have been recouped if the contract had been properly performed: Omak Maritime Ltd v Mamola Challenger Shipping Co., The Mamola Challenger (2010)
1. This must be the measure of damages where it is impossible to say what successful performance would have looked like, or been measured as
McRae v Commonwealth Disposals Commission (1951) (High Ct Australia) (subject matter did not exist, not possible for P to establish its lost expectation)
Anglia TV v Reed (1972) (CA), lead actor quit, not possible to say the profit with film made/sold but could recover cost increed, likely to be wasted
2. In other cases the claimant has a choice
Can claim lost expectation (in a forward/profit sense) or lost expectation (in a wasted expenditure sense) but cannot claim wasted expenditure loss if would have been wasted anyway with the ct (bag bargain). No better position than before
If no loss of expectation, no actual wated expenditure, no recovery for it (Mamola Challenger)
What is the applicable burden of proof?
Presumption to the claimant (innocent), that wasted expenditure recovered if ct properly performed. Defendant to rebut this (Mamola)
Consumer contracts and breaches of statutory rights relating to goods
non conforming goods, incorrectly installed, digital content = remedy available, can't be disprop compared to other remedies
II. Limitations on the ability to be fully compensated for lost expectation and put in the same position as if the contract had been properly performed
Table. Limitations on compensation for lost expectation
Remoteness
Cannot recover if too remote, loss too far award from the contemplated result
Need to be arising naturally OR within reasonable contemplation of the parties at the time of ct as probable result of its breach ((Hadley v Baxendale (1854) , Alderson B ) serious possibility in Attorney General of the Virgin Islands v Global Water Associates Ltd (2020)
Mitigation
Claimant need to take reasonable steps to minimize the loss (reasonable = facts Payzu Ltd v Saunders (1919))
Where steps are reasonable but increase the loss, the full extent of that loss can be recovered: Banco de Portugal v Waterlow & Sons Ltd (1932)
If mitigation wipes out loss = no recovery (nominal) British Westinghouse v Underground Electric (1912).
Contributory negligence
may be reduced for claimant's own fault in contributing to the loss. Depends of breach of ct
Vesta v Butcher(1989): apportionment if D’s breach was a breach of a qualified contractual obligation (fault Law Reform Contrib Negligence Act 1945) but no apportionment for claimant’s negligence if D breached a strict contractual obligation (Barclays Bank plc v Fairclough Building Ltd (1995))
Damages for disappointment and distress
Non pecuniary losses gen non recoverable
Limitation 1: Remoteness of loss
Hadley v Baxendale (1854)
Losses are either ‘normal loss’ or ‘abnormal loss’
Liable for lossess as occur "naturally" or result of the usual course of things
Koufos v Czarnikow Ltd, The Heron II (1969) (HL): within contemplations as probable, market fall was normal loss (even if they did not actually know)
Liable also for non naturally losses but only if within contemplation of both parties, knowledge of the spe facts...
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (1949) (CA): normal loss and abnormal loss
Recover normal loss of profit, but not the loss of profits on
some lucrative government contracts which they ‘could have accepted’
Type of loss, type need to be within reasonable contemplation, extent of it need not be (in theory)
Transfield Shipping Inc. v Mercator Shipping Inc., The Achilleas (2008) (HL)
cf :red_flag:
Limitation 4: No recovery in contract for non-pecuniary losses
in gen, :red_cross: disppointment or distress (Addis v Gramophone Co. Ltd (1909)
Exceptions to the rule that damages for distress are not recoverable
Watts v Morrow (1991), distress, major or important oject of the ct was to obtain some form of pleasure/peace of mind ((Jarvis v Swans Tours (1973)) or to relieve a ssource of distress (Heywood v Wellers (1976))
Farley v Skinner (No. 2) (2001) (HL)
Important object of peace of mind sufficient (no need of sole object, like rejected in Watts) = spe ask for the report :check: damages for distress
Ccial ct: damages for distress will not normally be recoverable where the object of the contract is the carrying on of a ccial activity = major object is to make a profit (Hayes v Dodd (1990))
Second exception
Possible to recover in contract for distress consequent on physical inconvenience or discomfort loss where that physical inconvenience or discomfort is directly caused by the breach (Perry v Sidney Phillips & Son (1982) and Watts v Morrow).
III. Agreed damages clauses
What is an agreed damages clause?
Set out
in ct
the amount of damages to be paid upon breach
to the claimant
Advantages, efficient desirable, but danger of setting too high, with punitive effect contrary to the aim here (and unenforceable)
Innocent party does not have to prove its loss, no concerned limitation son recovery
Clear notice of the extent of risk for non perf
avoid costs on dispute
Award of agreed price !!!! different from below
Usually, claimant entitled to the sum after complete formed obligation (entire obligation, but courts don't construe it easily
If the defendant stops the sum becoming due, by preventing the work being completed, claimant will be allowed to recover in respect of the work done (Hoening)
If only partiall perf = pay this still if can reject the work but accept it
No requirement of mitigation
If repudiation by the defendant and claimant stil performed
White & Carter (Councils) Ltd v McGregor (1962) = HL allow to recover, def had a choice
two qualifications on the claimant’s entitlement to recover the agreed price
‘cooperation qualification’: in ‘most cases by refusing cooperation the party in breach can compel the innocent party to restrict his claim to damages’
controversial ‘legitimate interest’, no int to perform than damages = shoudn't put add burden on the party
2 ppal school of thoughts
should allow the victime to opt for whichever of the two remedies is the more advantageous to her: careful by saying with is reasonable
Considerate interests of the defendant: the claimant should not be able to increase the liability of the defendant by performing against his wishes without good reason, mitigation requirement
Distinguishing liquidated damages and penalty clauses
courts have been increasingly unwilling to find that a clause is a penalty clause, particularly in ccialtransactions (eg Philips Hong Kong Ltd v AG of Hong Kong (1993) bc equal bargaining power and prof advised)
trad ref to the guidlines of Lord Dunedin in Dunlop Pneumatic (1915)
terminology non conclusive
genuine pre estimate of the loss rathan than in the light of the breach?
commercial contracts made ‘at arm’s length’ -> clause was likely to have been intended as an enforceable: Philips Hong Kong Ltd v AG of Hong Kong (1993)
sum much greater than possible loss resulting from the breach
greater than the price due
single sum was payable for a variety of different breaches, might be seen as penalty. But different if ccial Cenargo Ltd v
Izar Construcciones Navales SA (2002), not penalty if one sum aggravated depending on the seriousness
The penalty rule applies only where the sum specified as agreed damages is payable on breach and not where it is payable in the occurrence of some other event
then :check: even if penal in nature
Alder v Moore (1961), not a sum payable on breach but a positive obligation but sometimes, thin line, blurr
Makdessi case and ParkingEye = reinforced distrinction between primary obligations (penalty rules does not apply) and secondary obligations (where apply) but distinction not easy to draw
The penalty rule will not normally apply to prevent a deposit from being forfeited by the payer in the event of that payer’s breach of contract
However, it seems that the penalty rule can apply to deposits and if the deposit is unreasonable then the penalty rule may apply to it (Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd (1993)).
In Makdessi v Cavendish Square Holdings BV and ParkingEye Ltd v Beavis (2015), first time SC considered penalty rule in a century -> SC resisted calls for both the abolition and extension of the penalty rule in relation to contracts, say that the guidelines are usually perfectly adequate to determine its validity (BUT not treated as rigid code)
Table Agreed damages clauses
Liquidated damages clause
Valid, traditionally defined as as a genuine attempt to pre-estimate the loss which will be suffered by breach
ParkingEye Ltd v Beavis (2015) it was held that law relating to penalty clauses needed to be recast
proportionate response to a legitimate interest,
Little guidance on what is a legitimate interest (CFL Finance Ltd v Jonathan Bass (2019), Briggs)
Payable whether actual loss greater or smaller than stipulated
Penalty clause
No geuine pre-estimate but extravagant and uncs clause for loss suffered, Jobson v Johnson (1989)
Unenforceable = recover actual loss
to come under the penalty clause jurisdiction, traditionally a clause must create a new liability: it must impose a duty on the other party to pay a sum where previously he was under no obligation -> if the clause only accelerates an existing liability, then it will not be a liquidated damages clause or penalty clause.
ZCCM Investment Holdings Plc v Konkola Copper Mines Plc (2017) = acceleration rule = secondary obligation under jurisdiction
Following Makdessi v Cavendish Square Holdings BV and ParkingEye Ltd v Beavis (2015) a penalty clause is essentially defined as a secondary obligation which bears no proportion to the legitimate interest, if any, which the innocent party has in the
enforcement of the primary obligation(s)
Abolish penalty clause jurisdiction ? Bc penalty clauses are only really objectionable in consumer contracts, but the courts have a specific statutory tool to deal with
IV. Specific perf
Trad rule is that a claimant must show that the common law remedy of damages would be inadequate in order to obtain the equitable remedy of specific performance (Ryan v Mutual Tontine Westminster Chambers (1893)) / legitimate inerest (Cavendish, Lord Neuberger)
the test was being relaxed, and that it would be sufficient to show that specific performance was the
‘appropriate remedy’ (eg Beswick) -> check by HL Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (1998) -> nb of factors, supervising, massive losses to the defendant, not public interest
Expansion of spe perf halted by Argyll? More slowed Rainbow Estates v Tokenhold (1999) suggests not. Broad range of factors in Tokenhold perhaps suggests that adequacy of damages is no longer exclusive test but starting point
Bars to spe perf
Specific performance would require constant supervision by the court (Argyll), cf precise obligation, if so, more likely to have pass this test
The contract in question is a contract involving personal service, such as a contract of employment, no force inwilling
Employment less personal relationship? he courts have been increasingly willing to force the employer to reinstate an employee, Hill v CA Parsons Ltd (1972)
Obligation insufficiently precise
Defendant has acted particularly badly
The claimant has delayed too long in seeking specific performance = unjust then to award
Mandatory injunctions
compel the defendant to undo the effects of his act
Rarely available:
Only where a strict balance of convenience test is
satisfied, namely that the prejudice to the defendant in having to undo the effects of the breach would be far greater than the benefit to the claimant of having this done (Sharp v Harrison (1922)).
Prohibitory injunctions
Stop the defendant breaching a negative obligation (not to do something), eg non competition clause
Technically, the claimant is required to show that damages are inadequate, but this is very easily done (Araci v Fallon (2011)
Refusal if
Oppressive to do so (Jaggard v Sawyer 1995)
effect of compelling the defendant to perform the contract in circumstances where specific performance
would have been refused.
The High Court and Court of Appeal have power to award damages in addition to, or in substitution for, an injunction or specific performance (s 50 of the Senior Courts Act 1981)