Damages PDF

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Lecture 18 & 19: Damages 18.1 Introduction • Default rule : Breach of contract Damages (not specific performance) • Types of Contractual Damages : Restitution Interest Reliance Interest Expectation/ Performance Interest Rationale The benefit promisor The harm caused by the promisee Put the promise in as good a received from the reliance on the promise made by position as performance would promisee the promisor have Measure • Can only recover Simple Reliance 1. The current financial position of the promisee benefits that consist • The expenses /expenditures 2. What would be the spent of money paid upon a financial position of the total failure of promisee should the Opportunity cost reliance consideration promise be performed? • Promisee may recover • The current financial position 3. Difference between 1 and 2 of the promisee benefit consists of = The damages awarded goods or services • What would be the financial Lodder v Slowey : position of the promise should recover work and the promise never existed? labour done and • The difference between 1 and 2 materials supplied = the damages awarded even if he would not have turned a profit on the project

Examples X paid Y $ 60000 the benefit conferred to the promisor (Y) is $ 60000 Ans : $ 60,000

To-note

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1. Paid 60,000 to Y+ 6000 to the 1. – 66000 shipping co and get nothing 2. Should have received wine - $66,000 worth 7500 x 12 = 90000, 2. Would have purchased from Z and have paid 66000 and paid 5500 x 12 and 6000 to + $ 24000 3. +24000 – (-66000) = the shipping company, and $90,000 receive bottles of wine that worth 7500 x 12 + 18000 3. 18000 – (-66,000) = $84000 Expectation damages as a proxy of reliance damages as reliance damages are hard to prove and by simply using reliance damages without being able to calculate OC damages, reliance damages will easily be underestimated. *Expectation Damages will usually be awarded Interest =/= Measure Interest : it is the rationale, what the law thinks the innocent party should be entitled to Measure : the exact way of calculating damages ; how to calculate the value of what the law thinks the innocent party is entitled to In an ideal situation, interest shall be equal to measure

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However, since in the reality, it is sometimes hard to prove / calculate the value of e.g. OC, the benefit should the promise be performed, interest may not = measure Equalities : Reliance damages >/= Restitution OC Damages > / = Reliance damages Expectation Damages >/= Opportunity Cost Damages

18.2 The most common type of damages awarded : The Performance Measure 18.2.1 Two ways of calculation • Two ways of calculation : Diminution of value : the difference in (economic/market) value between the performance contracted for and the performance received Cost of cure : the amount of money that would allow the promisee to obtain the performance contracted for (i.e. the amount of money needed to spend in order to turn the thing received to the thing that is contracted for) o Damages does not actually have to be used to cure Where the thing contracted for admits a market price, these two ways of calculation render more or less the same amount of damages, while in some cases the amount rendered are different (e.g. Ruxley v Forsyth) • SOGO S. 52 (3) and 53 (3) : when there is an available market for the goods in question, the measure if damages is prima facia to be ascertained by the difference between the contract price and the market or current price, at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the neglect or refusal to accept and deliver ) • The innocent party can claim damages in either way and he/she will usually go for the calculation method that lead to a larger sum of damages • The court decides whether or not to give cost of cure damages/diminution of value damages based mainly on the concern of reasonableness (i.e. see if damages is out of proportion of the loss) The extent of performance Reasonableness / Proportion – expense of reinstatement is out of all proportion to the benefit obtained (Personal preference and intention to cure are factors of reasonableness) X solely because diminution of value gives nothing / personal preference Ruxley Electronics and Construction Ltd v Forsyth Facts • D contracted for a swimming pool of seven feet six inches deep and received a swimming pool with a depth of six feet • There is no difference between the economic value of the two swimming pools • Rebuilding the pool requires 21,560 pounds (which is the damages under cost to cure) D was not entitled to claim damages on a cost to cure basis Held • The court rejected the contention that D had to be awarded cost of cure because he was entitled sth and diminution of value would give him nothing.

Jauncey • LJ •

Mustill L.J.

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Lloyd J

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Contract breaker entirely failed to achieve the contractual objective the loss is the necessary cost of achieving that objective (i.e. cost of cure) Contractual objective has been achieved to a substantial extent : Difficult to decide what the loss is But rejected that if the objective of a contract involves personal preference, the damages shall be the cost of reinstatement Personal preference is not determinative of what the loss is, it is only a factor in reasonableness The two calculation methods are not the only measurement the court could adopt The crux is to calculate a reasonable amount of damages The court shall recognize personal, subjective and non-monetary gain of the promisee and compensate it if the misperformance takes it away The court can only choose one out of the two calculation methods The expense of reinstatement is out of all proportion to the benefit obtained using cost to cure is unreasonable can only use diminution of value

18.2.2 Albazero Exception : Recovering the loss of a third party • General rule : P may recover damages for losses he/she suffered, but not the loss of a third party • However, there is the Albazero exception where P may recover damages for the loss of a third party provided that the third party does not have its own cause of action Dunpot v Lambert o A consignor may recover damages against a carrier for goods lost in carriage o Even if title of the goods passed to the third party before the loss occurred o Provided that the third party does not have its own cause of action o (The consignor shall give the damages to the third party) St Martins Property Corporation Ltd v Sir Robert McAlpine & Sons Ltd ; Darlington Borough Council v Wiltshier Northern Ltd o An employer may claim damage against a contractor for defective work o Even if the property was owned and occupied by a third party o Provided that the third party does not have its own cause of action Alfred McAlpine Construction v Panatown Ltd Facts • P entered into a building contract with D contractor for the design and construction of office building and a carpark owned by UIPL • D entered into a separate duty of care deed (DCD) with UIPL that made the former liable to the latter for any negligence in the performance of the building contract • There were significant defects in the foundations and steel frame and they were acknowledged by D • P claimed that D were so serious and demanded demolition and rebuilding Held • P was not entitled to recover damages for the loss suffered by UIPL Reasoning • UIPL had its own claim against under the DCD (Majority)

Dissenting

Narrow ground of Albazero: the promisee is treated as recovering damages on behalf of a third party who has suffered a loss and to whom the promisee will ultimately be held to account (Because the third party can claim against D for the loss suffered by defective performance of building contract, there is no reason why P should be allowed to claim against D on behalf of D.) McAlpine cannot be mulcted twice over in damages (Jauncey LJ) • Broader ground: the promise is recovering damages for his/her own loss in not having received the performance contracted for • The third party claimed against D for the loss of defective building and P claimed against D for his own loss in not having received the performance contracted for separate things

18.2.3 Situations where a promise may prefer the reliance measure over the expectation measure Situation 1 : Loss of profit is hard to prove or speculative • McRae v Commonwealth Disposals Commission o Facts : The complainant, McRae, won a tender from the defendants, Commonwealth Disposals Commission, to retrieve an oil tanker that was on Jourmaund Reef near Samarai. However, when the complainant went to the location, after laying out significant expenses for the salvage, they discovered that in fact there was no oil tanker. The Commonwealth Disposals Commission had only heard that there was an oil tanker there from gossip. They later learned that it was not. o Since the oil tanker has never existed, it is hard to prove the loss of profit o P recovered damages for expense incurred and wasted in reliance on commission’s promise • Anglia Television v Reed Facts

Held Reasons for this (suggested by the Prof.) Criticism

• P studio incurred significant expenses for preparing a film • P then hired D to play the part of the American • D repudiated his agreement with P P was entitled to recover damages on a reliance basis, including expenditures incurred before D entered into the contract • Reliance damages is awarded cuz expectation damages could hardly be proved and awarded • As such, the purpose of reliance damages is to make the closest appro of expectation measures • In a normal sense, the expenditures spent...