Damages and Compensation PDF

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Contract Law
Case analysis, detailed legal research and information, topic questions and answers...

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Damages and Compensation Read the following cases in full and come prepared to discuss the issues raised and the extent to which the cases are objectively correct. Expectation measure- to put c in position he/she would have been in if the contract had been properly performed Restitution – narrow meaning- return of money paid – broad sense- to award to c the benefits made by D from the breach Hadley v Baxendale (1854) 9 Exch 341 The crankshaft broke in the Claimant’s mill. He engaged the services of the Defendant to deliver the crankshaft to the place where it was to be repaired and to subsequently return it after it had been repaired. Due to neglect of the Defendant, the crankshaft was returned 7 days late. The Claimant was unable to use the mill during this time and claimed for loss of profit. The Defendant argued that he was unaware that the mill would have to be closed during the delay and therefore the loss of profit was too remote. Held: The damages available for breach of contract include: 1. Those which may fairly and reasonably be considered arising naturally from the breach of contract or 2. Such damages as may reasonably be supposed to have been in the contemplation of both the parties at the time the contract was made.

If any special circumstances exist which were actually communicated to the Defendant, the Claimant may recover any damages which would ordinarily follow from a breach of contract under the special circumstances communicated. Koufos v Czarnikow, The Heron II [1969] 1 AC 350 A contract for the carriage of a cargo of sugar was delayed by 9 days. The market price of sugar dropped following this delay due to the arrival of another cargo of sugar. The claimant sought to recover the difference from the defendant for their breach of contract. The defendant argued the damages were too remote since it was just as likely that the market price could increase. Held: Under the second limb in Hadley v Baxendale it was only necessary that the losses were in the reasonable contemplation of the parties as a possible result of the breach. There was no requirement as to the degree of probability of that loss arising. Since the defendant must have known that market prices fluctuate, the loss would have been in his contemplation as a possible result of the breach

Farley v Skinner [2001] UKHL 49 – Non-pecuniary loss "Pecuniary damages are generally assessed on the basis of calculable losses for items such as the plaintiff's prospective loss of earnings and profits and costs of future care, as well as other expenses.

"In contrast, non-pecuniary damages cannot be arithmetically calculated because they compensate the plaintiff for intangible losses arising from physical and psychological pain and suffering as well as from any loss of amenities or expectations of life. ... "(T)he components of non- pecuniary damages necessarily overlap and merge at the edges and in practice, making it appropriate to arrive at a composite award for all non-pecuniary losses."

The claimant sought damages from the defendant surveyor. He had asked the defendant whether the house he was to buy was subject to aircraft noise. After reassurance, he bought the house. The surveyor was wrong and negligent. A survey would not normally cover this question, but he had been asked the question and he had answered it. Could the buyer claim damages for non-pecuniary loss? Held: The contract was a contract to secure pleasure, relaxation and peace of mind. That did not need to be the very object of the contract for damages to be awarded. The surveyor could not escape liability by saying he had not contracted to produce the result requested. Nor was the claimant obliged to move house or surrender his claim. The innocent party is entitled to be placed in the position that he would have been in had the party in breach exercised due care. Damages might be recoverable for distress and inconvenience for breach of contract where the matter was important to the claimant, that had been made clear to the defendant, and the required action had been incorporated into the contract. The court viewed an award of 10,000 pounds for the discomfort of suffering aircraft noise, as high and at the very top of an appropriate bracket. Anglia Television v Reed [1972] 1 QB 60 – Reliance The claimant, Anglia Television, engaged Oliver Reed to play the leading role in a television play. Subsequently Reed pulled out and Anglia was unable to find a replacement. They abandoned the play but had incurred expenses amounting to £2,750. Held: Whilst damages generally seek to put the parties in the position they would have been in had the contract been performed, the parties may elect to claim reliance loss and recover expenses incurred in an abortive transaction. Thus Anglia was able to recover their expenses from the defendant.

Experience Hendrix LLC v PPX Entreprises Inc. [2003] EWCA Civ 323Restitutionary basis Experience Hendrix LLC was the successor in title to Jimi Hendrix’s estate. PPX Enterprises Inc. were his music publishers and were suing him before he died. Three years after, they settled (1973). The agreement was that PPX were entitled to masters of some of his recordings, in Schedule A of the agreement, provided PPX paid royalties to Experience Hendrix. In breach of the agreement, PPX granted licenses to masters not in Schedule A. Experience Hendrix sued for the breach. Court of Appeal said it would be unjust if PPX could breach the settlement and avoid paying royalties, which they would have had to pay if the songs were on Schedule A. But the case was not exceptional enough to allow an account for all profits. General questions

1. What is the aim of a court in awarding contractual damages? Do damages always compensate an identifiable material or financial loss? 2. Explain the difference between the expectation interest, the reliance interest and the Restitutionary interest. What do the interests measure and how do they work together?  

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Expectation loss: What the claimant hoped to gain by contract – Golden Strait Corporation v Nippon (2007) Reliance loss: what claimant lost by relying on the contract – what the claimant paid out – McRae v Commonwealth Disposals Commission (1951) – A boat had sunk and McRae went to search for it but later found out this was incorrect and there was no boat. He was entitled to damages as he relied on the promise of the boat existing. Restitutionary loss: the claimant is awarded relief measured, not by reference to their material financial loss, but the benefit gained by the defendant - Surrey County Council v Bredero Homes (1993) – planning permission to build 75 houses but later realised they could build more. The council later sued for them breaking the contract but they didn’t actually suffer any loss.

Problem questions 1. In June 2001, Coventry Cathedral was completely destroyed by fire. Being a modern structure built of steel and wood, there was no stone shell to survive the flames. The Diocese of Coventry decided to replace it with a new stone building, more in keeping with the old mediaeval style. They commissioned an architect called Christina Tofferen to design a building made of granite and white marble, topped by what would be the tallest stone spire built for 400 years. Many experts were of the opinion that it would look horrendous and garish but the Diocese wanted to make an architectural statement, effectively to the glory of God. Ms. Tofferen worked closely with a firm of builders called Paternoster Construction Group and the building was completed ahead of schedule in August 2007. When the final bill was presented to the Diocese, it came to only £195m, £5m less than the original budget. It then transpired that the foundations laid for the spire by Paternoster had not been adequate to support the weight of a marble spire of the planned height. By the time Ms. Tofferen and Paternoster had realised this, it was too late to adjust the foundations because they had started to build on them. Consequently, they built the tower out of modern materials, which (from a distance) look the same as white marble and which are just as resilient but which weigh only a third of a marble spire of an equivalent size. It is generally accepted by all parties that the cathedral as built has the same value as a building as it would have had if built with a marble spire. The Diocese of Coventry were appalled to discover what had been done and brought an action for breach of contract. The evidence before the judge at first instance was that the cost of demolishing and rebuilding the cathedral with a marble spire would be £120m. The Diocese maintained that, if they were awarded that sum, they would certainly spend the money on redoing the work. Evidence was also presented to the effect that (following an earthquake in Southern Italy), the price of white marble had increased by 200% since 2006 and that Paternoster had been able to sell their surplus marble at a profit of £12m. Finally, evidence was presented that, having pioneered various building techniques in the construction of the spire of Coventry Cathedral, Paternoster had found themselves in demand to build other buildings

using the same techniques. They had now secured contracts worth perhaps £40m over the next five years. The Diocese claimed damages for breach of contract amounting to the £120m cost of rebuilding or at least the £52m profit made by Paternoster as a direct consequence of having been in breach of their contract with the Diocese of Coventry. Advise the Diocese of Coventry-

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Breach of contract- asked for granite and marble Claiming damages- for the £120m cost of rebuilding or the £52m profit made by Paternoster Ruxley case- couldn’t get a new swimming pool due to loss of amenity- same function and no loss of value- unreasonable for claimant to claim for reinstatement and disproportionate It’s going to cost a lot of money to rebuild it, but not the full cost so it could make a difference – there is some loss Restitutionary- benefit by the D - Hendrix v PPX, Attorney general v Blake, a proportion of their profits £12m most probably some of it £120m too remote

2. Luke Wright had a dream and a business plan to purchase an old bakery and to convert it into an exact replica of the recording studio in which Bob Dylan recorded “The Freewheelin’ Bob Dylan” back in 1963. The recording studio would be called “The Treadmill” and the hope was that Luke would be able to attract a number of significant artists to record with him. During the building and conversion work, a number of problems have arisen and Luke is in need of some legal advice. Before purchasing the bakery, Luke had commissioned a firm of surveyors called Royce & Francis to look into all aspects of the requirements for a recording studio and in particular any likely problems with traffic noise. The survey identified some minor issues but failed to consider the potential noise and vibrations caused by underground trains. As it turns out, the bakery is situated right on top of a fast stretch of underground line and the vibrations are a serious problem. On the other hand, the property was purchased fairly cheaply on the open market and could probably be sold on at a healthy profit. -

The surveyors failed to identify the noise problem- negligent Farley v skinner –non pecuniary damages

Three months ago, Luke was thrilled to have secured the purchase of the actual sofa on which Bob Dylan sat to write “A hard rain’s going to fall”. However, the seller has now changed his mind and is refusing to go through with the sale. He has offered Luke his money back and an extra £300 for the inconvenience caused. -

Breach of contract –specific performance –unique item- bob Dylan wrote his song on it There may not even be a loss because they can still sell it and make a profit

Unfortunately, the building work was not completed on schedule and this meant that Luke lost the golden opportunity to have had Bob Dylan himself record his latest

album in the Treadmill. Although it had been kept a strict secret, everything had actually been in place for Bob to have been the first recording artist to use the new facility, which would clearly have made a huge difference to the long-term financial viability of the Treadmill. However, Bob needed to get the album recorded before he went on tour and so he went elsewhere. Luke wants to sue the builders, Williamson’s, for the loss of the specific contract with Bob, as well as for the general disappointment and the loss of the potential to establish a business reputation for the Treadmill. - He never said to the firm about bob Dylan going to record there – too remote - Remoteness – Hadley v Baxendale It has now transpired that the reason Williamson’s finished late was that, while they were converting the Treadmill, they were also engaged to build an exact replica of the studio for another client. They had split their manpower and stretched themselves too thin to have completed the Treadmill on time for Luke. Advise Luke as to his contractual position in respect of the situations described above...