Laws 203 Contract PDF

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REMEDIES FOR BREACH OF CONTRACTWhat can you do after breach been admitted or proved – what remedies can you seek? It breaks down into damages, equitable remedies available outside contract law to seek performance, such as injunctions. Damages 1 Introduction: 1.1 Damages are a universal remedy which ...

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REMEDIES FOR BREACH OF CONTRACT What can you do after breach been admitted or proved – what remedies can you seek? It breaks down into damages, equitable remedies available outside contract law to seek performance, such as injunctions. 1. Damages 1.1 Introduction: 1.1.1 Damages are a universal remedy which is available for every breach, small or large, and whether the contract has been cancelled or not. A claim for damages is one for compensation in money for the fact that the claimant has not received the performance for which she or he has bargained. These are a universal remedy available for all breaches, irregardless of whether the contract has been cancelled or not. We are talking about common law damages, which feed into how they dealt with under CRA. Sometimes parties cancel under the Act, sometimes they don’t. Many cases only revolve around common law damages – can be both; confusing at times. Size of breach will result in size of damages received. About compensation for parties. Some parties can look for performance, nominal damages (symbolic award; small – unlikely to only go for this alone: White Arrow Express Ltd v Larney’s Distribution Ltd (1996) 1.1.2 There is a difference between the kind of damage for which a plaintiff can recover - remoteness of damage; and the monetary assessment of the compensation - the measure or quantification of damages. 1.2 Quantification of damages: 1.2.1 Damages are compensatory only, intended to restore the plaintiff to the position she or he would have been in had the contract been performed. They generally bear no relation to the defendant’s gain. These are compensatory only; to put you in position as if contract had gone ahead and gone right. This different to tort, where designed to put the damage right – position in if no damage. Contract about pretending the contract did happen. There are exceptions to this rule though. Bloxham v Robinson (1996) - Sale of dentist practice, Bloxham suing Robinson saying he not get what guaranteed in contract (half of practice). Both understood it the part of the assistant practice, not partner one, which run by part-timers. After settled, B realised he didn’t have half of practice in terms of clients and profits. Court supported his view of this, and in looking at damages the court confirmed rule of compensation damages – about putting plaintiff in position if contract had gone properly. Not to put plaintiff in position he in if he never entered contract. Bloxham tried to claim income he would have earned as a lecturer, had he continued in his previous occupation. Court not agree, as would put him in a past position. 1.2.2 Generally, the plaintiff must establish what he or she has lost. A breach of contract may give rise to various different kinds of loss. 1.2.3 Expectation loss Normally the profit expected to get out of contract, or figure required to put the defective item right; replacement or repair cost. There can be unusual applications of this also. Williams v Kirk [1988] - Contract for sale and purchase of land. Normally if contract falls through the seller will re-sell it. Here it re sold in reasonable time so damages worked out in difference between contract price of original agreement, and what they got when they sold it on, plus extra losses (costs involved). The re-sale price was taken as reasonable price to get as the market had not changed greatly.

-2Stirling v Poulgrain [1980] - Family trust arrangement, plaintiff wanted to gift away as much property before they died. Law set up so could gift away a certain amount each year without having to pay gift duty. This was done over number of years. Solicitor negligently didn’t give right documentation to Inland Revenue, so result would take longer to give away as property gone up in value. Lawyer negligent and breached contract. Damages worked out by court, needed to see how could compensate the family. Court calculated loss on what cost to write off extra value over a short period of time. Loss of chance cases: Chaplin v Hicks [1911] - Plaintiff claiming damages as she aspiring actress, entered into competition with chance to be interviewed by defendant and selected for one of 12 actresses to choose. She was selected as part of first 50, so interview meant to happen. Found to be a breach of contract as defendant sent her a letter while she away and not able to attend interview and not allowed another – lost chance for it. Court not put off by fact there was no market cost – it was an interview. Court said cant prevent them from finding damages to be recovered; had to attempt to return her to position of contract if contract went right. Markholm Construction v Wellington CC [1985] - Ballot for land, by date must put in offers to purchase and amount. Council realised the price range was too low for the land and withdrew the ballot; Markholm construction one of them – what had they lost? There were 240 applicants, so all had a chance. Court saw was clear it loss of chance and court estimated what it was worth. Saw it as a probability calculation. 1.2.4 Reliance loss. Exceptions to the general rule of contract damages; takes tort view. Here put in position as if contract not made, as compensated for expenses or costs spent in reliance of the contract going ahead. Most often claimed where can’t prove expectation loss, but can prove costs and losses. McRae v Commonwealth Disposals Commission (1951) - Salvage company which found shipwrecks, bought them from owner and took apart etc. Expensive expedition to do. An oil tanker was sold to them which meant to be on coast of Australia. Expedition started, people hired and equipment for etc. When they got there, ship not there and no evidence the ship had ever been there. As such, could not say what expectation loss was as not ship, so went to court over costs spent – no item, no market. Bloxham v Robinson (1996) - Court recognised reliance loss as one can claim instead of expectation loss Arapiki Enterprises Ltd v Tong [1998] - Party attempting to set up radio station in warehouse, so bought premises that were low rent and spent money renovating their part of the warehouse – large expenses involved. Landlord let another tenant into building which created lots of fumes, dust and noise which damages plaintiff’s attempt to set up their radio station successfully as equipment sensitive. Plaintiff ha to cease broadcasting, and sued landlord for breach of covenant of lease – quiet peace and enjoyment. Court had to work out what compensation would be. Business not viable at this point, so could not prove profits etc, so allowed them the value of the expenditure in reliance of the contract, even though it out of proportion to the value of the lease, as low rental; irrelevant. Got costs of repairs, installation, wages, fees for recording, payments for equipment etc. GSE v Walters Supplies Ltd - Sale of engineering company to plaintiffs by Walters. Agreement had a restraint of trade clause, where if business sold, they couldn’t for period of time set up a similar compet ing business with past experience. Walters did set up another business in breach of this restraint of trade clause. GSE’s business got into trouble and failed. What compensation could they get? GSE claimed reliance interest, but what they claimed as this was the cost they paid for the business. Normally reliance loss for putting party in position they be in if contract was right. GSE said taking this cost, as not in position to show profit could make if contract had been successful. 1.2.5 Restitution loss:

-3Not claimed often, purpose is to deprive defendant of benefit it unjust to let them keep; different to expectation loss. Discussed in GSE v Walters Supplies Ltd 2008 - could present loss as a restitution loss. Could include unjust gain or unjust impoverment. 1.2.6 Consequential loss: This is loss one step removed from obviously foreseeable loss. Williams v Kirk – vendor re-selling land entitled to get difference in sale prices plus costs. This included advertising, mortgage payments, legal costs etc – all consequential loss, as not direct but flow on due to first loss. There can often be remoteness issues over consequential loss – is loss so far removed from breach it shouldn’t be compensated for? Includes forseability issues. Parsons v Uttley Ingham [1978] - Farm equipment used to deliver food to animals. The item was defective (breach) and consequently the food inside it went mouldy and when the pigs ate it they got sick and died. The court said the pigs being such was foreseeable so the fact they died was too – a form of consequential loss as one step removed. The direct loss was the equipment, and the rest was consequential. Yoon v Cullen & Anor (1999). Consequential losses – holding costs: mortgage interest, legal expenses, rates, advertising to resell. Court emphasised a claim for consequential loss is completely divorced from other losses. Sale of land where purchaser defaulted and didn’t go ahead with the contract. They voluntarily gave large deposit, and here they seeking to get the deposit back. The vendor counter-claimed though for consequential losses as had to keep paying mortgage and had resold the property so also claimed legal costs, advertising and rates. The land had gained in value though and some sold at a profit, and rest left at greater value than what in original contract. Purchaser asked why should pay them when they had more now than before. Court saw it as consequential loss, so increase in land had nothing to do with claims. Said claims for consequential losses divorced from other losses. 1.2.7 The plaintiff may combine more than one category of loss but not so as to recover more than once for the same loss. Bloxham v Robinson (1996) - ‘If he receives his loss of income, he is fully compensated and cannot in addition claim loss of capital. If he is compensated for loss of goodwill, he cannot in addition claim the loss of the income which is the reason for the lesser value of goodwill.’ Can recover difference and ‘goodwill’ – higher this is, the higher profit can be made. This measured by lesser potential to produce income, but Bloxham also claimed loss of profit, which court said would be doubling up his damages. 1.2.8 Expectation loss and reliance losses are alternative losses. Cycle Manufacturing v Williamson [1993] 1.2.9 In principle, it seems the plaintiff has free choice as to how the losses will be quantified. Further, the plaintiff does not have to show the expenditure would have been recouped if pursuing reliance loss, if the defendant has prevented him or her from fully testing the profitability of the contract. In terms of reliance rule the basic test to try and claim these successfully to show you would have made enough profit from the contract to pay for your costs you are claiming from. Don’t have to show profit would be made, if it was the defendant who stopped them from being profitable: CCC Films Ltd v Impact Quadrant Films Ltd [1984] - Contract for a licence to use three films and distribute them and make money from them. Received tapes in the post; however they were lost and never arrived. They paid $12,000 for the licence to distribute, however now in position with nothing to distribute and loss of money. They claimed the $12,000 and did not give evidence to show they would have ever made a profit from the tapes. The court said the plaintiff can choose what type of loss to claim, even if reliance loss means they not have to prove the contract would have led to profit. Court said it was the defendant who prevented the plaintiff from taking

-4advantage of the contract, so it is the defendant who has to show that making back the loss not possible in profits. In this case the money was recoverable even though no evidence given. McRae - The defendant tried to argue the tanker may not have been worth anything when they got there. However the court said since the plaintiff showed they made expenditure due to the breach it was wasted costs and was recoverable, and did not have to show the tanker was ever worth something. Arapiki Enterprises Ltd v Tong [1998] - Could plaintiff recover losses in their radio business? Not enough evidence to establish it, but the CCC case was applied and so no onus on the plaintiff to show they would have made a profit. 1.2.10 Arguably, the plaintiff’s expectation of a benefit puts a ceiling on recovery under the other heads - the ‘bad bargain’ principle. Generally a court wont step in for such contracts: (a) In terms of expectation loss, the plaintiff is entitled to recover benefits to which she or he is entitled under the contract, but not those which she or he had only hoped to gain. Expectation losses can limit reliance losses: C & P Haulage Ltd v Middleton [1983] – lessee running business on premises but kicked out due to breach of lease so set up business at home; didn’t lose day to day running. In original building they made improvements to it, and the lease said they couldn’t be removed at the end of the lease. So under any circumstances they had to leave, they could not take any improvements. However on leaving, due to contract, can’t take them away as it was a bad bargain and their own fault. (b) But for restitution losses, it appears the question of profit is irrelevant. If it is held a defendant is not entitled to retain a certain benefit, the plaintiff is entitled to be free of the bargain: Lodder v Slowey (1901) (c) Further, there is authority to suggest that reliance loss may have been extended to undermine the principle that expectation loss limits the loss under other heads. Commonwealth of Australia v Amann (1991) – suggests there may be ways to undermine the bad bargain principle. Involved parties entering contract about conducting aerial surveillance of coast of Australia. Lots of costs involved and running costs; planes, pilots, surveillance staff etc. Expenses of 5.5 million in starting this contract up. Prior to starting, on date it to be formed, the defendant wrongfully repudiated, so what could they claim? Was the plaintiff going to be able to claim start-up costs given what they intending to do? They didn’t need to make CCC argument, but argued it worked out there be operating losses and with start-up the total would come to 23 million, and profits only be 17 million. So plaintiff seen to have all benefits on them, and entering contract with defendants gave highly likely chance of contract being renewed, and so would be done further. With the next contract the losses would be likely to be recovered. The rule that burden on defendant when it them who stopped them from showing what they made, meant plaintiff could recover the 5.5 million. However this was based on a second hypothetical contract about making money back, and this was accepted. Not used in NZ yet, but possible to be used as an argument. CCC more likely to be argued. (d) Consequential claims may clearly exceed the amount by which the plaintiff expected to benefit from the performance of the contract. There is no issue over consequential losses as you do not have to prove anything in relation to profits in terms of consequential losses. 1.2.12 Quantifying Expectation losses: These can generally be quantified in two ways - on the basis of difference in value or cost of cure. Amount different in value or cost to replace or fix the item: (a) The court will adopt whichever seems appropriate. Where it costs less to reinstate something than would to give you full value, court will generally take the cheaper option, as plaintiffs obliged to mitigate their losses within reasonable expectation.

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(b) Cost of cure: Bevan Investments Ltd v Blackhall and Struthers (No 2) [1978] – Company employed Blackhall to build a building and it had structural defects while built. Construction had to stop and an alternative plan drawn up. In the end, Bevan did not continue due to financial reasons, and instead claimed for a breach of contract. Most building contracts have a clause for build and care relating to the plans. The court asked what the damages would be by looking at the reasonable costs to carry out the modified plan. There was a further issue: how did they work this out? Time of calculation important – general rule is that time for assessment is the time of the breach. Here, the court departed from that and they took the time of trial instead. The reason they did this as it be only way to put plaintiff in position they be in if contract never occurred. It had been 10 years since building so prices were of what cost in the beginning. (c) A third form of quantification has introduced uncertainty - consumer surplus: Ruxley Electronics Ltd v Forsyth [1995] – contract for building of a pool, and when built it was a foot shallower than it was meant to be. It can still be used though, and fact it shallower didn’t change the value of a property. However there was still a breach of contract and the court had a problem of damages, as to put right would mean the whole pool be taken out and redone, and this cost was an over-compensation for the plaintiff, but at the same time there was a breach by the builder. In smaller court an amount was given for ‘distress’ of the breach. The House of Lords later upheld this award to mark the fact there was a breach: Per Lord Mustill: ‘There are not two alternative measures of damage, at opposite poles, but only one: namely the loss truly suffered by the promisee. In some cases the loss cannot be fairly measured except by reference to the full cost of repairing the deficiency in performance. In others, and in particular those where the contract is designed to fulfil a purely commercial purpose, the loss will very often consist only of the monetary detriment brought about by the breach of contract. But these remedies are not exhaustive, for the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure.’

(d) The general rule is that the courts are not concerned as to the use to which damages are put by a successful plaintiff. Court doesn’t care if you use money to reinstate the loss of damage. Ruxley – desire to fix the pool would go once the money was given, so likely damages not be spent on putting item right, but House of Lords said it did not make any difference to recovery, but does make a difference to the amount able to be claimed. Leaves us with a difficult position and there was lots of criticism of the case: Andrew Bruce, (1995) – said to put an arbitrary figure on the breach of the contract, and can ’t relate it to anything: not in position you be in should the contract be carried out. Steven Gee QC (1995) Gazette 23 – encourage builders to take risk that by cutting corners they only be forced to pay a small amount of damages, so not correctly mark the breach. Builders can buy their way out of cutting corners in a contract. 1.2.13 Where damages are based on a difference in value a further distinction must be drawn based on actual or market values. What happens if contract involves chattels? (a) The general rule is that where the claim is for non-delivery of promised and paid for chattels, and adequate alternatives are available on the open market, market values apply, but the measure is the price which the plaintiff would have had to pay to replace them. Otherwise the plaintiff will not be financially restored to the position they would have been in had the contract been performed. Caldwell v Logan House Retirement Home [1999] – sale and purchase of retirement home, and when complete they found many of the chattels were damaged or removed. The court said the plaintiff entitled to replace the items if they needed to as business pressure to buy these items to continue it. Where cost what looking at to replace

-6chattels, as long as they genuine replacement, not most expensive, they will accept the price you paid for them. Can accept price if shortage and have to pay more, or forced to pay for something better – some requirements over such, however in terms of valuement, the cost you pay will generally be covered. (b) Difficulties arise where it is necessary to estimate what sum suffices for the purchase of similar goods where there is no available market. (c) s51(3) Sal...