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A: PRINCIPLESHistory Early CL said that the quantum was a matter of fact; any injury P sustained could be recovered provided that it was the fair and natural consequence of the breach. This proved problematic. Principle Hawkins v McGee: Purpose: Place P in as good a position they would have been had...

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History

Principle

A: PRINCIPLES Early CL said that the quantum was a matter of fact; any injury P sustained could be recovered provided that it was the fair and natural consequence of the breach. This proved problematic. Hawkins v McGee: Purpose: Place P in as good a position they would have been had D kept his contract. Measure: Based on what D should have given P, not what P has given D or otherwise expended. Wertheim: Notional losses not recoverable; P ought not to recover losses they did not actually suffer.  The general intention of the law that in giving damages for breach of contract, P should, as far as it can be done by money, be placed in the same position they would been in if the contract had been performed. 

The loss sustained must be measured by that price, unless he is against all justice permitted to profit by the breach of contract, be compensated for a loss he never suffered, and be put not in the same position in which he would have been if the contract had been performed, but a much better position.

Golden Victory: The fundamental principle governing the quantum of damages is long established and not in dispute. Compensate P for the breach of the loss of P’s contractual bargain. Cited Robinson v Harmon: The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position, with respect to damages, as if the contract had been performed. Why?

How?

P purchases D’s obligation and should obtain the obligation’s value: o Primary Obligation: The promised performance o Secondary Obligation: Damages for failure to complete the promise.

There are difficult fact scenarios, but: Golden Victory:  The lodestar is that damages should represent the value of the contractual benefits of which P is deprived by the breach, no less and no more. o P lost a charter with cancellation clause not the entire charter; could not obtain compensation exceeding the value of the contractual benefit deprived.  Circs after breach can be considered. All facts examined. o If a terminating event happens, speculation is not needed… in relation to the period during which the contract would have remained executory but for war, the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. Hawkins v McGee

Facts:  P sued in breach of contract against a surgeon (D) for promising P he would have a 100% perfect hand. Objectively a promise intended to be binding and given for value.  D grafted skin from D’s chest which then grew thick hair.  P suffered considerable pain from the procedure and was left with a hairy hand causing embarrassment.  No negligence claim available. P could only sue in contract.  Trial judge directed jury to entitle P to damages to the damage suffered. Held: Trial judge was wrong. Contract Damages Differ from Tort 1. Nature: Damages, as that term is used in contracts, is intended compensation for a breach, measured in the terms of the contract. 2. Purpose: Place P in as good a position they would have been had D kept his contract. 3. Measure: Based on what D should have given P, not what P has given D or otherwise expended. Rejection of the tort test. Not what D expended or lost. 4. Recoverability: see Hadley v Baxendale. Damages Entitled  P entitled sum of damages that would give him 100% perfect hand. Deduct the value of the hand as it is. Add the consequential losses (further doctor visits; worsening of the hand; lost earnings from the operation within contemplation).  Fee for the fee likely not recoverable as they were the price of the benefit. Why? P never had a perfect hand, why should P be compensated for something P never had? Francis: Compensation is the obvious the response to the breach of contract:  A contract is a promise of an outcome obtained for value.  The right (if bought) is the performance of that promise.  P entitled to payment after failure of that promise. Note Difficulty of Measuring an Intangible Benefit: Hairy Hand Sally Wertheim v Chicoutimi Pulp Co Facts:  D agreed to sell wood to P, to be delivered September to November.  D failed to ship on time, but P did not cancel the contract, instead affirming it and accepted late delivery for next year (May).  When it arrived P could complete any sub-contracts made.  P then sued in breach of contract, alleging the difference in market price on the day they should have arrived (70s) and the day they did (42s), claiming 28s. o P alleged a promise to have the right to have goods in September, when they were worth 70s. What P got was the goods in May, when they were worth less. P lost that amount. It is immaterial that I could still fulfil sub-contracts. o Asking for a notional loss (not suffered) despite the fact that they did what they would have done had the contract been performed.

Held: The real loss suffered is nominal, as the exact result would have happened had the contract been performed on time. Atkinson Stating Principle  The general intention of the law that in giving damages for breach of contract, the party complaining should, as far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed.  The loss sustained must be measured by that price, unless he is against all justice permitted to profit by the breach of contract, be compensated for a loss he never suffered, and be put not in the same position in which he would have been if the contract had been performed, but a much better position. Francis: Although the governing principle is to place them in the position P would have been in, P ought not to be compensated for a loss not really suffered. The Golden Victory Facts: P charted their ship to D for 7 years. Cancellation clause allowed either party to cancel if war broke out in certain countries.  3 years in: Charterer Wrongfully Repudiated. All parties released from obligations. Ship owner sued for the remaining 4 years of the charter (the whole charter), damages should be calculated at the time of the contract termination.  Charterer countered that 5 years in war broke out, so they could have cancelled. P lost a charter of 1.5 years not 4 years. o Benefit alleged is not a 4-year charter, but a 4-year charter with a cancellation clause. Issue: Is loss measured at the day of breach or at the day of the trial with all evidence? Held: 3/2 majority required examining all facts. P recovered for 1.5 years, not 4. Affirmation of Principle  The fundamental principle governing the quantum of damages is long established and not in dispute. Compensate P for the breach of the loss of P’s contractual bargain. Cited Robinson v Harmon: The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position, with respect to damages, as if the contract had been performed. Lodestar  The lodestar is that damages should represent the value of the contractual benefits of which P is deprived by the breach, no less and no more. o If a terminating event happens, speculation is not needed… in relation to the period during which the contract would have remained executory but for war, the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. Result Damages should represent the value of the contractual benefit of which P has been deprived-no less and no more.  P sought compensation exceeding the value of the contractual benefits deprived.  P lost a charter party with the cancellation clause.  P had not been deprived of the right to receive the hire during the whole term of the charter because it would have terminated prior to the agreed contract period.

Principles

B: Causation The loss must be caused by the breach to be claimed.

Built around the idea that damages were recoverable if they were a natural consequence of the breach. Whether any particular loss was a natural consequence of the breach was a question of fact for the jury to decide. Borealis AB v Geogas Trading SA  P has the legal burden of proving D’s breach caused their loss o D has the burden to contend a break in the chain of causation  Novus actus interveniens: P’s conduct must constitute an event of such impact that it obliterates D’s wrongdoing. o For there to be a break in the chain of causation the true cause of the loss must be the conduct of P rather than the breach of contract on the part of D. o If the breach of contract by D and P’s subsequent conduct are concurrent causes it must be unlikely that the chain of causation will be broken. o Where D’s breach of contract remains an effective cause of the loss at least ordinarily the chain of causation will not be broken.  It is difficult to conceive that anything less than unreasonable conduct on the part of P would be capable of breaking the chain of causation.  P’s state of knowledge at the time of and following D’s breach of contract is likely to be a factor very great significance.  A break in the chain of causation is fact sensitive involving a practical enquiry into the circumstances of D breach of contract and P’s subsequent conduct. (1) P must establish that D’s breach caused the loss; and Foreseeable Quinn: Insufficient. ? (2) It was an effective cause of P’s loss Quinn: Effective Cause vs  The breach of contract merely gave P the opportunity to injure himself and was the occasion of the injury. Opportunity o P deliberately assumed risk and sought to attribute the loss to D. P’s action obliterated any causal link. (D’s Breach) was an effective cause of P’s loss because (breach) meant (result); or  (D’s Breach) was not an effective cause of P’s loss because although (breach), it only created the opportunity. (P’s conduct) blew D’s breach out of the water to be so overwhelming so not to be an effective cause. Seahawk: where a breach of contract is one of two causes both Concurrent cooperating and both of equal efficacy in causing loss to P it is not Causes necessary for P to prove that the breach was the cause as long as it was an effective cause. (3) Fact Sensitivity Apart from the Borealis principles it is accepted that whether any loss is a consequence of the breach is a matter of common sense. Quinn:Scope of the promise breached? Does a breach of that cause (P’s Loss)? o Promise to provide a ladder vs Safe System of work. Quinn v Burch Bros (Builders) Ltd Facts: D the main contractors who subcontracted P to do plastering work. D agreed to 

supply all necessary equipment. D agreed to supply P with a stepladder but failed to do so. P thus used an un-footed trestle to climb up the side of a building (realising it was dangerous but took the chance anyway), fell off and was injured. P claimed loss was caused by failure to supply the ladder. Cross Examination held that D foresaw the injury. Held: 1. P must establish D’ breach caused the loss The loss was not caused by the breach.  D did not agree to supply a safe equipment system. No term that D shall take reasonable care for P’s safety.  Foreseeability is not the true criterion when questioning causation. 2. D’s Breach must be an effective cause, not merely a cause  The breach of contract merely gave P the opportunity to injure himself and was the occasion of the injury. o P deliberately assumed risk and sought to attribute the loss to D. P’s action obliterated any causal link. o e.g. If D failed to provide a chauffeur to a P who then drove drunk and crashed, P would have caused the loss although D could definitely foresee the loss of crashing from drunk driving. o An intervening act of P breaks the casual link between D’s breach and P’s loss if it is unreasonable in the circumstances.  Francis: Causation is about attributing liability. o If D had provided the ladder P wouldn’t have used the trestle. o The breach was a cause, but not an effective cause as it created an opportunity: P was so stupid that it obliterated the loss. o The party responsible for the loss is the workman who used the trestle. P chose to run a risk then sought to attribute it to D’s breach (not accepted due to insufficient causal link). 3. Fact Sensitivity  The relationship was sub-contractor to main contractor, and there was no agreement that placed a burden to provide a safe system of work.  Obligation was purely to supply a ladder.  The outcome would likely change if P had been employed by D as an apprentice and P had expressly undertaken to provide D with a safe system of work. o The scope of the promise would hold that the breach caused the loss.

Rationale

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C: Remoteness Parties are free to create their own contractual obligations and are

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free to define the extent of the obligations undertaken. o They may agree the amount of damages and liability. Where there is no express agreement to this, the court must assess the parties’ presumed intention. o This is that D accepts liability for obvious losses, but not those from special circumstances (these should be expressly agreed). The idea that damages are a secondary obligation reflecting presumed intention and give effect to the implicit agreement on the extent of liability for breach is now reasonably well accepted.

Hadley v Baxendale Facts: P’s flour mill stopped due to a broken crankshaft. In breach of contract D as the carrier of the replacement delivered it late. P sued for the loss of profit ($300) from closing the premises; D claimed these were not the natural consequence of the breach. Headnote:  Said D’s clerk was told the mill was stopped and that the machine piece needed to be delivered immediately.  Judgment differs: “We find the only circs communicated by P to D at the time contract made was that the article to be carried was the broken shaft and that P was millers of the mill.” Speed/Urgency not mentioned. Why? There were 2 counts of breach:  P relied on an express promise that the shaft would be there in 2 days, relying on conversation with D’s clerk. No evidence was advanced, and it was not continued. o Clerk authority limited in 1850s; they had no authority to take information/make contracts. Thus, the notice was irrelevant.  (Cause in this case) D would undertake the work with due care and deliver it in a reasonable time (held to be 2 days). o Special knowledge not present:  D unaware the mill would be shut down during the delay.  Only aware that P owned a mill and D had to deliver a shaft o D suggested P obtain only nominal damages because P only claimed lost profits. These were not recoverable as they had not been communicated to D.  The Jury should have been directed that they were not the natural consequence of the breach.  Lost profits are not obvious because when a suitcase is delivered late, the value of the suitcase may be the basis of the claim (interest accrued from late delivery), but certainly would not reasonably contemplate lost profits.  Thus, nominal damages for late delivery should be the value of not having it for the delay (very low).  Accepted: lost profits should not have been considered. Held: Rules (Law to Follow) (1) When two parties have made a contract which one breaks, the damages the other party ought to receive should be such as may fairly and reasonably be considered either;  arising naturally (i.e. according to the usual course of things) from such breach of contract itself; or

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such as may reasonably be supposed to have been in the contemplation of both parties at the time they contracted as the probable result of the breach of it.

(2) If special circumstances are communicated and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated  If they were wholly unknown to D, D can only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances. Result Rule 2:  Mill being shut down was special circs which had not been communicated to D;  D knew they needed to get a broken crankshaft to P but did not know the consequence of failure was that the mill would be shut down for the period of delay.  Critical finding of fact is that only communicated circ was that the article carried was the broken shaft. Rule 1:  In the great multitude of cases, the mill being stopped would not occur, thus not in reasonable contemplation of both parties.  Loss of profits not reasonably contemplated by both parties. Why Does Remoteness Limit Damages? Francis: Reflection of The Bargain Made  Some say there is a legal policy-contractual policy ought not to be enforced to full extent-policy to reduce it-protect carriers from being insurers  Hogwash. D facing 300l suit after being paid 2l with no idea that P would stop the mill. D should not be an insurer for lost profits.  Losses are not recoverable as D cannot be fairly said to accept losses claimed.  Rationale reflects the bargain made. o The primary obligation was to be met with a secondary obligation which fairly reflected the bargain-obvious losses or special notice of losses that are assented to.  Either obvious losses or special notice of losses that are assented to. Historical Context of the Case This test is the key dividing line from old approach to new.  Old Test: Damages a question of fact: natural consequence of the breach. Quantum was in the province of the jury considering all circs. They could include lost profits/unusual losses.  New Test: Takes this judgment away from jury, requiring the judge to show the jury what it is recoverable. o Done by elaborating “natural consequences” o Old Test: “Where two parties have made a contract…the damages recoverable should be such as may fairly and reasonably be considered arising naturally” o Elaboration: “i.e. according to the natural course of things…or such as may be

reasonably contemplated by both parties”  Movement from mere causation to party contemplation. o Have they implicitly agreed the consequence was a probable (obvious) loss that should be proper to be covered? Parties are free to determine their own liability (1) Turns on the causal nexus: the loss alleged must be the natural cause of the breach (arising from the usual course of things).  Focuses on the directness and causal nexus (probability) of damage. (2) Or, you may be liable for special circs if communicated and you assent to them. o Must they be communicated in a way to give rise to an undertaking? o Unsettled…but suggested needs more than advising on the special loss, requires an undertaking to be responsible. Flows from agreement: Parties are free to create their own obligations and define the extent of their obligations-can agree the maximum liability they will undertake.  e.g. Securicor: allowed limitation clause for burning down the whole building. 

Policy: Parties are also allowed to stipulate the quantum they are willing to pay. Parties can cut down liability and determine the extent.  In the absence of express agreement, the law must determine what the parties fairly may be presumed to have agreed-what should be the extent of liability? Lodestar: Reflect on the contract’s terms and ask: what fairly may be presumed here as agreed? o If the loss would happen in the great multitude of cases, we can say it is obvious and parties should have agreed to it (when a likely loss). o If it is an unlikely loss, parties should only be liable if they agreed to it. Practical Applications of the HvB rule Horne v Midland Railway  Controversial for preconditions of second rule. Torts jurists see as a policy cut-off, not about agreement (Francis thinks the Horne position is right). 1. It is clear if you obtain an undertaking from the promisor to be responsible for the special damages, they will be liable for the special loss. 2. If you give notice, that does not of itself give rise to liability. Facts:  Large ...