Remedies “In English Law, the aims of compensatory damages often inform the claimant’s remedy”, A Critical analysis. PDF

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1 Remedies in Tort, Contract and Restitution Referral 846574

“In English Law, the aims of compensatory damages often inform the claimant’s remedy”, Critically analyse this statement.

In English Law, there exists two forms of damages that can be awarded to a claimant for the loss which they have suffered1. On the surface, they can be categorised as either compensatory or non-compensatory; the former are an award of a sum of money with the aim to compensate the claimant for their loss in a contract; the latter are an award of a sum of money to compensate for their contractual loss, but also to compensate the claimant with regards to any misconduct on the behalf of the other party. The aims for compensatory damages in contract law do differ from those in tort law, so contract will be discussed first. There are specific formulas for determining whether an individual is entitled to damages, and with regards to compensatory damages there are six core principles which should be examined2. The first is whether or not the claimant has suffered a loss; Alfred McAlpine Construction Ltd v Panatown Ltd [2001]3 outlines that a claimant may only recover for their own loss, in that vein, the amount of loss must be assessed – following Robinson v Harman [1848]4, the aim is that the non-breaching party are put in the position they would have been if the contract was performed as initially agree (whereas in tort, it would be to put the claimant in the position they would be had the tort not been committed). 1 Clare Connellan, Global Damages Review, November 2019 2 Pearce, D. and Halson, R. (2007) Damages for breach of contract: compensation, restitution, and vindication. Oxford Journal of Legal Studies. ISSN 1464-3820 (In Press) 3 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 4 Robinson v Harman [1848] 1 Ex 850

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In a breach of contract, there will either be the option to use the expectation measure, or the reliance measure, the former being more favourable usually. This is calculating the position the claimant would be in if the contract was completed successfully, as stated before, by working out costs during breach and difference between value of performance provided and value of performance that should have been provided. The reliance measure aims to put the claimant in the position they would be before the contract was made, more like tort damages, but it is determined that the claimant should be expecting to profit from the contract so this is often not favourable5. The next step is determining whether the loss suffered is actionable; this may be due to a straight financial loss as a result of the contract. Consumer surplus is a difficult concept to rule on due to the difficulty in assessing the value of them; they are the amount by which a consumer values the performance of a contract above its market value. The case of Watts and Morrow [1991]6 discussed consumer surplus and stated that damages cannot be awarded for distress caused by breach of contract, so these particular consumer surpluses are not actionable. The rules regarding claiming for consumer surplus were clarified in Farley v Skinner [2001]7. Farley was awarded £10,000 worth of damages for “discomfort”. The judges in this case came to the same decision, but under two different grounds:

5 Simone Degeling, James Edelman and James Goudkamp (eds), Torts in Commercial Law (Law Book Co 2011) 367-390 6 Watts and Morrow [1991] 1 WLR 1421 7 Farley v Skinner [2001] UKHL 49

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1. “The concept of consumer surplus – peace and quiet were evidently important to the claimant. It was not required to show that this was the sole object of the contract. 2. Distress.”8

English courts can therefore be seen to be willing to accept consumer surplus as an actionable loss, but only with caution and clarity that the consumer surplus was important to the claimant. In these instances, the award for non-financial loss will be small and the foreseeability of the loss will be difficult to prove. Because of how tortious remedies work, they are said to be less generous that contractual remedies – contracts work within a market and take into account loss looking forward, but remedies in tort look backward at one’s initial position, for a sense of fairness, and protects the status quo or “reliance interest” (how much one is out of pocket by a defendant’s breach)9.

The next step is determine if the breach caused the loss by outlining and finding both factual (using the “but for” test)10 and legal causation (requiring a breach to be the direct cause of loss with no subsequent actions that break the chain of causation, other than in the exceptions where an intervening act was reasonable etc.). Then, determining whether the claimant contributed to the loss or not as stated in the Law Reform (Contributory Negligence) Act 194511. Finally, one must consider any agreed damages clauses (liquidated damages or penalty clauses) which pre-agree on 8 Farley v Skinner [2001] UKHL 49 9 D.W. Barnes, ‘The Net Expectation Interest in Contract Damages’ (1999) 49 Emory Law Journal 1137 10 Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 11 The Law Reform (Contributory Negligence) Act 1945

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appropriate damages should certain instances occur, and they provide certainty as well as efficiency in contractual agreements.

Generally, the aims of compensatory damages and remedies as a whole is to relieve the claimant, and not to punish the defendant, but the contract system operates in a market and is based upon voluntarily assumed obligation whereas tort is based on civil obligations created by law, and not the individuals or parties involved in the situation. Therefore, oftentimes contractual damages are in a sense looking forward and are intended to protect profit of a deal in an exchange. As mentioned before, tort goes to protect a status quo and put the claimant in the position prior to the tort being committed, as per Lord Blackburn in Livingston v Rawyards Coal Co. [1880].12 “That sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation”13 In reality, contractual remedies often end up entitling claimants to both gains prevented and losses caused; this is summed up by expenses during the contract that was not performed correctly and the difference between actual value and expected value. It is not always so clear in tort. For the most part, the aims of compensatory damages do inform the claimant of their remedy, but this is a much clearer calculation in contract usually, because one can calculate the profit missed and expenses. In tort, one could say that a value must be placed on restoring fairness, and in general, putting the claimant in the position prior to the tort is preferable, but there are exceptions and different calculations to determining liability, such as the “Learned Hand test” per Judge Learned Hand in United States v Carroll 12 Livingston v Rawyards Coal Co. [1880] 5 App Cas 25 13 Livingston v Rawyards Coal Co. [1880] 5 App Cas 25

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Towing Co [1947]14, where liability is equal to Burden of Precautious Costs (B) < Probability of Harm (P) x Injury Costs (I). That is, Liability = BB). This is not dissimilar to the legal test for determining breaches in negligence. Where the defendant is made responsible for the costs they have caused, it may encourage them to take further precautions to prevent those costs unless the costs of those precautions outweigh the costs caused to the other party. There are also theories such as; Calabresi’s market deterrence theory, imposing costs to encourage good behaviours as an incentive15; Corrective Justice16; Aristotle’s Nichomachean Ethics17; or even abolishing tort with a no-fault system.

Liability is very clear cut and obvious with regards to contracts; there is a breach in the terms of a contract, and the amount of compensation can be calculated rather easily. In tort, liability is not necessarily so obvious, and is up for debate – there is the question of whether the claimant has had any involvement in the commission of the tort before one even considers how much a claimant is entitled to – on a base level, it is whatever the difference is between their current position and how they were before the tort was committed. Bibliography

14 United States v Carroll Towing Co [1947] 159 F 2d 169 15 Richard A. Posner, Guido Calabresi's 'The Costs of Accidents': A Reassessment, 64 Maryland Law Review 12 (2005). 16 Martin H. Malin, The Distributive and Corrective Justice Concerns in the Debate over Employment At-Will: Some Preliminary Thoughts, 68 Chi.-Kent L. Rev. 117 (1992). 17 Aristotle, Terence Irwin, Nicomachean Ethics

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Case Law: Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 Farley v Skinner [2001] UKHL 49 Livingston v Rawyards Coal Co. [1880] 5 App Cas 25 Robinson v Harman [1848] 1 Ex 850 United States v Carroll Towing Co [1947] 159 F 2d 169 Watts and Morrow [1991] 1 WLR 1421

Statute: The Law Reform (Contributory Negligence) Act 1945

Books/Journals: Aristotle, Terence Irwin, Nicomachean Ethics Clare Connellan, Global Damages Review, November 2019

D.W. Barnes, The Net Expectation Interest in Contract Damages (1999) 49 Emory Law Journal 1137

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Martin H. Malin, The Distributive and Corrective Justice Concerns in the Debate over Employment At-Will: Some Preliminary Thoughts, 68 Chi.-Kent L. Rev. 117 (1992). Pearce, D. and Halson, R. (2007) Damages for breach of contract: compensation, restitution, and vindication. Oxford Journal of Legal Studies. ISSN 1464-3820 (In Press Richard A. Posner, Guido Calabresi's 'The Costs of Accidents': A Reassessment, 64 Maryland Law Review 12 (2005). Simone Degeling, James Edelman and James Goudkamp (eds), Torts in Commercial Law (Law Book Co 2011) 367-390...