Remedies - Model Answer PDF

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Remedies – Past Paper 1In remedies, do the biggest claim first (explain law fully) and then smaller claimsIdentify PartiesAlright v Simon – ‘X’ has contracted with ‘Y’ in a business to business contract for the supply of servicesIdentify TermHere, the relevant term is that ‘X’ has agreed to ‘provide...

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Remedies – Past Paper 1 In remedies, do the biggest claim first (explain law fully) and then smaller claims Identify Parties Alright v Simon – ‘X’ has contracted with ‘Y’ in a business to business contract for the supply of services Identify Term Here, the relevant term is that ‘X’ has agreed to ‘provide an exclusive interview with ‘Y’ following the announcement of the ‘Z-list Factory’ winner in return for a fee of £50,000. ACTUAL BREACH OR ANTICIPATORY BREACH Actual Breach: ‘where a party, without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing’ (Trietel)  too late to terminate the contract, so can only claim damages Here, there has been an actual breach of contract because … Anticipatory Breach: ‘before the time for performance of the contract, one party informs the other unequivocally that they will not fulfil their obligation to perform the contract. The innocent party can choose whether to accept the breach, notify the contract breaker, and treat the contract as terminated, or to wait until the time for performance and make an election at that point’ (Hochster v De La Tour)  claimant can terminate contract and claim damages Here, there has been an anticipatory breach as Simon’s withdrawal from the interview has occurred before the performance of the contract. Thus, ‘Alright’ can terminate the contract and claim damages Categorise Term Does the term go to the root of the contract:  If yes = condition (Poussard v Spiers): affirm & damages or terminate & damages  If no = warranty (Bettini v Gye): only damages  If neither = likely to be innominate term: apply Hong Kong Fir v Kawasaki Test: do the consequences of the breach deprive the innocent party of substantially the whole benefit of the contract?  If yes = condition  If no = warranty Here, in refusing to carry out the interview with Alright, Simon’s breach clearly goes to the root of the contact. Therefore, according to Poussard v Spiers, this is a breach of a condition with the remedies available to affirm the contract and seek damages or terminate the contract and seek damages. In this case Alright will most likely terminate the contract and seek damages. VLD First, it is necessary to establish whether there is a VLD clause in existence. A liquidated damage clause outlines the damage payable in event of a breach. Here, parties can agree a certain sum to be payable on breach. On our facts, there is no indication that there is a valid liquidated damages clause.

Unliquidated Damages Since there is no VLD in existence, the courts will consider unliquidated damages as a means of measuring the damages payable to Alright. Where the parties have not stipulated the amount payable on breach, or their preassessment has been struck out as a penalty clause, the courts assess the amount of unliquidated damages to be paid. Here, the damages can be calculated through the two principle compensatory objectives. One measure protects the innocent party’s so-called ‘reliance’ interest, covering their out-of-pocket expenses. The alternative measure protects the innocent party’s so-called ‘expectation’ interest. This measure aims to cover the innocent party’s loss of profit. The general principle underpinning the assessment of damages is that they should only be compensatory in nature not cumulative. Lord Denning held in Anglia Television Ltd v Reed that a claimant has an unfettered choice when choosing reliance or expectation interest. The reason for this choice is to ensure that the claimant can only recover damages through one compensatory measure. Here, Alright is likely to seek damages through expectation interest, as following The Golden Victory and Plantation Holdings (FZ) LLC v Dubai Islamic Bank PJSC, it was held that the expectation interest is the primary method of compensation. Expectation Interest The aim of the expectation measure award of damages for breach of contract is to place the claimant, in the same position post-breach that they should have been in had the contract been properly performed. This was confirmed by Parke B in Robinson v Harman who stated that the wronged party is to be ‘placed in the same situation … as if the contract had been performed.’ This notion that compensation is the fundamental principle is confirmed in Golden Strait Corporation v Nippon Yusen Kubishika Kaisha, ‘The Golden Victory.’ Damages should be based on the compensatory principle and courts must take into account the effect of subsequent events of the claimant’s loss (Bunge SA v Nidera BV). In Plantation Holdings, the Court observed that ‘it is necessary to consider what level of damages will fairly compensate the claimant. The claimant should not be short changed. Equally. However, the claimant ought not to be allowed to recover a windfall.’ = USEFUL RULE OF THUMB As there is no conflict between the cost of cure and diminution value it is sufficient to ask the question, ‘what is the claimant’s expectant loss’ (Robinson v Harman). The expectant loss can be calculated as the position ‘A’ would have been in had the contract been properly performed minus the position ‘A’ is actually in. In order to calculate Alright’s expectation interest, it is first necessary to calculate the position they would have been in if Simon had performed the contract. The amount of damages available to Alright will be their expected net profit minus their actual profit. Alright would have received an expected revenue of £460,000 from Will and MM with a resultant net profit of £410,000 after paying Simon the necessary £50,000 fee. Alright’s actual net profit is £5,000 after the actual revenue of £30,000 from MM and the payment of £25,000 to Danielle. Thus, it can be calculated that Alright’s expectation interest is

£410,000 minus £5,000, equally £405,000. This £405,000 will be the amount payable to Alright. Restitution Interest (additional interest / profit from breach of contract) Apply First: As Simon has profited from breaching his contract with Alright, they may wish to recover a restitution interest. The restitution represents the interest a claimant has in the restoration to him of benefits which the defaulting party has acquired illegitimately at his expense. This interest is particularly controversial as it can arise where the innocent party has no financial losses relative to either the reliance or the expectation interest. Nevertheless, it is arguable that the contract breaker has been unjustly enriched. As stated in Attorney-General v Blake, it is now clear that there are at least certain circumstances in which a claimant can recover the profit which the defendant has made from his breach of contract. However, this will only apply in exceptional circumstances, where the claimant has a ‘legitimate interest in preventing the defendant’s profit-making activity’ per Lord Nicholls in AG v Blake and where traditional remedies are inadequate. In this case, the traditional remedy which Alright will receive of £405,000 is arguably adequate, however, we will assess the facts in light of the following case law to come to a conclusion if restitution interest will be available for Alright. A liberal approach was taken in Esso Petroleum Co v Niad Ltd where restitution damages were awarded in a commercial context. Their legitimate interest was in their reputation; their advertised Pricewatch scheme was being undermined and the court wanted to award damages. The decision from Esso has been highly criticised and its usefulness has been questioned and thus it is unlikely to be followed. The ‘Sine Nomine,’ Experience Hendrix LLC v PPX Enterprises Inc and WWF v WWF provide further evidence that the courts are unlikely to award restitution interest in cases of ‘efficient breach’ (where one party breaches the contract so that they can enter into a more profitable contract with a different party), where damages will be adequate (The ‘Sine Nomine). This is because there will be no legitimate interest in taking away Simon’s profits. The principle has clearly been affirmed that restitutionary damages will not be available in unexceptional cases of commercial breach. Thus, it can be concluded that restitution interest will not be awarded to Alright. Causation There must be a causal link between the defendant’s breach of contract and his loss in order to recover damages. Both factual and legal causation must be satisfied. The courts have treated determination of factual causal link in a broad way, advocating a ‘common-sense approach’ to locate the ‘dominant’ or ‘effective’ cause (Galoo Ltd v Bright Grahame Murray). Thus, it is vital to determine if Simon’s breach the ‘dominant or effective cause’ of Alrights’ loss of profits, applying a common-sense approach. On the facts, it is abundantly clear that Simon’s withdrawal from the interview is the dominant or effective cause of Alright’s loss of expectation interest and thus factual causation is satisfied.

To determine that legal causation has been established, we must consider whether there are any novus actus interveniens present which break the chain of causation. A NAI must be unforeseeable if it is to break the chain of causation (Monarch Steamship Co Ltd

v A/B Karlshamns Oljefabriker). There are no NAI’s which break the chain of causation, on the facts. Thus, legal causation is satisfied, and it has been established that there is a causal link between Simon’s breach and Alright’s loss, and damages will therefore be awarded. Remoteness The losses must not be too remote. According to Hadley v Baxendale, losses will be recoverable if it arises naturally in the usual course of things or they may be supposed to have been in the reasonable contemplation of both parties at the time of the contracting (Balfour Beatty v Scottish Power). When considering the loss of the £400,000 contract with Will, the test from Hadley v Baxendale needs to be applied. Losses need only be covered by one limb or the other: they do not have to fall under both. This means that the claimant must establish: 1. That the losses are not too unusual or 2. That the particular defendant had sufficient actual knowledge of the risk of the loss arising when the contract was made The case of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd can be analysed. Here the claimant could not recover for a lucrative contract lost as a result of a breach as it was too unusual to fall under limb 1 and not known about by the defendant so limb 2 could not be satisfied. In our case, it can be argued that the £400,000 loss of contract is too unusual. This is because Will was agreeing to purchase an exceptionally large amount of advertising space. Additionally, MM who were also purchasing advertising space, only spent £60,000. Therefore, the £400,000 loss cannot be covered by limb 1. In terms of limb 2, Simon did not have sufficient actual knowledge of the risk of the loss arising when the contract was made. Simon was unaware of Alright’s contract with Will and thus the second limb of the Hadley v Baxendale test also fails. Thus, it is concluded that Alright will not be able to claim damages for the £400,000, as this loss was too remote. Example: It cannot be said that TPS would have known about the other contracts made by BL in anticipation for this event. Damages resulting from special circumstances require actual knowledge by the defendant to be in reasonable contemplation of both parties. This is to be judged at the time of contracting (Jackson v RBS). It would be reasonable for TPS to be sued for the loss suffered by BL for the fee paid to them for the display as this arises naturally from the breach (Achilleas) – arise naturally from the breach of contract. In applying the test from Victoria Laundry v Newman, it could be argued that there are two heads of loss of profit. The loss of the fee paid to TPS will be recoverable. However, the profit made from the £100,000 contract with Angela Burr is likely to be too unusual and unknown to TPS. Mitigation (Make Something Less Severe) Where one party has suffered loss resulting from the other party’s breach of contract, the injured party must take ‘reasonable steps’ to mitigate their losses (British Westinghouse and Manufacturing Co v Underground Electric Rail Co). Technically, there is no obligation to mitigate, but losses attributable to a failure to do so are not legally recoverable, thus damages can be reduced.

The question posed is whether Alright has taken reasonable steps to mitigate by accepting Danielle’s offer. It can be argued that the Alright has taken reasonable steps to mitigate their losses by accepting Danielle’s offer. Where the expenditure was held to have been reasonable, the injured party’s actions ‘ought not to be weighed in nice scale at the instance of the party whose breach of contract has occasioned the difficulty’ (Lord MacMillan in Banco de Portugal v Waterlow & Sons). Thus, the claimant will be given some leeway. Reasonable steps have been taken by Alright and there is no obligation to mitigate the full extent of losses suffered and thus Simon cannot argue that Alright have failed to mitigate their losses. Consider Pilkington: The question of what is reasonable is one of fact. In Pilkington v Wood, it was held that there is no expectation that the claimant should embark on a ‘complicated and difficult piece of litigation’ in order to minimise the effects of the defendant’s breach  especially if last minute cancellation Contributory Negligence As the cancellation of the interview was a breach of a strict contractual duty, contributory negligence is not applicable (Vesta v Butcher). In conclusion, ‘Alright’ will be able to receive £5000 of damages. Identify Parties Alright v Cutting Edge – ‘X’ has contracted with ‘Y’ in a business to business contract for the supply of services Identify Term Here, the relevant term is that Cutting Edge are to construct a large water feature at the entrance of Alright’s office using purple mosaic tiles. ACTUAL BREACH OR ANTICIPATORY BREACH Actual Breach: ‘where a party, without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing’ (Trietel)  too late to terminate the contract, so can only claim damages Here, there has been an actual breach of contract because Cutting Edge has performed the contract defectively. It is thus too late to terminate the contract, so Alright can only claim damages. Categorise Term IN EXAM: breach will likely of an express term  apply Poussard first Here, as Alright expressly asked for purple tiles, Cutting Edge’s use of yellow tiles constitutes breach of an express term. To determine whether this term is a condition or a warranty, it is necessary to ascertain if the term goes to the root of the contract. According to Poussard v Spiers, if the term goes to the root of the contract, this is a breach of a condition with the remedies available to affirm the contract and seek damages or terminate the contract and seek damages. However, following Bettini v Gye,

if the breach does not go to the root of the contract, it will be classified as a warranty, with the only remedy being damages. Since Cutting Edge has … it is most likely that this will be classed as a warranty as the breach has not gone to the root of the contract. Therefore, Alright will only be able to claim damages from Cutting Edge. VLD First, it is necessary to establish whether there is a VLD clause in existence. A liquidated damage clause outlines the damage payable in event of a breach. Here, parties can agree a certain sum to be payable on breach. On our facts, there is no indication that there is a valid liquidated damages clause. Unliquidated Damages Since there is no VLD in existence, the courts will consider unliquidated damages as a means of measuring the damages payable to Alright. Here, in determining the expectation interest, as there is a difference between the cost of cure and the diminution in value, the three different mechanisms for calculating the expectation interest: cost of cure, diminution in value and loss of amenity need to be considered (Ruxley Electronics v Forsyth). The cost of cure and diminution in value are different due to the remedial work required to replace the purple tiles with yellow tiles. There is no diminution in value. The cost of cure is the prima facie (usual) measure of damages involving defective works (where a building is not built to the contract specification): Birse Construction Ltd v Eastern Telegraph Co Ltd. The cost of cure represents the cost of substitute or remedial work required to put the claimant in the position he would have been in had the contract been properly performed. The cost of cure to remedy the breach is £7,500. The general rule is that the cost of cure will not be awarded when it is unreasonable. The test from Ruxley Electronics and Construction Ltd v Forsyth indicates the factors considered by the courts in determining unreasonableness. The court will consider firstly whether the claimant intends to rectify the defect and secondly whether the cost of cure is out of properly to the benefit to be obtain from remedying the defect. Alright does intend to rectify the defect, however, following McGlinn v Waltham Contracts it was held that it is unreasonable to demolish and rebuild an entire structure to cure defective works motivated by aesthetic considerations. Therefore, the cost of cure is likely to not be proportional and thus loss of amenity damages can be awarded as an alternative. Loss of amenity was a further measure of calculating expectation loss which derived from Ruxley. Where there has been a breach of performance resulting loss of expectation of performance, satisfaction of a personal preference, or a pleasurable amenity, but there has been no diminution of value, the court can award modest damages through loss of amenity to compensate the claimant. The loss of amenity measure developed in Ruxley is a reflection of the court’s growing willingness to accept that a consumer should have an available remedy where their loss is not economic in value, but nevertheless has a value to them.

However, in a commercial setting such as the contract between Alright and Cutting Edge, it would be ‘unusual, if not impossible’ for damages to be awarded for loss of amenity (Regus (UK) Ltd v Epcot Solutions). Therefore, it is unlikely that an award for loss amenity will be made, and thus Alright will not be able to claim for any damages from Cutting Edge.

Identify Parties The Spitz v Alright – ‘X’ has contracted with ‘Y’ in a business to business contract for the supply of services Identify Term Here, the relevant term is that Alright must pay the bill by the due date. ACTUAL BREACH OR ANTICIPATORY BREACH Actual Breach: ‘where a party, without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing’ (Trietel)  too late to terminate the contract, so can only claim damages Here, there has been an actual breach of contract because Alright has failed to settle their account with The Splitz by the due date and in fact pay the bill 10 days late. Categorise Term Does the term go to the root of the contract:  If yes = condition (Poussard v Spiers): affirm & damages or terminate & damages  If no = warranty (Bettini v Gye): only damages  If neither = likely to be innominate term: apply Hong Kong Fir v Kawasaki Test: do the consequences of the breach deprive the innocent party of substantially the whole benefit of the contract?  If yes = condition  If no = warranty Here, in failing to pay the bill by the due date, Alright’s breach clearly goes to the root of the contact. Therefore, according to Poussard v Spiers, this is a breach of a condition with the remedies available to affirm the contract and seek damages or terminate the contract and seek damages. In this case although there is a breach of condition, because it is too late to terminate the contract The Splitz will only be able to claim for damages. VLD First, it is necessary to establish whether there is a VLD clause in existence. A party may seek to remove the court’s role in assessing damag...