Topic 9 - Remedies for breach of contract: Damages and Specific Remedies PDF

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Topic 9 Remedies for breach of contract: Damages and Specific Remedies Damages (Definition) Monetary award Primary remedy for breach of contract A sum of money ordered to be paid for breaching a duty owed to the party Compensatory damages: loss suffered Not just compensatory: recover gain Right to d...

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Topic 9 Remedies for breach of contract: Damages and Specific Remedies Damages (Definition)  Monetary award  Primary remedy for breach of contract  A sum of money ordered to be paid for breaching a duty owed to the party  Compensatory damages: loss suffered  Not just compensatory: recover gain  Right to damages vs. Right to terminate Reason for damages 1. Compensate loss  Loss- based/ compensatory damages 2. Disgorge gains made by party in breach  Gain- based/ disgorgement damages  Award made by the court to party in breach to give up the profits  AG v Blake  Mr. Blake former secret agent, got a contact to write an auto bibliography of his career, breach of contract with the government and the criminal statute, obtained profits, govnt didnt suffer any loss and could not have made the profits itself o Usually awarded this involves more than breach of contract breach of confidence o Not pure breach of contact o Even plaintiff didn’t made profits itself and the government did not suffer loss, court held that Mr. Blake liable to the profits, usually compensatory BUT here compensatory may not be sufficient o Discretionary basis for Disgorge gains (legitimate interest of plaintiff to prevent defendant from his profit-making ability) 3. Punish wrongdoers  Primitive damages: not available for breach of contract  Would exceed the amount of loss suffered by the plaintiff How court award compensation  Johnson v Agnew  The general principle for the assessment of damages is compensatory, i.e. that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed.  As if there were no breach of contract which means contract had been performed (Performing interest in contract law)  Cf Tort law  Aim: put the P as in no wrong and tort have been committed

 Types of compensatory damages  Compensatory damages  Pecuniary (money) loss o Expectation loss recover o Cant recover expectation loss then consider reliance loss  Non- pecuniary loss Damages for pecuniary loss suffered  Three questions  What is the type of recoverable loss  Expectation loss: time of assessment  Any limits on the amount on loss that are recoverable 

Expectation loss  Robinson v Harman (1848) o Principle: place the injured party ‘ in the same situation with respect to damages as if the contract had been performed’ o Compare the actual state of affairs vs. what you would have obtained under the contract had been performed  What was the bargain?  Scope of duty broken:  South Australian Asset Management Crop v York Management Ltd (1997)  SAAM co lender wants to borrow money only if borrower can provide a property as security  Lender wants to know the value of property, hired a defendant valuer, def overvalued the property  Lender granted the loan to borrower, borrower defaulted the loan, market clashed and security become useless, lender suffered great loss o Value duty was only to give information for the value property but not the give advice o Valuer only suffer the overvaluation but not the full loss  Difference in value  Quantification  Performance received and performance promised (for defective goods/ services)  Cost of cure  usually to building work  Amount used to hire employer to cure the defect will be the amount  Exception: Ruxley Electronics v Forsyth (1996)  Plaintiff tell defendant to build a swimming pool, depth: 7 feet  Breach of contract, the pool 9 inches short o What measure o Difference in value: difference in the depth did not affect the use of the swimming pool, what should be the amount of damages

o Only nominal o Cost of cure: Cure the defect by rebuilding the entire swimming at substantial cost  substantially larger sum o Court awarded neither of cost of cure and difference in value but a sum of 2500 pounds for Loss of Amenity not able to enjoy the pool  Time for assessment  Loss to be assessed at the time of breach  Limitations on recovery 1. Causation  Gen: P would need to show that the breach of contract is the effective cause of the law o ‘But-for’ test: would you still have suffered the loss?  Shipping Inc v Globalia Business Travel SAU (The New Flamenca)  Ship owners’ benefit from sole (mitigation) > loss of profits recoverable from the charterers  Defendant returned the ship early that amounted to an anticipatory breach of contract  Owner sold the ship at high market price because no available market to recharter the ship (mitigate the loss by selling), before the global crisis in 2009  Owner tries to claim/ sue for the loss of profit (remaining period of contract)  Def argued that owner benefited due to early sale of ship, that benefit could be set off against by the loss of hirer o Court: o First instance: o relates to causation o Owners benefit was not related to hirer o Overturned by CFA o Unexpected benefit would reduce the loss claimed by the owner 2. Remoteness  Consequential damages: loss of profits  General approach: consider whether the loss is within D’s reasonable contemplation  Hedley v Baxendale (1854)  Delay in carrying the shaft of a broken mill led to mill stoppage for several days. Loss of profits recoverable? o Court: o Did not flow naturally from the breach o In those days, it was common that P would have a spare shaft o Within reasonable contemplation of the parties o Stoppage was not communicated to the defendant o Hence loss of profits too remote to be recoverable

 Victoria Laundry (1949)  Delay in delivering boiler that D knew was intended for immediate use o Held: reasonably foreseeable as within the knowledge of the defendant o What knowledge may the defendant have o Did the defendant have knowledge with the heads of claims  The Heron II (1969)  Price of sugar felled by the time ship has arrived late. P wanted to recover the difference of value as damages o Court: o Used different labels in deciding the test of remoteness o Degree of probability of loss o Serious possibility of the loss occurring then not too remote then recoverable  The Achilleas (2009)  Late re-delivery of a time-chartered vessel. Ship owner unable ton use the ship for an agreed follow-on charter at a higher rate, and took up a charter with a lower rate. Shortfall from market or higher rate of lost charter? Q: was the loss foreseeable within the Hadley v Baxendale approach? o HL: shortfall form market rate only. Too remote. But different reasoning o Hoffman/ Hope: assumption of responsibility test o Underlying basis: D is only liable for loss that both parties have intended that D would be (D has assumed responsibility for) o Differ from the old cases of reasonably foreseeable test o Application: loss was unpredictable/ unquantifiable= loss was beyond D’s control= D should not be liable for those loses even those loses might be reasonably contemplated o Rodger/ Hale: reasonably foreseeable o Preferred to apply the approach in the old cases (i.e. test of remoteness) o Application: extremely volatile market so not foreseeable 

Specified remedies: Other non-monetary ones e.g. injunction o Ratio o How the approach differed form the previous cases o Other possible approached to the test of remoteness

3. Mitigation

 Plaintiff under the duty to mitigate  ‘duty to mitigate’  1. P mistake reasonable steps to mitigate the loss o if fail, cannot recover for avoidable loss  Payzu v Saunders (1919)  Sellers agree to sell certain goods to purchasers on credit, only to agree to sell if purchasers pay cash on delivery, refuse and sue, purchasers want to claim difference of contract price and market price o Purchasers not titled to recover, ought to have accepted sellers offer by sale of cash on delivery o Reasonable for P to accept for mitigation of loss  2. P must not take reasonable steps to increase his loss  3. P cannot recover for avoided loss: benefits accrued as a result of breach o P’s mitigation has resulted in a benefit o That benefit should be deducted from the damages available  British Westinghouse electric (1912)  Sellers agreed to supply stream turbines, but they were less efficient that contractually stipulated (breach of contract)  Purchasers replaces turbines with more efficient ones overall savings o Court: p is not under the duty to mitigate by buying the new machine, but in doing so P saved $ ($ exceeded the cost of purchase) o Such $ is taken into account in assessing the damages available to him o Benefit was a consequence of a breach, that benefit will be taken into account to reduce the damages available

 The New Flamenco (2015)  Ship owner’s benefit> loss of hire  Ship owner sold the vessel at a high market price before the market collapse  Date of breach still have 2 years for charter party to run  Sue of profits for the remaining two year period  Whether ship owners claim would be set off by the benefits it obtained o Ship owner obtained a benefit through an action of mitigation o In an ordinary course of business, then the benefit will be taken account in assessing the business 4. Contributory Negligence  Defence of contributory negligence (tort law) appointment of loss

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Partly by the breach, partly by own negligence: P’s damages would be reduced LARCO, s21 o Does not apply to breach of contract  Barclays Bank v Fairclough Building (1995)  Bank employed D(contractors) to remove asbestos from its building  P’s premise were contaminated as a result o Rejected the argument of contributory negligence o D was under straight contractual duty to clean the roof of the building

Relevance of post-breach events When should damages be assessed?  Usually happen in anticipatory breach (before performance falls due)  Plaintiff can sue for damages after accepting the anticipatory breach  a subsidy contract due to mitigation of loss  If subsidy contract is available  we accept damages at the time performance would have be performed  Difficulty: o If the trial/ hearing takes place before the expected performance, assessment of damages can be speculative o Further complicated by frustration (post-breach event) be taken into account in assessing damages  The Mihalis Angelos (1971)  Anticipatory breach  At the time of cancellation: performance could not have been rendered (ship cannot reach the destination port)  Charter party clause: allow charterer to cancel the charter if the ship arrives late than a specified date o Damages should be assessed at the date of acceptance of the breach, but subsequent events relevant if these events might have happened’ were predestined to happen o Clear that the event will affect the contract if it was to be continued

 The Golden Victory (2007)  Dec 2001: ship owner accepted the anticipatory breach of the charterer, contract was supposed to continue until Dec 2005, but there was a breach and the ship owner accepted the breach  Date of acceptance of the breach, the parties did not foresee any cancellation of contract until 2005 (the party would otherwise continue all the way to 2005)  March 2003: before the trial take place, the war broke out  Charter party contained a ‘war cancellation’ clause  Charter party argued that they are only liable for loss of hire for 15 months instead of the entire 4 years o Issue: the event was not anticipated that it did happen (i.e. war) – should the event be taken account?

o General compensatory principle: (basis of compensation) compensation should place the injured party he would have been in if the contract had performed o Post-breach event relevant if the contingency is known to the court by the date of the trial o Not predestined to happened at the time of the breach, but held that the event should be taken into account o The dictum in Angelios not followed

 Bunge v Nidera (2015)  The golden victory not only apply to long-term contract  But can be applied into one-off single transaction Reliance loss Reliance loss Actual expenditure As if contract had not been performed

Expectation loss Expected profit As if contract had been performed

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Right to choose between reliance and expectation measures Usually plaintiff would choose expectation loss (profit> expenditure incurred)

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When? To claim reliance loss 1. Cannot prove loss of profits: eg  McRae (topic 7)  Contract of sale of shipwreck, because of speculative nature, it would be difficult to quantified the profit easier to claim reliance loss o Transaction is extremely speculative, hard to quantify the amount of profit 2. Pre-contractual expenditure o Plaintiff wanted to recover expenditure before and after the contract has been made  Angela TV v Reed (1972)  Make lots of arrangements, all these done before enter contract with leading actor, breach of contract, actor refuse to perform and P abandoned the film o Difficult to prove expectation loss, P want to recover reliance loss incurred before the contract was made before the contract o P entitled to choose, but P would be entitled to recover precontractual expenses 3. Reliance measure > expectation measure (rare)  C & P Haulage v Middleton (1983)  Contractual license to use P’s house for D’s business. P did many improvements to make it suitable

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P rejected the D out of the house, D could continue his business in D’s own house But D sued as his made improvements in P’s place Reliance loss for breach of contract o Court: D’s claim fail o Under the contract, parties argued that D was not allowed to take fixtures in the house o D entered into a bad bargain himself, the court would intervene to assist

Damages for non-precuniary (non-financial) loss  Non-financial losses are not recoverable and there are only a few exceptions 1. Loss of amenity  Ruxley Electronics and Constructions Ltd v Forsyth  Need to show object of the contract has provide relaxation/ pleasure 2. Mental distress  Farley v Skinner (2002)  P wanted to purchase a house near airport, employed D  P specifically asked D surveyor t investigate whether property was affected aircraft noise  Purchaser discover that the noise cause mental distress and sue o Need to show serious physical discomfort/ inconvenience/ mental distress o He should be entitled to damages but did so via different routes o Lord Steyn: object of the contract, to provide relaxation/ pleasure, then even though not sole objects but one of the objects, damages would be recoverable o Lord Scott: Ruxley Electronics: damages for loss of amenity awarded for ‘deprivation of a contractual benefit’ suffered by the innocents o Direct consequence of the failure to fulfill performance interest o All: aircraft noise produce inconvenience to the purchaser 3. Loss of a chance 4. Loss of reputation Liquidated damages and penalty  Agreed damages clause (fix the damages in advance)  Yes.  Agreed damages clause in the contract to fix the damages in advance  Difficulties are how much you can fix o Liquidated damages (sum will be enforced by the Court) o Penalties (cannot be enforced)  Advantage: certainty and reduce time and cost  Potential objection: parties in unequal bargaining position, one party abuse his bargaining position and award a bigger sum by the court  Court might want to produce jurisdiction  If it is a penalty, wont enforced

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Liquidated damages or penalty? o TEST: Whether the provision is genuine pre-estimate of loss o Question of construction o By reference to the time of making of a contract o Genuine pre-estimated  liquidated damages o Extravagant/ unconscionable sum compared with the loss party may suffer due to the breach penalty  Dunlop Pneumatic (1915)  Seller should not sell below the listed price  If so, there will be a 5 pound sum for every breach of contract o Liquidated damages not penalty o Applied in Phillips HK  Makdessi v Cavendish Square Holdings; Parkingeye v Beavis (2015)  Seller was bit supposed to compete with old business after his sell (non-competition clause: if sum+ P would be allowed to buy the D’s remaining share at la lower price) o Issue: whether these 2 clauses are enforceable as penalty?  ParkingEye  Mr Beavis parked his car in a private carpark seeing the sign that that ‘parking is for free for the first 2 hours, but from 3rd hour onwards, 85 pounds will be charged’ o ISSUE: whether the parking fee is enforceable as penalty? o TEST: (reformed by the UK supreme court)  Penalty doctrine only applied to secondary obligation (damages as a result of breach of contract)  Liquidated damages: test was to see whether the provision/ charge was out of the party seeking to rely on it  Broader than genuine pre-estimate or not  All legitimate interest

Action for Specific Remedies (Direct enforcement) 1. Action for an agreed price  Can sue for full contract price but no duty to mitigate  Usually related to debt  Provide pay sum that is payable, the action for that sum can be bought as a matter of cause  White and Carter v McGregpr  Place advertisement for garage company on rubbish bin mcgregor refuse to perform the contract white and Carter refused to terminate the contract and wanted the advertisement being kept on the truck o Repudiatory breach o Party can accept the repudiation or insist in performance o Sue for full mitigation sum o Why duty to mitigate the cost  Court want to encourage economic efficiency through the duty to mitigate, if fail to do so, no duty received (policy concern) o Rule: permitting the innocent party to keep the contract open o Lord Reid: Exceptions:

1. D’s cooperation is required, he will be required to claim damages only 2. If innocent party have no legitimate interest, totally unreasonable or inappropriate only remedy will only be damages  Unclear what amount to legitimate interest  Innocent party must have reasonable grounds fro keeping the contract alive  Attica Sea Carriers v Ferrostoal (1976)  Charter the ship, under the ship, charterers have repair obligations, ship was damaged and under the obligation to repair before returning. The cost of repairs 2m, but the value of the ship when repair 1m. Unrepaired ship was returned to owner. Insist the cgarterer should pay for the ship o Ship owner has no legitimate interest o Action fro agreed price not applicable unreasonable 2. Specific performance  At discretion of the court  SP: equitable order that the contract be performed/ remedy that compels a person to perform his obligations  Principles  Traditional view: o Necessary condition: damages are inadequate  Recent view: o Adequacy of damages is only one of the factors o Seemingly still the most important  All the facts are taken into consideration 

When will damages be inadequate?  GEN: Inadequate if the subject-matter is unique  Hard for P to find substitute in the market  Court:  Land is a subject matte as unique  Contract for the sale of land is generally specifically enforceable  GEN: nominal damages are inadequate  Beswick v Beswick (1968)  A contract of paying a fixed sum to a party  The nephew agreed to employ his uncle for his rest of his life for the weekly sum to his wife benefit to his wife o Lord Denning will fined for the wife o Held that the wife was entitled to enforce the contract from a third party intended to peform the contract o Doctrine of privity of contract wife cant enforce the contract of the weekly sum paid to her o The wife was entitled to sp damages were inadequate

 Where order requires constant supervision  Cooperative Insurance Society v Argyll Stares  D owned a chain of supermarket, entered into a contract with P (35 years later), D planned to open a largest store in P’s shopping mall, D was supposed to keep the market open during usual house, D decided to close down loss-making markets (including the one on shopping centre), the lease was not finished. P asked D not to close down, P wanted to obtain SP of the contract o HOL: refused o Lord Hoffman: ‘settled practice’ not to order a party to carry on a business o Not based on whether damages are adequate or not o But because it would require the Court’s constant supervision  Did not mea...