1.5 - Remedies for Breach of Contract

Question 1

What are the different remedies that are available for a breach of contract?

Answer 1

At common law:
Damages, Repudiation

Under the contract: Liquidated damages (if provided), a claim under a guarantee or indemnity (if provided)

At equity:
Specific performance, injunction, restitution

Question 2

What is the usual standard for measure of damages?

Answer 2

Damages are financial compensation for breach of contract. The usual standard is expectation loss.

The purpose of damages in contract is to place the claimant in the position they would have been in had the contract been performed properly.

Question 3

What is reliance loss?

Answer 3

A type of damages - In rare cases, damages may place the claimant in the position they would have been in had the contract never been entered into.

Question 4

When can damages be awarded as a remedy?

Answer 4

For losses flowing from the breach

When assessing damages, the courts will only compensate the claimant for the losses which follow from the breach.

This means that a defendant will only be liable for those losses which are not too remote from the breach.

Question 5

How can damages be recovered for breach of contract?

Answer 5

Claimant must prove causation (factual and legal causation, remoteness of loss)

Question 6

What is the rule for remoteness in assessing breach of contract?

Answer 6

Losses will not be too remote if they are such as may:

• fairly and reasonably be considered as arising naturally or
• reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as a probable result of the breach of it

Question 7

What is the difference between normal and abnormal loss?

Answer 7

Normal losses - Losses arising naturally are inevitably within the party’s reasonable contemplation.

Abnormal losses -Will be within the party’s reasonable contemplation only if the special circumstances giving rise to the loss were known to both parties at the time of the contract. [special circumstances known to both parties]

Question 8

How are damages measured?

Answer 8

Normal standard - expectation loss

When the court is assessing how much the damages should be, it will look at what the claimant should have received if the contract had been properly performed.

Question 9

What is meant by ‘cost of cure’ as part of expectation loss?

Answer 9

[Cost of curing a defect]

In relation to cost of cure, this will be assessed if goods delivered or work carried out was defective.

The courts will calculate how much it costs to put things right to cure the defective performance. But this is only recoverable when it is reasonable to recover on this basis.

Remember this is about putting things right, which does not always mean completely rebuilding a defective structure, for example.

Question 10

What is meant by ‘reliance loss’ as a measure of damages?

Answer 10

[Cost for expenses occurred in reliance on the contract - wasted expenditure]

Reliance
loss is assessed differently. These are damages which place the claimant in a position they would have been in had the contract never been entered into.

This is designed to compensate a party for expenses incurred in reliance on the contract. For example, if there are costs of preparation prior to the contract taking place, it is possible to recover any wasted expenditure.

Question 11

What is the rule with ‘bad bargains’ in contract law?

Answer 11

If a party has made a bad bargain, the principal of caveat emptor applies because the courts do not protect those who make a bad bargain.

It is not possible to recover in this situation because it would put the injured party in a better position than if the contract had been performed – and this would be considered to be unjust enrichment.

Question 12

What is meant by ‘loss of a chance’ as a measure of damages?

Answer 12

It is possible to claim compensation for the loss of a chance if the loss chance is quantifiable in monetary terms and the event would most likely have happened.

Question 13

What is the rule for damages for disappointment / injured feelings?

Answer 13

The courts seek to place the injured party in the position they would have been in had the contract been properly performed. Consequently, damages for disappointment or injured feelings are not usually recoverable.

Exception - damages for non-financial loss
However, if the object of the contract is the provision of a service designed to lead the claimant to expect a happy or pleasurable experience or greater peace of mind, then an award of damages may be granted to reflect the loss of that expectation.

Question 14

What is the rule with damages for loss caused to third parties?

Answer 14

If the claim is being made for damages for loss caused to a third party, it is usual to only recover nominal damages.

The claimant can only recover for their own loss and not that of the parties.

However, in the case of, for example, a holiday booking made by one member of the family on behalf the rest, it is possible to recover for not only for your own disappointment but your disappointment caused by the disappointment of your family.

Question 15

What is the principle that arises from mitigation of loss?

Answer 15

There is a duty to mitigate loss where it is reasonable to do so.

The effect of failing to do so means that there will be no compensation for those losses which could have been avoided if reasonable steps had been taken.

The burden of proof that the claimant has failed to take reasonable steps to mitigate loss rests with defendant.

Question 16

What is the rule with mitigation of loss and anticipatory breach?

Answer 16

Where there is an anticipatory breach, if the claimant accepts the breach, they have a duty to mitigate.

If they do not accept the breach, there is no such duty.

Question 17

How are liquidated damages clauses and penalty clauses determined in a contract?

Answer 17

An example of a liquidated damages clause is that a commercial contract may say that a certain sum must be paid for a specified breach; for example, £100 to be paid for each day of delay in completing building works.

The court will enforce such a clause only if it considers that the detriment imposed by the clause upon the defaulting party is proportionate to a legitimate interest that the innocent party is seeking to protect, otherwise the court will declare that the clause is an unenforceable penalty and ignore it.

Question 18

What is an indemnity clause?

Answer 18

An indemnity clause means that a party will reimburse the other in the event of loss arising under the contract.

Question 19

What is a guarantee and how should it be evidenced?

Answer 19

A guarantee is a contract whereby the guarantor agrees to pay if a third party fails to meet their obligations under a contract – for example, a parent guaranteeing their adult child’s repayments on a car. If the child fails to pay (primary obligation), then the parent will be liable for that debt (secondary obligation).

A guarantee needs to be evidenced in writing under the Statute of Frauds 1677 s 4.

Question 20

What are examples of equitable remedies?

Answer 20

There are various equitable remedies which are available at the discretion of the court. These are specific performance, injunction, rescission and rectification.

Rescission and rectification - in relation to misrepresentation

N.B: You cannot get an equitable remedy as of right

Question 21

What is specific performance as an equitable remedy?

Answer 21

Specific performance is an order which compels the party in breach to perform their contractual obligations.

Note the following below:
1) If damages are deemed to be adequate, then specific performance will not be granted.

2) Specific performance will also not be granted in relation to a contract of employment, as the courts will not compel someone to work in a situation where obviously the mutual obligations of respect no longer exist.

3) It is possible for specific performance to be granted for the benefit of a third party.

Question 22

What is an injunction as an equitable remedy?

Answer 22

An injunction is usually an order which tells somebody to stop doing something. However, an injunction can also be used to compel someone to do something.

Injunctions can be used to prevent somebody taking up employment outside an existing contract or to stop the building of a structure.

Question 23

What is restitution as an equitable remedy?

Answer 23

Restitution is available where there is no contract either because:
- no contract has been made,
- the contract has been discharged or
- the contract is void.

Restitution is a remedy that restores the claimant to the position it was in before the defendant had been unjustly enriched at its expense. Restitution ensures that a party is not unjustly enriched by keeping a valuable benefit where a contract has not been performed.

Question 24

Explain expectation loss as a measure of damages and the three methods of calculation?

Answer 24

Expectation loss - putting the injured party in the position that he would have been in if the contract had been performed.

Three different ways:

(1) Loss of expectation: loss of profit
(Compensating injured party for profit he lost as a result of the breach)

(2) Loss of expectation: difference in value

(Compensating injured party if he has received something that is less valuable than described in the contract)

(3) Loss of expectation: cost of cure
(Awarding damages to cure the breach of contract - only when it is a reasonable option)

Question 25

What are the factors that can limit a person’s ability to claim damages?

Answer 25

• Causation
• Contributory Negligence
• Remoteness
• Mitigation

Question 26

Explain the concept of restitution as an equitable remedy and its link with unjust enrichment

Answer 26

Restitution is a remedy based upon the principle of unjust enrichment.

For the claimant to bring a restitutionary claim, the defendant must have been unjustly enriched at the expense of the claimant. A restitutionary remedy seeks to reverse that unjust enrichment, by restoring the relevant benefit or enrichment to the claimant.

Question 27

Explain the elements present within a claim for unjust enrichment to allow for restitution as a remedy

Answer 27

English courts have recognised that there are four steps required to establish a claim in unjust enrichment. If the following elements are satisfied, a claimant has a prima facie right to restitution:

1. The defendant has been enriched;
2. This enrichment is at the claimant’s expense;
3. This enrichment at the claimant’s expense is unjust; and
4. There is no applicable bar or defence.

Question 28

When will a restitutionary claim normally apply and under what grounds?

Answer 28

Restitution for unjust enrichment is usually only applicable where a contractual claim would be ineffective by reason of discharge for breach or the contract itself is frustrated, void, unenforceable, or incomplete.

Recognised grounds of restitution include mistake, duress, undue influence and failure of consideration.

Question 29

What is the rule with damages for non-financial loss?

Answer 29

As a general rule, a person cannot recover damages to compensate him for mental distress or loss of enjoyment. However, note that exceptions apply.

Question 30

What are the exceptions that can allow for damages re non-financial loss?

Answer 30

1) Damages for mental distress
- Physical inconvenience

2) Damages for loss of enjoyment
- Where the major purpose of the contract is to bring pleasure, relaxation, peace of mind, or freedom from molestation. (E.g holidays, cosmetic surgery)

3) Damages for loss of reputation