2. Remedies Flashcards
REMEDIES: CATEGORISATION
CONDITION: an important term going to the root of the contract (Poussard v Spiers)
Rights: IMMEDIATE right of election, even if breach is anticipatory, to (Hochester v De La Tour):
- affirm, continue and claim damages, OR
- terminate and claim damages
WARRANTY: a less important term than a condition which does NOT go to the root of the contract (Bettini v Gye)
Rights: the right to claim damages ONLY. Primary contractual obligations remain in full force and effect.
- C must take any R steps to reduce any losses stemming form the breach.
INNOMINATE TERM: a term not classified as a condition or a warranty when the contract was formed
Rights: the court will determine whether the breach deprives C of ‘substantially the whole’ benefit of the contract (Hong Kong Fir v Kawasaki)
- if YES, treated like condition, have right of election
- if NO, treated like warranty, damages only.
Remedies: LIQUIDATED DAMAGES CLAUSE
A valid liquidated damages clause must meet the REQ of:
- INCORPORATION (same as for ExC)
- CONSTRUCTION
- STATUTORY CONTROLS
Remedies: LDC - CONSTRUCTION
LDC: a clause stipulating a fixed amount of damages payable on breach which is designed to compensate the innocent party for a breach.
EFFECT: the clause will be valid C will be entitled to the amount of damages stipulated by the clause
PENALTY CLAUSE: a clause which sets a fixed amount of damages to be paid on breach which is out of all PROPORTION to any loss the innocent party could incur as a result of the breach and is designed to punish the party in breach.
EFFECT: the clause will be void and the court may substitute a measure of unliquidated damages instead.
To determine whether a clause is an LDC or PC:
TEST: will be a PC if it is a SECONDARY obligation which imposes a detriment on the party in breach which is out of all proportion to any legitimate interest of the innocent party in the enforcement of the PRIMARY obligation i.e. a main purpose of the contract (Cavendish Square Holding v El Makdessi; ParkingEye v Beavis)
- The innocent party’s interest should be in performance or some alternative, not simply punishing the other party.
- a clause need NOT be a pre-estimate of loss to be an LDC.
- less likely to find a PC where parties are properly advised and have comparable bargaining power, in such cases the clause will be presumed legitimate.
- that a clause is designed to deter from breach will not AUTO make it a PC
- a clause imposing a penalty as a consequence of breach which is exorbitant or unconscionable will be a PC.
- PCs are NOT limited to payment of money, i.e. it could relieve the innocent party from its own obligation, or allow them security over the other’s assets.
- clause can be valid even where innocent party suffers no loss as a result of the breach.
Remedies: LDC - STATUTORY CONTROLS
Apply UCTA or UTCCR if relevant.
Remedies: MEASURE OF UNLIQUIDATED DAMAGES
There are three measures of ULD:
- EXPECTATION INTEREST
- RELIANCE INTEREST
- RESTITUTION INTEREST
General Principles
- Damages are awarded to compensate, not punish.
- EInt is by far the MOST COMMON measure of damages
- RelInt is generally appropriate for losses incurred BEFORE the breach and EInt for losses incurred AFTER the breach.
- C has an ‘unfettered choice’ between claiming RelInt or EInt, but MUST choose between the two, can’t claim both (Anglia Television v Reed)
- where it proves difficult to calculate the loss, claiming RelInt is more appropriate.
- in majority of cases, ‘cost of cure’ and ‘diminution in value’ calculations result in the same outcome, putting C in the position they would have been in had the contract been properly performed (Robinson v Harman)
Remedies: M of UD - EXPECTATION INTEREST
Aim: to put C in position they would be in if contract had been properly performed (Robinson v Harman; The Golden Victory)
Calculation: the position C would have been in minus the position C is actually in
- if not possible to calculate the sum as above, one of the alternative measures should be used (Ruxley Electronics v Forsyth):
- COST OF CURE
— Calculation: the cost of required remedial/substitute work to properly perform the contract
— commonly used for defective works (Birse Construction v Eastern Telegraph)
- DIMINUTION IN VALUE
— Calculation: the difference between the actual performance and the performance promised in the contract.
— Used when the cost of cure is DISPROPORTIONATE to value of remedying the defect.
- LOSS OF AMENITY
— Used where cost of cure is disproportionate, diminution of value is inapplicable, the loss is not financial but still important to the customer
— is generally rare and unusual in commercial contracts (Regus v Epcot)
— C must have acted R in order to claim it (McGlinn v Waltham)
— EGs: (Farley v Skinner (No.2); Ruxley v Forsyth)
Remedies: M of UD - EXPECTATION INTEREST (EXTRA RULES)
Damages for Mental Distress
GR: damages cannot be claimed for mental distress (Addis v Gramophone; Johnson v Unisys) and NEVER in a commercial contract (Hayes v Dodd)
- EX 1: where the purpose of the contract is pleasure, relaxation and peace (Jarvis v Swan Tours)
— the relaxation part need only be a major object of the contract, does not have to be its whole purpose (Farley v Skinner (No. 2))
Loss of Chance
GR: Damages cannot be claimed for “loss of chance”
- EX 1: situations where the lost chance is (Chaplin v Hicks)
— quantifiable in monetary terms, AND
— there is a real and substantial chance that C may have realised the opportunity.
Loss of Reputation
- GR: damages cannot be claimed for loss of reputation
- EX 1: situations where the loss of reputation stems from the breach of an implied term of trust and confidence (Malik v BCCI)
Remedies: M of UD - RELIANCE INTEREST
AIM: to compensate expenses incurred by C in reliance on the contract, placing them in the position they would have been if the contract had NEVER BEEN ENTERED INTO (Anglia Television v Reed)
- Appropriate for losses incurred BEFORE the breach, including pre-contractual expenses.
Used where EInt is difficult to prove or too speculative (McRae v Commonwealth Disposals).
ONLY available where C would have been able to claim expenses has the contract been properly performed (CandP Haulage v Middleton)
Burden of Proof: on D to prove that C would NOT have recovered their loss if contract had been properly performed (The Mamola Challenger)
Remedies: M of UD - RESTITUTION INTEREST
AIM: to deprive D of any profits resulting from their breach, a ‘disgorgement of profits’ (AG v Blake; Esso v Niad)
TEST (AG v Blake), C must show that:
- it is in their legitimate interest to deprive D of profits (The Sine Nomine)
- other remedies are INADEQUATE (The Sine Nomine), AND
- EXCEPTIONAL CIRCUMSTANCES exist (Experience Hendrix v PPX; WWF v WWE)
— an efficient breach does NOT constitute exceptional circumstances. An efficient breach is where it would be less economically damaging to breach the contract and pay damages than it would be to perform the contract.
Remedies: OTHER REMEDIES
QUANTUM MERUIT (Sumpter v Hedges)
- a claim for R compensation. Designed to prevent the unjust enrichment of the other party.
- C may be able to claim a R sum when he has performed a service which has provided D with a valuable benefit for which D has voluntarily remunerated C.
- GR: C has an unfettered choice as to whether seek quantum meruit or damages in contract, provided that they have performed a SUBSTANTIAL part of their obligations.
Remedies: LIMITING FACTORS
There are four potential limiting factors:
- CAUSATION
- REMOTENESS
- MITIGATION
- CONTRIBUTORY NEGLIGENCE
Remedies: Limiting Factors - CAUSATION
In order to recover damages, a CAUSAL LINK must be shown to exist between D’s breach and C’s loss.
TEST: C must chow that D’s breach was a ‘dominant’ or ‘effective’ cause of the loss (Galoo v Bright)
- a common sense approach will be taken by the court here
NAI: an intervening act that was unlikely to happen will break the legal chain of causation (Monarch Steamship v A/B KArlshamms; Lambert v Lewis)
Remedies: Limiting Factors - REMOTENESS
C may claim all losses stemming from (Hadley v Baxendale):
- IMPUTED KNOWLEDGE: losses arising naturally from breach, according to the usual course of things (direct loss)
- – loss will arise naturally if it was “not unlikely” to occur (The Heron II). Means having a “very substantial degree of probability” of occurring (Hadley v Baxendale per Lord Reid)
- ACTUAL KNOWLEDGE: loss R supposed to have been in both parties’ contemplation as the possible result of the breach (indirect/consequential loss)
- – to be recoverable both parties must have contemplated the loss as being “not unlikely” (The Heron II)
- – Special or unusual contracts will NOT be considered to arise in the usual course of things or be in both parties’ R contemplation (Victoria Laundry v Newman Industries)
- – Knowledge of the significance of time in a particular process of concrete pouring was TOO REMOTE to be considered to be in both parties’ contemplation (Balfour Beatty v Scottish Power)
- The state of knowledge is judged AT THE TIME OF CONTRACTING (Jackson v Royal Bank)
Remedies: Limiting Factors - MITIGATION
GR: C has no duty to mitigate their loss, but will not be able to claim losses arising from their failure to mitigate.
- C need only take R steps to mitigate (British Westinghouse v Underground Electric)
- – R steps may involve accepting D’s breach or offer of substitute performance (Payzu v Saunders)
- – a mitigating party’s steps to mitigate “ought not to be weighed in nice scales” (Banco de Portugal v Waterlow)
- – a mitigating party is NOT expected to embark on litigation (Pilkington v Wood)
Remedies: Limiting Factors - CONTRIBUTORY NEGLIGENCE
D may raise the defence of contrib neg under the LR(CN)A 1945 where there is (Vesta v Butcher):
- a breach of contractual duty, AND
- the breach is also a tort
IS NOT AVAILABLE when purely a contractual breach.
“the very imposition of strict liability on D is to my mind inconsistent with an apportionment of the loss” (Barclay’s Bank v Fairclough per Lord Simon)
