8. Damages

Question 1

When can an innocent party claim damages from the other contracting party?

Answer 1

If the other party breaches ANY term of the contract

Question 2

Two ways of measuring the appropriate level of damages

Answer 2

1. Expectation Loss
2. Reliance Loss

Question 3

Expectation Loss

Answer 3

Claimant is compensated for their lost expectation (benefit which the claimant would have obtained had contract been properly performed) when goods turn out to be fake, when good are not delivered, when goods are not accepted

Question 4

Reliance loss

Answer 4

When an expectation cannot be made (forecasted future success, e.g.), will look at cost of ‘getting to that point’

Question 5

Can a claimant get damages for mental distress and disappointment?

Answer 5

Generally, no, but when the main objects of the contract is to have peace of mind (ie. hospitality and holiday contracts) - potentially

Question 6

Remoteness of Damage rule: Contractual Damages

Answer 6

A party will not be awarded damages for loss which is too remote a consequence of the breach. Remoteness means that the loss must have been within the reasonable contemplation of the parties at the time of the contract as being a probable result of the breach; Hadley v Baxendale (1854)

Question 7

Two limbs of remoteness of damage rule

Answer 7

Limb 1: Loss which arises naturally from the breach will normally be within the parties’ reasonable contemplation
Limb 2: Unusual loss will be within the parties’ reasonable contemplation only if the special circumstances which give rise to the loss are known to both the parties at the time the contract is made

Question 8

How might damages be limited?

Answer 8

1. Failure to mitigate by claimant
2. If breach is negligent, contributory negligence
3. Specified Damages and Penalty Clauses

Question 9

Specified (liquidated/agreed) Damages Clause

Answer 9

genuine attempt to pre-estimate the loss which is likely to be caused by the breach. Is binding, and the sum specified will be paid regardless of the actual loss. Usual rules of measure of damages (remoteness, mitigation) do not apply.

Question 10

Penalty Damage Clause

Answer 10

• attempt to put pressure on a party to perform the contract, unenforceable. Court can assess damages in usual way and use principles
  
  • Claimant may want to argue clause is a penalty if their loss is greater than the amount stated (therefore, it would be unenforceable)

Question 11

Action for an agreed sum

Answer 11

Straightforward claim for an amount due when one party has not met the obligation that they pay a definite sum of money to the other

Question 12

Conditions to pursue action for an agreed sum?

Answer 12

The duty to pay must have arisen (ie. If specified date by which the payment reaches, this must have passed )

Question 13

When does the right to terminate the contract arise?

Answer 13

1) Breach of condition (particularly important term)

2) Very serious breach of an innominate term (repudiatory breaches)

Question 14

If one party breaches a condition of the contract, must the innocent party terminate it?

Answer 14

No, they have a choice to affirm the contract or discharge it

Question 15

If an innocent party opts to terminate a contract, what is the effect?

Answer 15

Future obligations will be discharged. Innocent party can sue for damages or loss suffered. Must communicate to other party

Question 16

Order for Specific Performance

Answer 16

Order of the court which requires party to perform its contractual obligations

Question 17

Consequence of a party failing to comply with an order for specific performance

Answer 17

Contempt of court

Question 18

Can an individual pursue both specific performance and damages?

Answer 18

Yes

Question 19

Restrictions on the availability of specific performance as a remedy

Answer 19

1. Normally only awarded if damages are inadequate
2. Only granted if it is just and equitable to do so
3. rarely used for service contracts

Question 20

When are injunctions not an appropriate remedy?

Answer 20

1. If it would compel someone to do something they cannot be ordered to do in specific performance (like employment)
2. If the court believes party does not have clean hands etc. (other equitable maxims)

Question 21

Aim of Restitution

Answer 21

To prevent one party being unjustly enriched at the expense of the other

Question 22

Two potential claims in restitution

Answer 22

1. Total failure of consideration (recovery of money)
2. Compensation for work done or goods supplied (Quantum Meruit)

Question 23

How are restitutionary damages determined

Answer 23

By assessing the ‘gain made’ by the defendant

Question 24

Non-Pecuniary Losses: what are they?

Answer 24

Things which cannot be assessed in financial terms easily

Question 25

Pecuniary Loss: Examples

Answer 25

Loss which translates into financial terms
- eg. amount of lost profits or amount of damage to a property (determines the award of damages easily)

Question 26

Remoteness of Damage

Answer 26

Damage must have been in the reasonable contemplation of the parties at the time of the contract as being a likely consequence of the breach
- for those which would not be inevitable losses in the event of breach, whether this loss is too remote will hinge on what the defendant actually knew at the time of the contract

Question 27

If physical injury is not too remote (is in the contemplation of the parties), need the extent of the injury also have been anticipated

Answer 27

No, the extent of the loss is irrelevant

Question 28

Mitigation of loss: How do the legal / evidential burdens operate

Answer 28

1. Burden of showing the claimant has failed to mitigate is placed on defendant

Question 29

If a claimant has tried (and failed) to mitigate their loss, can they claim for the full amount?

Answer 29

Yes, they must have taken reasonable steps to mitigate though - this will be a question of fact for the court

Question 30

Different methods of awarding damages?

Answer 30

1. Consumer Surplus / loss of amenity
2. Difference in value
3. Cost of Cure
4. Distress and disappointment
5. Nominal

Question 31

When will the court award consumer surplus damages / loss of amenity damages?

Answer 31

If there is no difference in value but the cost of cure is out of all proportion

Question 32

What are nominal damages, when would they be awarded?

Answer 32

Damages awarded when the claimant has not suffered any loss, but the court wants to acknowledge that the contract has been broken (will be a small sum such as 10GBP)