Breach of Contract and Remedies

Question 1

How might contractual obligations be brought to an end?

Answer 1

Performance – when both parties fulfil all contractual obligations.
Agreement – mutual consent to end the contract early.
Frustration – when unforeseeable events make performance impossible.
Repudiation – one party’s serious breach lets the other terminate the contract.
Rescission – undoing the contract, often when a legal defect exists (like misrepresentation).

Question 2

What is a repudiatory breach of contract?

Answer 2

A repudiatory breach is a serious breach of contract that allows the non-breaching party to terminate the contract immediately and seek damages. This type of breach occurs when one party fails to perform a fundamental term of the contract or demonstrates an intention not to fulfil their obligations.

Question 3

What is the difference between a warranty, a condition and an innominate term?

Answer 3

A condition is a fundamental term of the contract. Breaching a condition allows the non-breaching party to terminate the contract and claim damages.
A warranty is a less critical term. Breaching a warranty entitles the nonbreaching party to claim damages but not to terminate the contract.
An innominate term is a flexible term. The consequences of breaching it depend on the severity of the breach; a serious breach may allow termination, while a minor breach only warrants damages.

Question 4

What is an anticipatory breach of contract?

Answer 4

An anticipatory breach occurs when one party indicates, before the performance is due, that they will not fulfil their contractual obligations. This advance notice can be explicit (clear refusal) or implied (actions making performance impossible). When an anticipatory breach occurs, the non-breaching party can choose to treat the contract as terminated immediately and seek damages or wait to see if the breaching party ultimately performs.

Question 5

What is the main aim of an award of damages?

Answer 5

The primary aim of damages in contract law is to put the injured party in the position they would have been in had the contract been properly performed. This is typically achieved through compensatory damages intended to cover the financial loss suffered due to the breach, rather than punishing the breaching party.

Question 6

What is expectation loss? Does it differ from wasted expenditure, and how such losses are calculated?

Answer 6

Expectation loss refers to the value the injured party expected to gain from the contract’s performance. Calculating this involves estimating the difference between the contract’s promised benefit and the actual outcome.
Wasted expenditure, on the other hand, covers costs incurred in reliance on the contract that were lost due to the breach. This can include expenses spent preparing to fulfil or benefit from the contract.

Question 7

What is meant by the ‘cost of cure’ and when might it be available? How does this link in with expectation loss and wasted expenditure?

Answer 7

The cost of cure refers to the expense required to fix the breach, restoring the injured party to the position they expected from full performance. It’s generally awarded when it’s reasonable to “cure” the breach rather than provide monetary damages alone.
It’s linked to expectation loss, as both aim to give the injured party the benefit they expected. The cost of cure may also exceed the initial wasted expenditure, especially if significant work or replacement is needed.

Question 8

When should losses be generally calculated from and why? Are there any exceptions to this?

Answer 8

Losses are typically calculated from the date of the breach because it provides a clear point when the injured party’s loss occurred. This timing helps ensure fairness and predictability in assessing damages.
Exceptions can arise if calculating from the breach date would be unfair, such as when market fluctuations affect the loss amount, or if the injured party delays mitigation for legitimate reasons. Courts sometimes adjust the calculation date to reflect these factors for a fairer outcome.

Question 9

What do we mean when we say damage is “too remote”?

Answer 9

In contract law, damage is “too remote” if it’s not a foreseeable consequence of the breach. The courts apply the remoteness test to determine if the damage was reasonably within the parties’ contemplation at the time the contract was made. Only losses that are direct, foreseeable, or contemplated at contract formation are recoverable.

Question 10

How might you identify ‘normal’ and ‘abnormal’ losses?

Answer 10

Normal losses are those that naturally arise from the breach and are foreseeable under typical circumstances, so they don’t require specific knowledge between the parties. In contrast, abnormal losses are specific or unusual losses that require special circumstances. For these to be recoverable, both parties must have contemplated them at the time of the contract.

Question 11

What duty does a claimant have to mitigate his/her loss?

Answer 11

A claimant must take reasonable steps to mitigate (minimise) their losses after a breach, meaning they should avoid unnecessary expenses or additional losses where possible. If they fail to do so, the court may reduce their damages to account for the avoidable portion of the loss. This duty doesn’t require the claimant to go to extreme lengths, only reasonable efforts.

Question 12

What is non-pecuniary loss and can it be recovered in contract?

Answer 12

Non-pecuniary loss refers to damages for non-financial harm, like distress, disappointment, or loss of enjoyment. Generally, English contract law does not compensate for these types of losses. However, there are exceptions, especially if the contract’s purpose was to provide pleasure, comfort, or peace of mind (e.g., holiday or leisure contracts).

Question 13

What is the difference between a liquidated damages clause and a penalty clause?

Answer 13

A liquidated damages clause specifies a pre-agreed amount of compensation for breach, enforceable if it reasonably estimates actual losses. In contrast, a penalty clause imposes an excessive amount meant to deter breach, not to reflect actual losses, and is generally unenforceable in English law.

Question 14

What is specific performance and when is it available?

Answer 14

Specific performance is a court-ordered remedy requiring the breaching party to fulfil their contractual obligations rather than just paying damages. It’s typically available when damages are inadequate to compensate the injured party, such as in unique property or rare item transactions. However, courts may decline it for personal services or if enforcing it would be unfair.

Question 15

Schuler v Wickman [1974]

Answer 15

Facts: Schuler, a German manufacturing company, appointed Wickman as their exclusive distributor in the UK for a set period, with a clause that required Wickman to make a minimum number of sales visits to potential customers. The contract labelled this clause a “condition.” When Wickman missed some visits, Schuler terminated the contract, claiming breach of this “condition.”
Issue: The core issue was whether the term labelled as a “condition” should automatically allow termination if breached or if the term’s purpose and surrounding circumstances could change this interpretation.

KEY PRINCIPLES:
This case clarified that labelling a term as a “condition” in a contract does not conclusively make it a condition in the strict legal sense. Courts can consider the nature, intent, and practicality of the term when deciding if it entitles a party to terminate.

Question 16

Hong Kong Fir v Kawasaki Kisen Kaisha [1962]

Answer 16

Facts: In this case, Hong Kong Fir Shipping Co. chartered a ship to Kawasaki for a two-year period. Under the charter party agreement, the ship was to be “in every way fitted for ordinary cargo service.” However, the ship was not seaworthy and experienced delays due to an incompetent engine room crew and mechanical issues, leading to a 20-week delay in service.
Issue: Kawasaki sought to terminate the contract, arguing that Hong Kong Fir’s failure to provide a seaworthy vessel was a breach of condition, which would allow immediate termination. The issue before the court was whether the term regarding seaworthiness was a condition (allowing termination) or a warranty (allowing only damages).

KEY PRINCIPLES:
The case established that when dealing with innominate terms, courts should examine the impact of the breach. If the breach substantially deprives the injured party of the contract’s intended benefit, termination may be justified; otherwise, only damages are appropriate.

Question 17

Ruxley Electronics and Construction Ltd v Forsyth [1996]

Answer 17

Facts: Ruxley Electronics was hired by Forsyth to construct a swimming pool to specific dimensions. The contract specified a depth of seven feet and six inches, but the completed pool was only six feet and nine inches deep. Although the pool was safe and suitable for swimming, Forsyth argued it did not meet his specifications and claimed damages for the cost of rebuilding the pool to the correct depth, which would have been substantial.
Issue: The main issue was whether Forsyth was entitled to cost of cure damages (the cost to rebuild the pool to the specified depth) despite the lack of significant functional difference. Alternatively, should he be awarded loss of amenity damages for not getting exactly what he contracted for?

KEY PRINCIPLES:
This case established that damages should be reasonable and proportionate to the actual loss or inconvenience suffered. The House of Lords emphasised that cost of cure damages are only appropriate if the expense is reasonable and if the injured party genuinely intends to rectify the breach. When rectification is unnecessary or disproportionate, loss of amenity damages may be awarded instead.

Question 18

Hadley v Baxendale [1854]

Answer 18

Facts: Hadley, a mill owner, contracted Baxendale, a courier, to transport a broken crankshaft to be used as a model for a replacement. Baxendale delayed the delivery, and as a result, Hadley’s mill remained inoperative for longer than expected, causing him a loss of profit. Hadley sued Baxendale, claiming damages for this lost profit due to the delayed delivery.
Issue: The issue was whether Baxendale was liable for Hadley’s lost profits. Specifically, should Baxendale have foreseen that a delay in delivery would cause Hadley’s mill to be non-operational, leading to a loss of profit?

KEY PRINCIPLES:
Baxendale was not liable for the lost profits because this loss was not foreseeable in the normal course of events, nor was Baxendale informed that the mill’s operation depended on the crankshaft’s timely delivery.
The court established two key rules for determining whether damages are too remote to be recovered:
Damages that arise naturally from the breach, in the ordinary course of things, are recoverable.
Unusual or exceptional losses are only recoverable if the special circumstances causing these losses were communicated to, or known by, the breaching party at the time the contract was formed.
(Key Principle): The case set the remoteness of damages rule, requiring that damages must be foreseeable to be recoverable. Foreseeability is determined by ordinary outcomes or specific knowledge shared between the parties.

Question 19

Farley v Skinner [2001]

Answer 19

Facts: Mr. Farley hired Mr. Skinner, a surveyor, to inspect a property near Gatwick Airport to ensure it would be peaceful and free from significant aircraft noise. Skinner reported that noise would not be a major issue, but after purchasing the property, Farley found that aircraft noise was indeed a problem, causing him substantial annoyance. Farley claimed damages for the loss of enjoyment due to the incorrect advice.
Issue: The central question was whether Farley could claim damages for non-pecuniary losses (i.e., the loss of enjoyment and peace) resulting from Skinner’s negligent misstatement, given that financial loss was minimal.

KEY PRINCIPLES:
Farley v Skinner established that non-pecuniary damages, such as loss of enjoyment or amenity, can be awarded in contract cases where:
The contract’s purpose includes providing enjoyment, comfort, or peace of mind.
The breach causes direct inconvenience, distress, or disappointment that undermines that purpose.
This case reinforced exceptions to the general rule against awarding non-pecuniary damages, particularly where personal enjoyment or satisfaction is a contract’s primary intent.