Contract Damages

Question 1

What case contains the basic statement of the expectation measure rule?

Answer 1

Robinson v Harman:

“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed.”

Question 2

When the defendant has a discretion in conferring upon P a benefit, when will P be able to claim?

Answer 2

Lavarack: when D has two options, the court presumes it will always take the least onerous one.

Bmibaby: however, where D has a single obligation with a discretion in how D carries it out, the court tries to ascertain the counterfacutal of how D probably would have acted.

Question 3

Can you claim for a loss of chance, even where the possible benefit depended on the discretion of a third party?

Answer 3

Chaplin v Hicks: yes, you can. Being put into a slightly higher ring of odds is a real benefit and it would be unfair to deprive C of it. Here, C lost the 1/4 chance she had after getting through the much more onerous qualifying rounds.

Allied Maples: nonetheless, the chance of the gain must be ‘substantial’.

Jackson v RBS: also note, that when claiming future profits from a business relationship that the chance of the business petering out will also be deducted.

Question 4

Can you claim for your reliance loss? If you do, will you be barred from other measures of damages?

Answer 4

Yes, as laid out in Anglia Tv v Reed, where the court found that a tv agency could claim for: expenditure after the contract, and expenditure before, provided it was reasonably foreseeable the TV company would have spent it so.

Note that the claimant can be defeated if the defendant is able to prove the claimant would always have made a loss. In essence, the claimant is trying to argue it would have at least made enough money to break even, though the defendant has to disprove this.

Question 5

What happens if the claimant is able to successively mitigate its loss as a consequence of the breach?

Answer 5

The mamola challenger: if the claimant is able to make up its losses then the defendant does not have to pay. In this instance, although the charterer repudiated the contract, the owner was able to earn even more because the value of the market rose.

Question 6

If the claimant has not suffered any reduction in value of their property/as a result of non-performance, what remedy can they get to ensure the contract is carried out?

Answer 6

Radford v DeFroberville: the remedy is the ‘cost of cure’ measure. Saliant factors include the proportionality between the actual loss and the cost of remedying (just how deviant is the claimant?), will the claimant actually carry out the repairs (supported by a formal undertaking)?

Question 7

What happens if the cost of cure is grossly disproportionate to the actual loss? Will the claimant get the full value, nothing at all, or a middle award?

Answer 7

Ruxley v Forsyth: the claimant will get the amenity loss when the cost of cure is grossly disproportionate. It is not clear what the amenity value actually represents

Question 8

What is the central authority for factual causation in contractual damages cases?

Answer 8

Galloo v Bright: the breach of the contract must be the effective cause of the losss. There will be no damages if it merely provided the effective cause of the damages. A negligent audit of the claimant companies would not have prevented them going bust.

Question 9

When will contributory negligence apply?

Answer 9

Vesta v Butcher: when there is (A) a concurrent duty in tort)

Question 10

What needs to be foreseen for remoteness?

Answer 10

Per Parsons, all that needs to be foreseen is a serious risk that the type of harm could eventuate. In this instance, although the deaths of pigs fed mouldy nuts was unforeseeable, the type of harm (illness) was a serious possibility.

However, there seems to be an exception (Andrews) for exceptionally high profits in Victoria laundry. In this case, the extremely lucrative contracts of a dyeing company were not taken into account because the defendant lacked special knowledge, even though D could foresee some commercial loss. Compare to Brown v KMR, where the court found the extent of money lost did not need to be foreseen.

Question 11

What is the traditional test for remoteness regarding contractual damages?

Answer 11

Hadley v Baxendale: the test of remoteness is twofold, containing an objective floor, taking into account the positions of the parties (reasonable engineer) and the subjective knowledge. The question is whether it would be reasonably foreseeable there was a serious risk of the loss occurring. On the facts, carriers in general did not suspect business losses for their delays and the defendant lacked any special knowledge. See qualifications of this test in: The Achilleas, Victoria Laundry, and Parsons cases.

Question 12

After establishing that there is a serious possibility of the type of harm, are there any other factors which can reduce liability?

Answer 12

Transfield: yes, even if the type of harm is foreseeable it may be that the assumption of the risk for this harm by the defendant was not.

However, see the subsequent case

Question 13

What is the likelihood required for contractual foresight in the remoteness test?

Answer 13

The Heron II: the requirement is a ‘serious possibility’ justified on the basis that if the claimant wanted additional protection then they could have contracted for it.

Question 14

What is the leading case on foreseeability and how does its test apply?

Answer 14

Transfield: there is the majority test, which simply found the follow-on contract and the exceptional losses were not foreseeable, and the other majority test, that the scope of duty did not include the risk. SAAMCO (Lord Hoffman’s personal theory is getting applied here).

Supershield: nature and object of business transaction is relevant.

Question 15

How often does the wider Transfield test apply?

Answer 15

Sylvia: the test is relatively rare. The test is sumamrised as stating there might be unusual cases where surrounding circumsyances or general understanding in the releant market may make it necessary to check for the scope of duty.

However, before the scope of duty test is resorted to we need to check whether it iwll lead to an unquantifiable, unpredictable, uncontrollable, or disproportionate liability. Or where it would contradict market understandings.

Question 16

What time is taken for the breach and what facts are taken into account?

Answer 16

Golden Victory: the point in time at which the damages are taken is the breach date. However, if later events occur these can also be looked at and this can be used to quantify damages.

So damages for breaching a contract with 4 years left to go with a war-break clause could be reduced to 2 years using knowledge the Iraq war broke out 2 years in.

Question 17

Where does the burden of proof lie for mitigation, and how heavy is the burden?

Answer 17

Lombard: The burden of proof is on the defendant and is relatively easy to discharge on the basis that the defendant is the wrongdoer.

Question 18

Will the claimant be requited to engage in litigation to mitigate their losses?

Answer 18

Horsfall: yes, if the litigation is exceptionally predictable and risk free. Pilkington v Woods: otherwise no.

Question 19

Does the duty to mitigate require the claimant to look for a new job?

Answer 19

Yes: Shindler v Raincoat co, but not if it involves the indignity of a demotion.

Question 20

Does the duty to mitigate require the claimant to accept a repudation by the other party?

Answer 20

Yes, in Soholt the refusal to pay when the price of their goods had increased was found to be a failure to mitigate. They should have accepted the repudation of the defendant .

Likewise, in Payzu the court found the claimant should just have accepted the defendant’s breach because the value of the goods they were buying had risen.

Question 21

Will the claimant be able to claim if it is aware of the breach but fails to take proper precautions?

Answer 21

Resibel: yes, where the defendant supplied a defective bottle sealing machine and the claimant knew this, failing to check it properly and use it anyway was a failure to mitigate damages (when they exploded).

Question 22

What happens if the claimant’s attempts to mitigate the loss are unsuccessful and increase the cost to the defendant?

Answer 22

If the claimant fucks up and their attempts to mitigate the loss actually increase the loss, then the defendant has to pay provided the attempts were reasonable (Esso Petroleum Co v Mardon).

However, in the ‘Borag’ it was found taking a high-interest loan for mitigation was not a valid action.

Question 23

What happens when the claimant is successful in fully mitigating their loss, and what steps are counted for mitigation rather than independent profit?

Answer 23

British Westinghouse Electric co v Underground Electric Railways: C could claim for pre-replacement period of loss when using defective turbines, but after replacing them and making lots of profit they had suffered no more loss as they had offset any damages (more profitable than if the turbines had been non-defective).

The test is whether the act formed ‘part of the ocntinuous dealign with the situation in which they found themselves, and was not an independent or disconnected transaction’. It would be different if it was merely historically connected.

Question 24

What happens when the defendant is substantially more succesful as a consequence of the breach?

Answer 24

Lavarack: no damages, but the disconnected profit made from investements which wouldn’t ordinarily have been made was treated as collateral and thus would not offset any losses.

Hussey: when there is susbtantial deviation from the typical use or a substantial interval then the court is more likely to find this is not mitigation. For example, here it amounted to totally changing the use of the land (revedelopment rather than residence). The court also has regard to ingenuity and effort, and whether as a matter of commercial prudence it would be an appropriate action (Westinghouse).

Question 25

What happens when the claimant gets a better product by mitigating?

Answer 25

Bacon v Copper: where the claimant gets a better item in carrying out a cost of cure award the court will not deduct this improvement. Here, using the cost of cure the claimant was going to buy a tool with a longer life but the courts did not deduct this.