Contract - Damages and Other Remedies (4) Flashcards
How are damages determined?
Damages: Damages are the primary means of compensating loss, i.e. money. They are not designed to be penal.
(1) Substantial: Generally, damages are ‘substantial’, designed to place the claimant in the position they would have been if not for breach.
(2) Nominal: Rarely, damages are ‘nominal’, a low sum designed to recognise a breach of contract but wherein the claimant has not suffered tangible loss (Obagi v Stanborough).
Determining Loss
Determining Loss: Claimants have the burden to prove that breach caused them loss on a balance of probabilities. There are two types of recoverable loss. The former is more common:
(1) Expectation Loss: This is the difference between the Claimant’s position after breach, and the position they should have been in. It is also known as loss of bargain (Robinson v Harman).
>(A) pays (B) £200 to work for them. (B) does not turn up. (A) claims £200.
>(A) buys from (B) a vase labelled ‘Real Ming’ for £10,000. In fact, it is fake, worth £2,000. The market value of ‘Real Ming’ is £20,000, which is the expected gain. (A) is awarded another £19,000, the difference in expectation.
>(A) is offered £1,000 to deliver goods to (B). On arrival, (B) refuses the goods and refuses to pay. (A) can now only sell the goods for £800. (A) is awarded £200 to represent the loss of expectation.
(2) Reliance Loss: This is the value of the Claimant’s wasted expenditure on a breached contract. It is awarded where expectation is too speculative to calculate (Anglia Television v Reed).
>(A) hires (B) to star in a new television program, but (B) cancels at the last minute. It is not possible to calculate the profits of this new television program, so (A) reclaims the fees wasted in preparation instead.
Types of Recoverable Loss
Types of Recoverable Loss: Losses are compensated in money. However, only certain types of loss can be compensated in this way.
(1) Pecuniary Losses: These are losses more easily calculable in monetary terms, and are recoverable. For example, loss of profit, loss of bargain, damage to property, personal injury, losses of opportunity etc.
>(A) agrees to buy TV from (B) for £200. (B) then sells it to (C) in breach of contract. (A) can acquire the same model for £250. (A) is awarded £50, to represent their loss of bargain.
(2) Non-Pecuniary Losses: These are losses less easily calculable in monetary terms, and are generally not recoverable. For example, the distress and disappointment of a cancelled contract.
Exception: However, damages for distress and disappointment can be awarded for breach of a contract of pleasure, such as a holiday or wedding (Jarvis v Swans).
>(A) contracts to buy a luxury holiday from (B). Instead, the holiday is of a very poor standard. (A) is awarded damages for his disappointment.
Remoteness
Remoteness: Damages will only be recoverable for losses that either: a) arose as a natural consequence of breach; or b) were within the reasonable contemplation of parties at the time of contracting (Hadley v Baxendale).
(1) Natural Consequence: The loss is an inevitable consequence of breach. For example, the loss of replacing a faulty camera in a contract to buy that camera.
>(A) is a baker and buys a faulty oven from (B). (A) can recover the cost of the faulty oven.
(2) Reasonable Contemplation: The loss was reasonably contemplated by both parties when signing the contract, i.e. it was discussed. This is usually required to recover lucrative special losses.
>(A) is a baker and buys a faulty oven from (B). This means he cannot sell his usual loaves of bread to his daily customers. This is within reasonable contemplation, so the loss of profit is recoverable.
>(A) also has a lucrative contract to supply a Royal Wedding that week. This will not be within (B)’s reasonable contemplation, so the loss is not recoverable, unless (B) had knowledge of the contract.
(3) Extent of Damages: Provided a loss is not too remote, the full extent of loss can be recovered (Parsons v Uttley).
>(A) is a farmer, and buys pig feed from (B). It is a natural consequence of breach that if the pig feed is faulty, pigs could become sick. In fact, all the pigs become sick and die. (B) must pay damages for the entire loss.
Mitigation
Mitigation: Claimants cannot recover for losses for which they could have taken reasonable steps to mitigate (British Westinghouse v Underground).
(1) Reasonable Steps: Claimants must attempt to take reasonable steps to mitigate their loss. Provided they are reasonable, it is irrelevant whether mitigation works or even makes matters worse (they can claim the entire loss).
>(A) is unfairly dismissed from employment by (B). (A) should find alternative employment, and claim only the difference in earnings.
>(A)’s house is flooded by (B)’s swimming pool. (A) attempts to stop the damage by putting down sandbags, but these split causing more damage. (A) can claim for the water damage and the additional sandbag damage.
(2) Burden of Proof: The burden to prove lack of mitigation is on the Defendant, which is difficult to evidence.
Quantification
Quantification: Damages are measured at the cost required to remedy the breach. Where a breach affects a critical element of the contract, ‘cost of cure’ is awarded. Where it affects a mere preference, ‘loss of amenity’ is awarded.
(1) Cost of Cure: Cost of cure is the cost required to completely remedy the breach. It is typical where breach renders a critical element of the contract inoperable.
>(A) is an Olympic swimmer, and orders (B) to build an Olympic pool to competition specification. (B) builds the wrong length. As the length is critical, damages are awarded to wholly fix the issue, i.e. a full rebuild.
(2) Loss of Amenity: Loss of amenity is a sum to compensate a failure to meet the Claimant’s preference, but where breach did not render the critical element of the contract inoperable.
>(A) orders a home patio at 10m x 10m. (B) builds the patio at 10m x 9.5m. This does not render the patio inoperable, and size is not critical, so (A) is awarded damages for loss of amenity.
How are specified damages determined?
Specified Damages: Damages claims can be convoluted. As such, parties will often attempt to predetermine the sum of damages payable in respect of potential breaches in ‘specified damages’ clauses (AKA liquidated sum clauses).
(1) Validity: Parties are bound to specified damages where valid. The party in breach will be required to pay the ‘specified sum’, irrespective of the actual loss. Mitigation and remoteness do not apply (Cavendish v Makdessi).
(2) Invalidity: If the clause is determined to be invalid, it is referred to as a ‘penalty clause’. This is not binding, and damages for breach will be assessed in the ordinary way.
Determining Validity
Determining Validity: The Supreme Court outlines two considerations to distinguish specified damages and penalty clauses.
(1) Exorbitance: A penalty clause must be an exorbitant alternative to ordinary damages, and generally influenced by unconscionable and extravagant behaviour.
(2) Legitimate Interest: A specified damages clause should protect a legitimate interest of the innocent party. This is often a genuine pre-estimate of loss, but need not be.
>(A) owned a car park. The parking ticket stated that (B) would be charged £85 for overstaying. Whilst this was more than the actual loss, (A) was protecting a legitimate interest (car park operationality). The clause was valid.
What is debt action?
Debt Action: Debt actions are claims to recover a specific fixed sum owed under the contract, typically where an individual fails to pay for a good or service on time. The rules of remoteness and mitigation do not apply, and no actual loss is required.
What equitable remedies are there?
Equitable Remedies: In rare instances, the courts will order at their discretion equitable remedies to remedy breach. There are two requirements:
(1) Inadequate Damages: Damages must be an inadequate means of remedy.
>(A) contracts to buy unique painting from (B). (B) then refuses to transfer it. Damages are inadequate, as there is only one painting, so (A) cannot use money to purchase it elsewhere.
(2) Just and Equitable: Equitable remedies must be just and equitable, meaning the Claimant acted equitably and the remedy does not cause disproportionate hardship to the Defendant.
>(A) is employed by (B) to write an autobiography for them. (B) then refuses to talk to (A) or provide them with any relevant details, meaning (A) refuses to work. (B) has acted inequitably, so cannot seek an equitable remedy.
Specific Performance
Specific Performance: Specific performance is an order compelling the Defendant to perform its contractual obligations.
(1) Sale of Goods: This is typical for sale of specific goods, such as land, which can be easily enforced. However, it is uncommon for ordinary goods, as damages are usually sufficient.
>(A) contracts to buy land from (B). (B) then terminates the arrangement. The court can compel (B) to sell.
(2) Sale of Services: This is usually prohibited for a sale of services, as courts are reluctant to oblige warring parties to work with one another, requiring court supervision.
>(A) hires (B) to work for him. (B) refuses to turn up to work. (B) will not be compelled to work for (A), as this requires party cooperation and court supervision.
Injunction
Injunction: An injunction is an order prohibiting the Defendant from breaching its contractual obligations.
(1) Specific Performance Overlap: Injunctions are not granted if they have the effect of requiring a party to do something they could not be required to do under specific performance (Page One v Britton).
>(A) contracted not to hire anyone other than (B). (A) tried to hire someone else, so (B) sought an injunction. This was denied, as the effect would be to oblige (A) to hire (B), i.e. specific performance.
(2) Restraint Clauses: Injunctions are typically ordered in respect of restraint clauses, such as restraint-of-trade. These must be reasonable, with respect to time, location, and nature.
>(A) contracted not to work within 5 of (B) for 6 months. (A) breaches this promise. (B) can enforce the promise by injunction, as (A) can find work anywhere else in the country.
What remedies are there against third party?
Remedies Against Third Parties: Claimants may be able to pursue remedy against a third-party to the contract, namely those who have guaranteed or indemnified the Defendant’s loss.
Indemnity
Indemnity: An indemnity is a primary liability, where a third-party promises to indemnify the Defendant for their loss under a specific contract irrespective of the Defendant’s means to pay.
(1) Formalities: It is an undertaking, so need not be made in writing. However, it is often a clause of a contract.
(2) Extent of Coverage: An indemnity is specific to a given loss or given contract.
(3) Enforcement: Generally, the Claimant will sue the Defendant, and the Defendant will seek repayment from the indemnifying party.
>(A) sells land to (B), and indemnifies them for any loss in respect of environmental contamination. The council then pursue (B) for the contamination. (A) must provide all the costs in respect of this.
Guarantee
Guarantee: A guarantee is a secondary liability, where a third-party promises to pay the Claimant for the Defendant’s loss (the primary liability) if the Defendant does not.
(1) Formalities: It is a contract, so must be in signed writing. The contract itself can be oral, provided the evidence of the terms are signed and written prior to the default.
(2) Extent of Coverage: A guarantee may be specific to a breach, but can cover all losses of the Defendant in or outside of the contract.
(3) Enforcement: The Claimant can pursue the ‘Guarantor’ directly.
>(A)’s child moves into (B)’s property. (A) guarantees to (B) that they will cover rent if the child defaults.
