Contract - Remedies, Causation, Remoteness Flashcards
What is the aim of damages in contract law?
To compensate the claimant, not to punish D.
What is the difference between “expectation damages” and “reliance damages” as the the basis for compensating the Claimant?
Expectation Damages
- the go-to basis for damages.
- Aim: compensate the claimant for their expectation in realising the value in the contract they sought to rely on.
Reliance Damages
- backwards-looking (i.e. only losses incurred prior to the breach);
- put C in position as if they had NEVER contracted.
- allows C to recover “WASTED EXPENDITURE” ONLY.
- used where the quantum of expectation damages are too difficult to calculate.
How are expectation damages assessed?
Often, you look at the difference between contracts, e.g. D fails to provide 2 tonnes of coal for £50,000. C has to contract with another party for the same amount, which costs them £75,000. The damages that C will be awarded are the difference: £25,000, as if the contract had been performed at the lower price.
- minus any payments received from the breaching party
- minus any costs saved as a result of the breach
What are 3 unique cases where expectation damages are assessed?
- COST OF CURE.
- often used for defective building works (e.g. pool case of Ruxley Electronics v Forsyth).
- Claimant must act reasonably, e.g. pursue alternatives and not knock down the works and start again at a greater, disproportionate cost.
- if C shows no intention of pursuing the remedial works, this will affect the amount that can be recovered.
- DIMINUTION IN VALUE.
- difference between promised performance and actual performance, e.g. in Ruxley, this was £0 because at 6ft or 7ft6, the pool was safe for diving. - LOSS OF AMENITY.
- awarded in Ruxley Electronics (the pool was perfectly safe for diving and swimming, but C was awarded £2.5k for non-economic loss that was meaningful to him as a consumer). It is nearly impossible for loss of amenity to be awarded in B2B commercial bargains.
Imagine a company buys the rights to a TV show for £100,000.
The company expects to spend £40,000 on production costs and £30,000 on studio hire and staff wages. Eventually, the TV channel pulls out and cancels the TV show’s contract. At that point in time, the company has spent £10,000 on production.
Calculate the expectation damages available to the company when they sue the TV channel.
Once this is done, calculate the damages on a RELIANCE basis.
Expectation Damages
£100k
- £40k
- £30k
= +£30k
Actual Losses
- £10k spent
Total = £40,000 expectation damages.
Total (Reliance losses only): £10,000 spent pre-breach on production.
Example: Mr Smith agrees to sell me a vintage painting. I ask a framer to prepare an ornate frame, for which I pay £400 based on the painting’s exact dimension. One week before delivery as agreed, Mr Smith informs me that he has recklessly destroyed the painting.
Would the court be likely to award damages on the basis of expectation damages or reliance damages? What can I recover?
Here, it might be easier to put me back into the pre-contract position, so I am paid £400 because the framer costs were WASTED EXPENDITURE (reliance damages).
Courts will not award “highly speculative” expectation damages, for example: an actor pulls out of a TV series at the last second and no replacement can be found, so the TV series is cancelled. Estimating what revenue the series would have made is impossible, so the party must rely on reliance damages (Anglia TV v Reed).
When are damages for mental anguish, distress or mental injury available?
Generally, these are not available unless satisfying one of 2 exceptions:
- Contracts for the purpose of relaxation, pleasure and peace of mind (e.g. holidays; Jarvis v Swan Holidays)
- Loss of amenity where the contract’s main (but not exclusive) purpose was for relaxation, pleasure and peace of mind (Farley v Skinner; had Mr Farley known about the airplane noise (which Mr Skinner professionally surveyed as being not that bad!!), he would not have bought the property).
Can you recover damages for loss of reputation from contract law?
Generally no; this was recovered in one case on the basis of an implied term in an EMPLOYMENT contract (mutual trust & confidence between employer and employee), that the employer should carry on his business in an honest way.
In this case, Mr Malik’s reputational loss was an inability to find employment after BCCI collapsed, owing to its dishonest management decision.
Can you recover damages for “loss of a chance”?
Generally, loss of a chance will be too speculative to be recoverable, unless:
- The lost chance is quantifiable in monetary terms, and
- There was a real and substantial chance that the opportunity might come to fruition.
Chaplin v Hicks
- C entered into a beauty contest where the final 12 would be selected for employment.
- C was entitled to recover damages for her loss of a chance of gaining employment (her chances were less than 50%).
- Where C’s chances are greater than 50%, and this can be proven on balance of probabilities, C should seek to recover expectation losses IN FULL.
How is causation established in contract law?
- There must be loss as a matter of fact
(“Factual cause”) - D must be the legal cause of the loss, i.e. not intervening events
(“Legal cause”)
How is remoteness decided in contract law?
(Hadley v Baxendale), Losses must:
- Arise naturally from the contract according to the usual course of things, and
- Must have, or should have, been in the reasonable contemplation of the parties AT THE TIME OF CONTRACTING.
If losses are too unusual or far-reaching to meet the first limb, the claimant must show that the losses were in the parties’ contemplation AT THE TIME OF CONTRACTING under the 2nd limb.
Example: Farmer has his forklift repaired. If he does NOT make it known that this is urgent for his business, he may struggle to recover losses, e.g. if he has to hire labour or hire a new forklift.
In relation to damages, what is a fundamental duty on the claimant?
Duty to take “reasonable steps” to mitigate your losses, e.g. not wait until the remedy to renegotiate or find a new contract(!)
Mitigation can include accepting a new offer from the Defendant, e.g. paying with cash on delivery instead of cheques, to avoid the breach of the cheques not reaching C on-time (Payzu v Saunders).
What are the intervening events applicable to contract law?
When do they apply?
- Frustration (v. rare!)
- Acts of God
For an intervening event to apply (i.e. stop D being the legal cause of C’s loss), the event must NOT have been in the parties’ contemplation / likely to happen. Otherwise, it is generally up to the parties to contract around this eventuality / not enter into bad bargains.
What role does notice play in remoteness for contract law?
Where D has notice, or awareness, of a risk/particular type of loss, this could be “in the reasonable contemplation of the parties at the time of contracting” (2nd limb of remoteness under Hadley x Baxendale).
Example: Victoria Laundry.
- C ordered a new boiler from D which was damaged and delayed for 3 months.
- C claimed the loss of new business under the 2nd limb of Hadley x Baxendale - this was successful because the D was aware that the business was growing and needed immediate use of a new boiler.
- C failed in trying to claim loss of lucrative dyeing contracts because, amongst other things, D had no awareness of these contracts.
Can damages be awarded on a “restitution” basis?
When might a restitution claim arise?
Only very exceptionally, such as where expectation / reliance bases are not a sufficient remedy and where the damages are to “restore” a benefit to C which the defaulting party (D) acquired at C’s expense.
(A-G v Blake): An account of profits can be an exceptional remedy where C has a legitimate interest in stopping D’s profit-making activity (e.g. profiting from his time as a spy when he undertook an oath not to divulge official secrets).
NOTE that a cynical and deliberate breach of contract to earn MORE in a different contract is not enough for account of profits as a remedy - these cases are truly exceptionally rare.
