Damages

Question 1

What are damages?

Answer 1

Monetary compensation for loss in a contract

Question 2

What terms , when breached, can damages be claimed?

Answer 2

• Condition - if this is breached the innocent party can terminate the contract and claim damages
• Warranty - If this is breached there is no repudiation but the innocent party can claim damages

Question 3

What considerations are necessary if it is an anticipatory breach?

Answer 3

Consider if it is better to :
* affirm the contract and claim payment
or
* accept the breach and sue for damages

Question 4

What is the purpose of awarding damages?

Answer 4

Either to compensate or deter

Question 5

What did Lord Reed say about the purpose of damages and in which case?

Answer 5

In Morris-Garner and another v One Step (Support) Ltd (2018)

“Damages… are therefore intended to place the claimant in the same position as he would have been in if the contract had been performed”

Question 6

What losses are not recoverable?

Answer 6

• If the causation is too remote
• If there is mitigation
• If there are contractual terms that stipulate what amount can be recovered if a breach occurs

Question 7

When are damages normally assesed? Give a case law example

Answer 7

At the time of breach - Johnson v Agnew (1980)

Question 8

What is the case that shows this is not an inflexible rule?

Answer 8

**Hooper v Oates (2013) **

Question 9

What are the two actual measures of damages?

Answer 9

1. Expectation Loss
2. Reliance Loss

Question 10

What did Parke B say expectation loss was?

Answer 10

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

Question 11

Give a case law example of expectation loss

Answer 11

Radford v De Frobille (1971)

• Plaintiff obtained planning permission to build a house on a plot of land forming part of the grounds of his existing house
• Plaintiff property was subdivided and then the subdivided plot was sold to the Defendant
• Condition of sale: Defendant would build a house, subject to an agreement to erect a wall on the purchased plot, to divide it from Plaintiff’s land
• Defendant built neither house nor wall and sold the plot to a third party, who also failed to build anything

Held:
* Correct measure of damages = cost to Plaintiff of erecting a wall to the contract specification on his own land and NOT amount by which Plaintiff’s land was diminished by the absence of the wall

Question 12

Give a case law example of expectation loss + basis of calculation

Answer 12

C and P Haulage Co Ltd v Middleton (1983)

• Middleton had a licence to occupy C&P’s premises for 6 months, provided that at the end of the 6 months, any improvements added to the building were not removed
• He improved the property, even though the contract stated fixtures were not to be removed
• C&P ejected him for breach of contract and Middleton argued he should be entitled to damages for the cost of the improvements he had made

(After the breach, Middleton moved back to his house rent free)

Held:
* He would be unjustly enriched if damages were awarded
* At the end of the 6 months, he would have had to leave the “improvements” anyway , as per the licence, and, in any case, he moved back to his house rent free

Question 13

Give a case law example of “cost of cure”

Answer 13

Watts v Morrow [1991]

• Plaintiff bought house for £177,500 relying on survey report that house was sound and in good condition
• True value of the house at date of purchase was £162,500
• After taking possession, Plaintiff discovered substantial defects
• Plaintiff spent £ 33,961 to put right the defects
• Plaintiffs brought action claiming the cost of repairs

Held:

• Proper measure of damages = diminution in value of the house (ie: £177,500 - £ 162,500), rather than just the cost of the repairs
• Plaintiff bought house for £177,500 relying on survey report that house was sound and in good condition
• True value of the house at date of purchase was £162,500
• After taking possession, Plaintiff discovered substantial defects
• Plaintiff spent £ 33,961 to put right the defects
• Plaintiffs brought action claiming the cost of repairs

Held:

• Proper measure of damages = diminution in value of the house (ie: £177,500 - £ 162,500), rather than just the cost of the repairs

Question 14

Give a case law example of “cost of cure” and loss of amenity

Amenity = enjoyment of life

Answer 14

Ruxley Electronics and Construction Ltd v Forsyth [1995]

• Forsyth contracted Ruxley to build a swimming pool on his property to a depth of 7 feet 6 inches, which specified pool should have a diving area 7 feet 6 inches deep
• On completion, pool was suitable for diving but diving area was only 6 feet deep BUT there was no adverse effect on the overall value of the property
• Estimated cost of rebuilding the pool to the specified depth was £21,560

Held (House of Lords):

• Cost of cure was wholly disproportionate to the diminution in value and to any loss of pleasure/amenity to the claimant from having the deeper pool
• Court considered Claimant’s intention and was not convinced that if £21, 560 were awarded, the full amount would be spent on rebuilding the pool

Question 15

What is Reliance loss?

Answer 15

Basis for compensation= the claimant alters their position in reliance on the defendant’s promise

Question 16

Give a case law example of reliance loss

Answer 16

Anglia Television v Reed [1972]

• Reed, a well known actor, contracted to appear for Anglia to play the lead in a play
  which they were producing
• Reed wrongfully repudiated the contract and Anglia was forced to abandon the production
• Anglia claimed their total wasted expenditure
• Reed contended that they were entitled only to their expenditure after the contract
  was concluded

Held:

Anglia could claim expenditure incurred before the contract as Reed must have known that the expenditure, whether incurred before or after the contract was made, would have been wasted if he broke his contract (i.e. Anglia acted in reliance on Reed starting the contract)

Question 17

In your own words and in summary what is ‘expectation loss’ and ‘reliance loss’

Answer 17

Expectation loss
* Put the claimant in the position as if the promise had been kept
* Looking forward
* What loss does the claimant have because his expectations are not fulfilled?

Reliance loss
* Put the claimant in the position as if the promise has never been made
* Looking backwards
* What cost did the claimant have because he relied on the promise?

Question 18

What is Causation?

Answer 18

The link between the contract and the loss

Question 19

What is remoteness?

Answer 19

The loss being too far from the contract

Question 20

What happened in the Hadley v Baxendale (1854) and what was the judgement?

Answer 20

**Hadley v Baxendale (1854) **
* A mill had ceased to work because of a broken crankshaft

* Miller did not keep a spare 

* Broken machinery sent to manufacturer as pattern for new one 

* Claimant contracted with Defendant carriers 

* Defendants, in breach of contract, delayed delivery of the crankshaft by 5 days, and there was a lengthy stoppage at the mill , which could not operate without this piece of equipment 

* Claimants sued for the loss of profit caused by the delay  Held:  * Claimant not entitled to recover as had not provided Defendants with adequate instructions re: urgency of delivery

Question 21

In your own words explain what Alderson B said about the awarding of the damges

Answer 21

• Damages should be awarded “fairly and resonably” arising naturally from the usual course of things when a breach has occurred ,as contemplated by both parties, for when a breach occurs
• If there are special circumstances and this was comminicated by the plaintiffs to the defendants then the damages woud be the amount of injury within the context of these expressed special circumstances

This created the two lib test for remoteness

Question 22

What is the two-limb test for remoteness?

Answer 22

1. Damages are reasonably considered as arising naturally from the breach of contract
2. Special circumstances were reasonably within the contemplation of the parties when the contract was made

Question 23

Give a case law example of damages being reasonably considered as arising naturally from the breach of contract

Answer 23

**South Australia Asset Management Corp v York Montague [1996] **

• Case concerned 3 joined appeals - in each case claimant banks instructed defendant valuers to provide valuations of property intended as security for loans to prospective purchasers
• Loans were made based on these valuations
• BUT: the loans would not have been made if the claimants had known true value of properties!
• Borrowers subsequently defaulted and in meantime, property market fell substantially, greatly increasing losses eventually suffered by the claimants

Held:
* Valuation is seldom an exact science BUT once valuer found to have been negligent, loss for which he is
responsible is that which has been caused by the valuation being wrong
* However, damages for negligent valuations are limited to the foreseeable consequences of that advice and do not extend to include losses arising from a general fall in value

Question 24

Give a case law example of special circumstances being reasonably within the contemplation of the parties when the contract was made

Answer 24

**Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] **

• On April 26, 1946, claimants (Victoria Laundry) concluded a contract with defendants (Newman) to purchase a boiler and delivery was arranged for June 5, 1946
• While the boiler was being dismantled by third parties, it rolled over and sustained damage, so delivery was delayed until November 8, 1946
• Defendants were aware of the nature of the claimants’ business, and had been informed the claimants intended to put the boiler in use in the shortest possible space of time, due to the nature of their business

Held:
Damages for loss of profit were recoverable, as defendants knew they were selling to a laundry company and would have foreseen that a delay of 5 months was likely to result in financial loss

Question 25

What was the judgement in the Koufos v C Czarnikow Ltd (The Heron 2) (1969)

Answer 25

• The Heron was chartered to carry sugar
• Heron was delayed and arrived in port 9 days later
• On arrival, it was discovered sugar had dropped in price in the previous 7 days
• Result was that Respondents’ sugar was sold for less than it would have been had it arrived promptly
  Held:
• On the facts, shipowner ought to have foreseen that delay would involve a serious possibility or a real danger that the price of sugar would decline

Damages were the difference between the price which the sugar ought to have fetched if it had arrived on time and the price that it in fact fetched

Question 26

What was the interesting minority judgement given in **Transfield Shipping Inc v Mercator Shipping Inc (The Achiellas) (2008) **

Answer 26

• H/L minority (Lord Rodger and Baroness Hale): loss beyond the overrun period was not reasonably foreseeable

Facts of the case:
* Time charterers were 9 days late in redelivery of a vessel to its owners

* Owners had already agreed to re-charter vessel after its return and had to renegotiate the new charter 

* Market rates had fallen under the follow-on charter and owners were forced to reduce their rate of hire for the new charter 

* Owners sued defendants for the whole period of the follow-on charter (ie: not just for the 9 days delay) but the defendants only accepted liability for the 9 days period of delay 

* Arbitrators found the loss was foreseeable under Hadley v Baxendale, although it was against the market expectations of the parties that D be liable for such loss 

Held (House of Lords):

• Damages were limited to difference between charter rate and market rate for 9 days period of delayed delivery only
• H/L majority (Lords Hoffman, Rodger and Walker): the charterers did not assume responsibility for any loss beyond the 9 days delay (ie: up to the point when they returned the vessel)
• Loss from the follow-on charter cannot be contemplated by the charterers – the arrangements between the owner and new charterers are matters which the charterer cannot control or know about and thus cannot quantify

Question 27

What did Lord Hoffman say in this case?

Answer 27

“A party may not be liable for foreseeable losses if they are not of the type or kind for which he can be treated as having assumed responsibility.”

• Considered voluntary assumption of responsibility of loss
• Whether damages are too remote depends on intentions of parties when contract was made

Question 28

What is the duty to mitigate? Give a case law example

Answer 28

**British Westinghouse Co v Underground Electric Railway Co [1912] **

• A claimant has the duty to take all reasonable steps to mitigate or reduce their loss
• Where the claimant has neglected to take such steps, they may be prevented from claiming any part of the damage
• Duty to mitigate corresponds to commercial fairness
• Whether loss is avoidable is a question of fact

Question 29

What are the other things that damages are recoverable for?

Answer 29

1. Distress, inconvenience, and disappointment
2. Upset/anxiety
3. Discomfort
4. Mental distress

Question 30

Give a case law example of damages being recoverable for ‘Distress, inconvenience and disappointment’

Answer 30

**Malik v BCCI [1997] **

• Claimants worked for BCCI which went insolvent due to massive fraud, connection with terrorists, money-laundering, extortion and a raft of other criminal activity on a global scale
• Claimants lost their jobs and could not find jobs elsewhere
• They sued BCCI for their loss of job prospects, alleging that their failure to secure new jobs was due to the reputational damage they had suffered from working with BCCI
  Held:
  • Implied obligation on an employer that it would not carry on a dishonest or corrupt business
  • If reasonably foreseeable that because of BCCI’s corruption, there was a serious possibility an employee’s future employment prospects were disadvantaged, damages would be recoverable for sustained continuing financial losses

Question 31

Give a case law example of ‘Peace of mind, freedom from upset, mentral distress and anxiety’

Answer 31

Jarvis v Swans Tours Ltd [1973] QB 233

• Jarvis booked a 15-days winter sports holiday with Swan on the faith of their brochure, which described the holiday in very attractive terms
• He paid charges of £63.45 but the holiday was a great disappointment to him

Held:
* Claimant would not be sufficiently compensated by merely giving his money
Damages of £125 were awarded to adequately compensate for Claimant’s disappointment (ie: recovery for cost of trip + non-economic loss)

Question 32

What are the types of damages?

Answer 32

** Agreed or Liquidated damages:* awarded where a plaintiff is able to sue for a specified sum, which must be a genuine or bona fide pre-estimate of the actual loss that will flow from the breach

Unliquidated damages: awarded where an injured party has no fixed sum in mind and leaves the court to decide the amount

Question 33

What is a penalty clause?

Answer 33

Penalty clause in a contract states that if a party breaches an obligation, that breaching party must pay a pre-agreed amount of money (or penalty) to the innocent party:

Question 34

When are penalty clauses enforceable?

Answer 34

• Only enforceable if amount is a genuine pre-estimate of the loss from the breach of contract

Must not be extravagant or unconscionable

• Must not be designed to apply pressure or intimidate the other party Must be transparent:
  a. based on reasonable criteria; and
  b. clear evidence/information as to how the amount is calculated

Question 35

What is an equitable remedy?

Answer 35

It is a type of court-ordered relief for an aggrieved party that is used when ordinary legal remedies – such as awarding damages – are considered inadequate justice for the suffering party.

Question 36

What are the equitable remedies? Give their definitions

Answer 36

1. Restitution: The court orders the return of property or the payment of money
2. Rescission: Setting aside an agreement and restoring partied to their pre-contractual positions
3. Specific performance: The court orders ordering the defaulting party to perfrom contractual obligations
4. Injuction: The court orders a party to refrain from performing or to perform a particular act

Question 37

What is Restitution based on?

Answer 37

It is based on the concept of unjust B
benefit

Question 38

What must the plaintiff establish in restitution?

Answer 38

a) Defendant obtained a benefit or enrichment;
b) Benefit was at plaintiff’s expense
c) It would be unjust to allow defendant to keep benefit/enrichment
and
d) Defendant has no defences (such as estoppel/incapacity/illegality) to rely on

Question 39

Give a case law example of Quantum Meruit

Answer 39

Planche v Colburn (1831)

• The defendants were in the process of compiling a series of books to be entitled ‘the juvenile library’
• They engaged the claimant to write a book on medieval costume and amour, as part of the series
• When the claimant had written several chapters, the series was cancelled by the defendants
• The defendants offered to publish the claimant’s book separately

Held:
Claimant was entitled to refuse defendants’ offer and claimed in quantum meruit for work completed on the book, as the defendants had cancelled the contract

Question 40

Give an example of an unjust benefit?

Answer 40

Attorney General v Blake [2000]

• Blake, a former member of the British Security Services and a Soviet spy, wrote an autobiography
• He received payments from his publishers
• The Attorney General sued Blake, contending he had breached his contract of employment, in disclosing official secrets, so that the Crown was entitled to seek recovery of profits, by way of restitution (ie: Blake had received an “unjust benefit”)

Held: (House of Lords)
* Attorney-General was entitled to an order for an account of profits and to be paid a sum equal to that owed by the publisher to Blake
* This was the most appropriate remedy following such a breach of contract

Question 41

What is ‘Recission’?

Answer 41

• Termination by right
• Court order setting aside contract, to restore parties to pre-contractual position

Question 42

When might recission be granted?

Answer 42

It might be granted in cases of:
a) Mistake
b) Misrepresentation
c) Undue influence
d) Duress

Question 43

What is ‘Rectification’?

Answer 43

Rectification is a court order that
* requires correction of mistake/error
* to bring document in line with correct agreement between parties

Question 44

Give a case law example of rectification

Answer 44

Jocelyn v Nissen [1970] 2 QB 86

• In 1964, the parties entered into a written agreement under which plaintiff transferred his car hire business to defendant
• It was agreed defendant would discharge all expenses in connection with the whole premises
• BUT final written agreement did not mention the discharge of household expenses
• Defendant stopped paying the household bills after making a few payments

Held:
* Court of Appeal ordered the agreement to be rectified to specifically include the costs of household expenses, to bring it in line with the original agreement, that defendant would discharge ALL expenses connected with the whole premises