Damages

Question 1

What is the general approach of the courts to calculating the performance interest?

Answer 1

Damages are calculated on the basis that D would have tendered the minimum performance required to avoid a breach of contract (Lavarack) unless it is not possible for the court to work out in advance what the minimum level of performance would be, in which case the court will calculated damages by predicting how D would have performed (Bmibaby).

Question 2

When is the dimunition in value measure of damages more likely to be adopted?

Answer 2

It is generally the default option and is particularly favoured where substitute performance is readily obtained and C’s reason for contracting is basically commercial (i.e. to make profit).

Question 3

When may C claim damages on the cost of cure measure instead of the DoV measure?

Answer 3

The starting point is that he may do so if this will yield greater damages than the DoV measure, especially in construction cases and where C’s motive for contracting is not just profit, subject to two caveats -

1. Ruxley - the CoC measure is not wholly unreasonable/disproportionate to the loss truly suffered by C (Mustill/Jauncey) or the benefit to be obtained by C (Lloyd)
2. Tito, Lord Jauncey in Panatown - the court is much less likely to award CoC if they are not convinced C will use the money to effect repairs.

Question 4

How was loss defined in Panatown?

Answer 4

(i) Lord Clyde thought that loss had to refer to some personal or patrimonial damage.
(ii) Lord Goff/Millett rejected this as the “narrow accountant sheet definition of loss”.
(iii) Lords LBW and Jauncey expressed no firm view either way.
However the majority upheld the general rule that C is only entitled to recover for his own loss.

Question 5

What date are damages to be assessed at?

Answer 5

Johnson v Agnew – damages to be assessed as at the date of breach, but the court has power to fix another date if this rule would produce injustice

Question 6

What are the three exceptions to the rule in Johnson v Agnew?

Answer 6

1. If there is no such immediately available market for substitute performance the courts are more likely to defer the date of assessment to a later point in time (e.g. Hooper v Oates – the date on which sale is achieved).
2. If C does not have the resources to enter into a substitute transaction given the current market circumstances the date of assessment will also be postponed (Wroth v Tyler)
3. If C could not have been aware of the breach at the time it occurred damages will generally be assessed as at the date on which C could with reasonable diligence have discovered the existence of the breach.

Question 7

Golden Victory (exception to Johnson v Agnew) + dissent

Answer 7

The compensatory principle demands that if according to the terms of the contract an event subsequent to breach would have entitled D to cancel the contract, this may be taken into account so that C is not entitled to recover beyond the date of this event.

Lords Bingham and Walker, dissenting – this jeopardises the values of certainty and finality in commercial contract law and gives a potential incentive to delay the settlement process to allow account to be taken of subsequent events

Question 8

When can C recover damages for physical injury suffered due to D’s breach?

Answer 8

Grant – so long as loss is not too remote a consequence of the breach

Question 9

When are the two situations in which C can recover damages for non-pecuniary loss not amounting to physical injury? What is the r/s between them?

Answer 9

Farley –

(i) Loss of amenity/consumer surplus - if the object of the term broken is to provide pleasure or peace and the term is a major part of the contract as a whole, or
(ii) Where the breach causes physical inconvenience, (perhaps including sensory discomfort - Lord Scott), as distinct from mere disappointment

In (i) C is not worse off, but merely not as well off as he would have been had the contract been performed; in (ii) C is actually made worse off by the breach of contract. Where both arise on the same facts (e.g. Farley) you cannot recover for both.

Question 10

What were the three different explanations for Ruxley in Farley?

Answer 10

Lords Steyn/Hutton - damages may be awarded for breach in respect of the provision of a pleasurable amenity
Lord Scott - if D’s performance fails to provide to C something to which C was entitled and which if provided would have been of value to C, then C may be compensated in damages to the extent of that value
Lord Clyde - Ruxley was a case of damages for inconvenience (unlikely since a separate award was given for that)

Question 11

Haysman

Answer 11

Indicates that Lord Clyde’s formulation of the physical inconvenience test will be adopted - is C’s enjoyment of the property interfered w/ to a significant degree? - rather than Lord Scott’s broad formulation of sensory discomfort

Question 12

When will C normally bring a claim for the reliance interest?

Answer 12

1. Where C cannot prove his loss of profit
2. Where C wishes to recover damages in respect of his pre-contractual expenditure (usually because of 1)
3. Where C has entered into a bad bargain

Question 13

McRae

Answer 13

In an extremely speculative transaction where loss of profits difficult to quantify, damages will only be awarded for reliance

Question 14

Chaplin v Hicks

Answer 14

The court will strive to put a value on C’s performance interest where D’s breach has caused C to lose the advantage of being in a limited class of competitors

Question 15

Law Debenture Trust

Answer 15

“if something of value has been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share is likely to be.”

The court is more likely to try and properly value C’s loss, rather than treat it as loss of a chance, where there are more than two possible outcomes.

Question 16

Dandara (loss of chance)

Answer 16

Loss of a chance damages could be awarded where it is D’s actions that are relevant (based on Chaplin) notwithstanding that Allied Maples suggests such damages are only recoverable where the discretion to award C a benefit is that of a 3rd party.

Question 17

Anglia TV v Reed (reliance loss, 2 points)

Answer 17

C could claim the wasted expenditure incurred after the contract was concluded AND before the contract provided it was “such as would reasonably be in the parties’ contemplation as likely to be wasted if the contract was broken”.

Claims for wasted expenditure and gross profit are mutually exclusive.

Question 18

When will C be able to claim reliance loss for a bad bargain?

Answer 18

Never; in such a case his wasted expenditure does not flow from the breach of contract, but the contract itself.

Middleton - “It is not the function of the courts, where there is a knowing breach of contract, to put C in a better financial position than if the contract had been properly and lawfully performed”.

Question 19

Yam Seng (bad bargain)

Answer 19

The burden of proof lies on the breaching party to prove that the bargain was a losing one for the innocent party; there is a presumption that a party will recoup his expenditure.

Question 20

When will a restitutionary claim be applicable?

Answer 20

Where the contract has been set aside (rescission/termination); otherwise the contract will continue to govern rights and remedies.

Question 21

When will money paid in pursuit of a contract be recoverable in a restitutionary claim?

Answer 21

Stocznia – only if there has been a total failure of consideration

Question 22

Three ways in which the court may circumvent the rule in Stocznia?

Answer 22

1. Construing the contract to support a finding of total failure (Rowland)
2. Finding that the consideration is severable and there has been a total failure in respect of a severable part of that consideration (e.g. Goss)
3. Finding that the benefit received from the promised performance is incidental or collateral to the performance bargained for (Van de Garde)

Question 23

When may the party in breach bring a restitutionary claim for money paid?

Answer 23

The remedy is equally available to the breaching party unless the payment was a deposit, in which case D did intend for C to keep the deposit in the event of a total failure or consideration.

Question 24

What are negotiating damages?

Answer 24

Where D breaches a duty to C by using something w/o C’s consent, C may be able to claim a reasonable sum for D’s use of it, which is generally assessed by reference to the sum C might reasonably have demanded for allowing D to use it (Wrotham Park)

Question 25

When will negotiating damages be available?

Answer 25

The former requirement was that D’s breach must have infringed C’s property right, but Blake did away with this requirement. Experience Hendrix suggests the new filter is whether C has a “legitimate interest in preventing D’s profit-making activity”, having regard to whether D’s breach is deliberate/whether C’s financial loss is hard to determine.

Question 26

Hadley v Baxendale

Answer 26

Losses are recoverable if they (i) flow naturally from the breach or (ii) are in the reasonable contemplation of both parties at the time of entry into the contract

Question 27

The effect of Hadley is that C must generally disclose any special circumstances which may cause him special loss in the event of D’s breach of contract. Can this be justified?

Answer 27

Yes - as noted in Hadley if D is taking on a liability for special damages he must be given an opportunity to adjust the contractual allocation of risk (e.g insert a limitation clause or increase his prices)

Question 28

Victoria Laundries

Answer 28

The test in Hadley is really just whether the loss C seeks to recover was, at the time of the contract, reasonably foreseeable as likely to result from the breach.

Question 29

Parsons. Why is Parsons problematic?

Answer 29

Under the Hadley test, only the type of loss needs to be foreseeable as a serious possibility, and not its extent.

On this test arguably C would have been able to recover for the loss of the lucrative dyeing contracts in Victoria Laundries - it was merely a variant of “loss of profit”, which was surely foreseeable.

Question 30

The Achilleas (modifying Hadley + ratio)

Answer 30

The test is not merely whether the parties would reasonably have contemplated the loss itself, but whether they would reasonably have contemplated that D was assuming responsibility for the relevant loss. However, where the loss was reasonably foreseeable, there is a rebuttable presumption this test is satisfied.

The parties would not have reasonably contemplated D as accepting responsibility for losses arising from the follow-on charter as such a risk would be completely unquantifiable, out of D’s control and inconsistent w/ market understanding - cf loss caused by delay caused by market fluctuations during the overrun.

Question 31

What is the current r/s between Hadley and The Achilleas? Is this consistent w/ The Achilleas?

Answer 31

The CoA in Supershield treated Hadley as reflecting the intention to be imputed to the parties in the ordinary case, to be departed from where the context demands it. John Grimes too, but in the context of an implied term as to the extent of losses for which each party was to be liable.

This is consistent with The Achilleas, where Lord Hoffmann explicitly knowledged that “the rule that a party may recover losses which were foreseeable is a rebuttable presumption about what the parties may be taken to have intended.”

Question 32

John Grimes (clarifying what constitutes an “Achilleas case”)

Answer 32

The fact that a loss is suffered because of a change in market values during the delay caused by D’s breach does not of itself in any way render the case out of the ordinary, so as to rebut the presumption that the parties contemplated D as assuming responsibility for all reasonably foreseeable losses.

In Achilleas such a loss was held to fall outside the presumption because it was caused by exceptionally volatile market conditions, but even then the presumption might not be rebutted if “at the time of contracting it was foreseeable that extreme volatility would be experienced in some foreseeable circumstances within the lifetime of the contract.(Tomlinson LJ).

Question 33

Westinghouse

Answer 33

C must take reasonable steps to minimise the loss suffered by a breach of contract, and if he fails to do so he cannot recover losses attributable to such failure.

Question 34

Banco Portugal (2 points)

Answer 34

1. The BoP is on D to show that C has not taken reasonable steps to mitigate his loss. Further, the measures taken by C is not to be “weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty” - D does not discharge his BoP merely by showing that measures less burdensome to him might have been taken
2. C is entitled to recover from D any expense or additional loss incurred when taking reasonable steps to mitigate the loss, even if the attempt at mitigation was unsuccessful.

Question 35

Payzu

Answer 35

C may be required to consider and possibly accept an offer of alternative performance by D. This is particularly so in commercial contracts, but it will sometimes be unreasonable in cases of personal services.

Question 36

The Solholt. Scope of application?

Answer 36

Suggests that C must make offers of alternative performance if it would be reasonable to do so. Ashbury held that this is NOT a universal rule, noting that two unique features obtained in Solholt

1. The ship sale and purchase market was highly sophisticated.
2. C’s loss was in a sense caused by its own choice to exercise a contractual right of cancellation rather than by D’s breach of contract

Question 37

Dunlop

Answer 37

Liquidated damages clauses, that is to say genuine covenanted pre-estimates of damage, are enforceable but penalty clauses, a payment of money stipulated as in terrorem of the offending party, are not. The test is one of substance and not form, and is judged at the time of contract and not the time of breach.

Question 38

Dunlop - three presumptions that a damages clause is penal

Answer 38

a. The sum is stipulated for is extravagant and unconscionable in amount compared to the greatest loss that could conceivably be proved to have followed from the breach, and is thus not a genuine pre-estimate of loss
b. The breach consists only in not paying a sum of money and the sum stipulated is a sum greater than that which ought to have been paid
c. A “single lump sum is made payable by way of compensation, on the occurrence of one or more of several events, capable of causing damage varying from serious to trifling”.

Question 39

If the consequences of the breach are such as to make precise pre-estimation almost impossible, does this make it more or less likely that the clause is one for liquidated damages?

Answer 39

Dunlop - more likely, for this is just the situation where it is probable that pre-estimated damage was the true bargain between the parties

Question 40

Imam-Sadeque (test for penalty clauses)

Answer 40

The predominant function of the clause is to deter breach (going beyond the inevitable coercive effect of any pre-agreed estimate of damages) rather than provide payment of compensation

Question 41

Give two examples of clauses that may be used to circumvent the rule against penalty clauses.

Answer 41

1. Acceleration clauses (White v Carter)
2. A clause stipulating payment of a sum on the occurrence of an event which does not constitute a breach of contract. (Alder)

Question 42

Dies

Answer 42

Deposits are generally irrecoverable, while part payments are recoverable less liability in damages for the breach.

Question 43

Dojap (2 points).

Answer 43

A deposit will be recoverable where it is in substance a penalty

An unreasonable deposit is not a deposit at all and thus cannot be severed, w/ the amount in excess of a reasonable sum being returned to the payor - the deposit will be struck down as a whole.

Question 44

The Heron II (legacy + Supershield)

Answer 44

The test most applied subsequently to The Heron II is whether Lord Reid’s - whether the type of loss is “not unlikely” to result from the breach in question.

Supershield picked up on Lord Reid’s point that a type of damage which was foreseeable as a real possibility but which would only occur in a small minority of cases does not pass the “not unlikely” test.

Question 45

Girozentrale

Answer 45

The duty to mitigate only arises if and when C becomes aware of a manifest or possible breach.

Question 46

Hussey

Answer 46

In order for a gain unlocked by C to be off-set against his damages against D, the gain must be part of a continuous transaction of which D’s breach of contract was the inception.

Question 47

Vercoe

Answer 47

Wrotham Park is likely to apply over Blake unless

(i) D’s breach infringes a clearly proprietary right
(ii) There is something exceptional about C’s right making it unreasonable to expect it to be bought out for a reasonable fee.

Question 48

Vesta v Butcher

Answer 48

CN only available as a defence if the contractual obligation is one to take reasonable care and D’s liability for breach of contract is the same as and coextensive w/ independent liability in tort

Question 49

Fairclough

Answer 49

CN not available as defence if D is in breach of strict contractual obligations, independent of any obligation to take reasonable care. It is absurd that if D is liable under a contractual duty his position should be improved by demonstrating that besides breaching that duty he was also negligent.