Damages

Question 1

To recover damages, the claimant must prove that he has…

Answer 1

…suffered loss or damage as a result of the defendant’s breach, and the loss or damage must not be too remote a consequence of the breach.

Question 2

The rule at common law is that where a party sustains loss by reason of a breach of contract, he is so far as money can do it, to be placed…

Answer 2

….in the same situation with respect to damages as if the contract had been performed. Robinson v Harman (1848)

Question 3

If the claimant is to be placed in the position he would have been in if the contract had been properly performed, he will generally be able to recover for the loss of the benefit which he would have obtained had the contract been properly performed. Damages assessed in this way are sometimes said to be worked out on a ** basis?

Answer 3

…an expectation loss basis as the claimant will be compensated for his lost expectation.

When working out the benefit which the claimant would have obtained from performance of the contract, the court will take into account the costs he would have incurred in order to obtain the benefit.

Question 4

Expectation losses would include…

Answer 4

losses incurred from..

a) Defective goods
b) Poor service
c) Loss of profit
d) Loss of opportunity

Question 5

What will the court award in respect of defective goods?

Answer 5

The court would award either the difference in value or the cost of cure.

This means that if goods are defective, the basic rule is that the amount of damages awarded will be the difference in value between the actual value of the goods and the value the goods would have had if they had not been defective.

Question 6

What will the court award in respect of poor service?

Answer 6

With contracts for services, the basic rule is that the amount of damages awarded will be the cost of putting the work right, ie cost of cure.

However, the court would award the cost of cure for defective goods and the difference in value for defective services if reasonable to do so.

Question 7

If the object of the contract was to afford pleasure, where the cost of reinstatement would be wholly disproportionate to the non-monetary loss suffered the court may award the claimant….

Answer 7

…a consumer surplus for disappointed expectations Ruxley Electronics and Construction v Forsyth [1996]

Question 8

Addis v Gramophone Co Ltd established the general rule that in claims for breach of contract, the claimant cannot recover damages for…

Answer 8

…his injured feelings.

Question 9

Reliance loss damages covers expenditure wasted as a result of the….

Answer 9

…breach of contract. Anglia Television v Reed [1972]

Question 10

In order to claim for damages on either expectation loss or reliance loss the claimant must prove that he has…

Answer 10

…suffered loss due to the d’s breach (Omak Maritime Ltd v Mamola Challenger Shipping Co (The Mamola Challenger) [2010] )

Question 11

You may obtain damages for various kinds of loss including

Answer 11

▪ loss of profit
▪ damage to property
▪ physical injury
▪ loss of opportunity, and
▪ mental distress and disappointment, but only in limited situations.

Question 12

The court may award damages for a lost…

Answer 12

..opportunity.

Chaplin v Hicks [1911] 2 KB 786, the Daily Express ran a talent contest. The top 50 contestants had to attend an audition where 12 winners would be selected. The winners would be given theatrical engagements for three years. The claimant was one of the top 50, but the organisers failed to tell her the time and place of the audition. The Court of Appeal decided that the claimant was entitled to damages to compensate her for the loss of the chance of being one of the 12 winners.

A more modern example of a lost opportunity is the case of Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195, CA. Here the Court of Appeal held that the Council had a duty to consider all properly submitted tenders. The club had properly submitted its tender but it was not considered. The club had therefore lost the opportunity of being selected for the concession to run pleasure flights.

Question 13

Damages will not normally be awarded for distress or disappointment (Addis v Gramophone Co Ltd [1909]) What is the exception?

Answer 13

Damages for distress and disappointment can be awarded where the contract is to provide pleasure, entertainment, enjoyment or peace of mind. Jarvis v Swans Tours [1973]

It is sufficient if this is an important object of the contract.
Farley v Skinner [2001] 3 WLR 899, HL

Question 14

What are the three ways to limit damages?

Answer 14

Remoteness
Mitigation
Contributory Negligence

Question 15

The remoteness rule in contract means that the loss must have been within the..

Answer 15

…reasonable contemplation of the parties at the time of the contract as the probable result of the breach. This was established by Hadley v Baxendale (1854).

If the defendants knew that the mill would be idle then it is likely the decision would have been different and the defendants would have been liable to pay damages. The defendants would have known of special circumstances to bring the loss within their contemplation.

Question 16

What are the two limbs to the remoteness rule established in Hadley v Baxendale?

Answer 16

Loss which arises naturally from the breach will normally be within the parties’ reasonable contemplation at the time the contract was made (Limb 1).

Unusual loss will be within the parties’ reasonable contemplation only if the special circumstances which give rise to the loss are known to both parties at the time the contract is made (Limb 2).

Question 17

Why was the loss too remote in Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc 1994 ?

Answer 17

The House of Lords held that Scottish Power was not liable for the full loss suffered by the claimant as a result of an interruption in the electricity supply.

The interruption in electricity supply happened when the claimant was in the middle of a construction project which required a continuous pour of concrete.

Because of the interruption in supply, the work already done was worthless. The defendant did not know about the need for a continuous pour, and the House of Lords stated that there was no general rule that contracting parties were presumed to have knowledge of all techniques in each other’s business practices. However, the simpler the activity, the easier it would be to imply knowledge. In this case, the construction project was complicated and Scottish Power was not deemed to know about it.

Question 18

Why was the defendant’s knowledge at the time of the contract was informed so important in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949]?

Answer 18

Because the defendant did not know about the claimant’s highly lucrative contracts with the Ministry of Supply.

The defendant was liable for the loss of ordinary business profit. This was a reasonably foreseeable result of the late delivery as the defendant knew the nature of the claimants’ business and that they intended to put the boiler to immediate use.

The defendant was not liable for the loss of profit on the highly lucrative contracts with the Ministry of Supply. This loss of profit went beyond ordinary profit and, as the defendant had no knowledge of these special circumstances, the loss was too remote.

Question 19

If the loss arises in the usual course of things under Limb 1 in Hadley v Baxendale, the defendant will have imputed knowledge of it (ie he will be taken to know of it) and it will not be too remote.

If the loss is unusual loss under Limb 2 of Hadley v Baxendale, then it will be too remote unless…

Answer 19

…the defendant had actual knowledge of special circumstances at the time the contract was made.

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949]
Defendant’s knowledge at the time of the contract is crucial
If loss arises in usual course – the D will have imputed knowledge of it
If the loss is unusual, then it will be too remote unless the D knew of it.

Question 20

In The Heron II, the House of Lords considered the degree of probability needed in order for the loss to be within the reasonable contemplation of the parties.

The question to ask is whether the loss in question is ‘of a kind which the defendant, when he made the contract, ought to have realised was not…

Answer 20

…unlikely to result from [the] breach …’.

In Heron II it was found that loss may be recoverable in damages if it is likely, for the present purposes to occur as a consequence of the breach.

For the loss to be in reasonable contemplation it needs to be a loss that was likely to occur as a consequence of the breach.

Question 21

In Parsons (Livestock) Ltd v Uttley Ingham Ltd [1978], the court decided that if the defendant can contemplate the type of loss as a serious possibility, then all loss of that type is recoverable even though….

Answer 21

…the extent of the loss could not have been contemplated.

Although the Parsons case involved physical injury, Scarman LJ said that the same principles applied in loss of profit cases.

Question 22

In Brown v KMR Services Ltd [1995], The Court of Appeal held that, in this case, the underwriting losses, although of far greater magnitude than contemplated, were nevertheless of the same type as ones that were contemplated and so were not too….

Answer 22

…remote (following Parsons).

Obiter – loss of ordinary business profits is different in kind from those that flow from a contract which gives rise to very high profits. (which reconciles this with Vic Laundry).

Question 23

What happened in the Achilleas case?

Answer 23

Court will test what losses the D could reasonably taken to have assumed responsibility for.

The House of Lords had to decide whether the claimant could recover damages in respect of the extra profit it would have earned on the lucrative lost charter. Their Lordships were unanimous in deciding that that the claimant could not be awarded damages for loss of the lucrative charter as this loss was too remote.

In The Achilleas Lord Hoffman felt that the commercial background to the agreement made it clear that the charterer could not reasonably be regarded as having assumed the risk of the owner’s loss of profit on the re-charter of the ship.

Question 24

• What’s in the reasonable contemplation of the parties is judged when?

Answer 24

… at the time of the contract.
that’s the point at which the defendant might be said to be, in a general sense, assuming responsibility for what might go wrong.

Question 25

• It matters not whether the breach is unlikely: it suffices that the type of …? is likely.

Answer 25

…loss.

it suffices that the type of loss is a sufficiently likely consequence of the breach.

Question 26

• The parties don’t actually have to contemplate anything at all: liability depends on what, given their actual and imputed knowledge, would be in their…

Answer 26

….reasonable contemplation.

Question 27

The requirement that the claimant should mitigate his loss was illustrated by what case?

Answer 27

British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railway Company of London Ltd [1912]

This means that the claimant should take reasonable steps to ensure that his losses are kept to a minimum. The claimant cannot recover damages for losses which he could have avoided by taking reasonable steps. The court will decide what steps count as reasonable.

Question 28

If the claimant does take reasonable steps to mitigate, he can claim any expenses incurred in trying to mitigate even if his attempt is…

Answer 28

unsuccessful.

Question 29

The burden of showing that the claimant has failed to mitigate their loss is placed upon…

Answer 29

…the defendant. If he can do this then the court will not award damages for that part of the loss which was caused by the claimant’s failure to mitigate because really that loss was not caused by the breach.

Question 30

If the only cause of action for breach of contract is a negligent breach (eg breach of the term implied by s 13 of the Supply of Goods and Services Act 1982 that services performed in the course of a business will be carried out with reasonable care and skill) and this would also give rise to a claim in the tort of negligence, then which law would apply?

Answer 30

Law Reform (Contributory Negligence) Act 1945.

In this case, the claimant’s damages may be reduced on the basis of his contributory negligence.

Question 31

The basic rule is that damages are assessed by reference to the…

Answer 31

…time of the breach (i.e. the cost of goods or services at the time of the breach).

Question 32

A specified damages clause is…

Answer 32

…binding and the sum specified is the amount that will be paid regardless of the actual loss which the claimant has suffered.

The usual rules of measure of damages, remoteness and mitigation do not apply and the claimant may receive more or less than the loss suffered.
The crucial figure is the amount of compensation stated in the clause.

Question 33

A penalty clause is….

Answer 33

unenforceable.

Where the clause is a penalty, the court is free to assess damages in the usual way and the usual principles of measure of damages, remoteness and mitigation will apply.

Question 34

What is the test for whether a clause is a specified damages clause or penalty set out in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915]?

Answer 34

a) If the sum stated in the clause is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach then it will be a penalty
b) If the breach consists only in not paying a sum of money then if the sum stated in the clause is greater than the amount which ought to have been paid it will be a penalty.
c) If a single lump sum is payable on the happening of one or more of several events, some of which may cause serious and some minor damage, it is presumed to be a penalty.
d) The clause can be a specified damages clause even if it is difficult or impossible to pre-estimate precisely the loss which might be caused by the breach.

Question 35

In Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] held that a clause will only be penal if it imposes on the contract breaker a detriment which is out of all proportion to the…

Answer 35

…legitimate interest of the innocent party in enforcing the contract.

Question 36

IN Philips Hong Kong Ltd v Attorney-General of Hong Kong (1993) it was stressed that there was a need for parties in commercial contracts to be able to rely on…

Answer 36

..damages clauses on which they have agreed