Damages for breach of contract

Question 1

Where does obligation to pay damages come from?

Answer 1

• secondary contractual obligation implied by contract by law
• damages are paid when contract is broken

Question 2

How much is payable

Answer 2

GP must pay a sum that will place the IP in as good a position financially as they would’ve been has the contract been performed according to its terms

Question 3

How can parties themselves quantify damages?

Answer 3

• classify the breach and say what breaches will discharge the contract
• liquidated damages clause
• exemption clauses

Question 4

Perry v Sidney Phillips and son (1982)

Answer 4

where C contracts with D for work on a house and D does work negligentl and the value of the house is less as a result
-held damages will be the cost of repair not the shortfall in market value

Question 5

minimum perfromance rule

Answer 5

• C can only prove the loss of the minimum benefit they’re entitled to recieve and any further loss is at D’s option and so isnt loss cause of the breach
• courts quanitfy damages on assumption that D chose to perform in the manner least onerous to himself (laziest)

Question 6

Example of minimum performance rule in Thornett & Ferr (1921)

Answer 6

• contract for the sale of 200 tonnes of potatoes, 5% or less
• seller repudiated contract and failed to deliver any potatoes at all
• buyer has lost 190 tonnes
• S was entitled to deliver any quanitity between 190 tonnes and 210 tonnes
• whatever quanitty S delivered in that range, B would be obliged to pay for
• B can’t demand for more
• where the contract can be performed in a variety of different ways we should quantify damages based on minimum level of performance available because S hasn’t lost more than that

Question 7

Where doesn’t the minimum performance rule apply?

Answer 7

-where according to the contract there is only one way to perform the relevant obligation

Question 8

Difficulty of minimum performance rule in employment contracts

Answer 8

• employee is entitled to discretionary bonus but employer commits breach so employee is denied it, employee seeks damages
• employer argues bonus is at their discretion s they could award 0 (minimum) and so the damages are 0
• this is incorrect
• courts do not accept there is a broad range of performance here, there is only one:
• employer was upposed to perfrom and asses the employee’s work and determine bonus accordingly

Question 9

Where does minimum performance rule apply?

Answer 9

-it applies where the contract allows for a range of performances

Question 10

Examples of intangible losses caused by breach

Answer 10

pain&suffering, distress and inconvenience and vexation

Question 11

Are damages recoverable for pain &suffering?

Answer 11

-yes, if it flows from personal injury

Question 12

Are damages recoverable for annoyance and vexation?

Answer 12

-generally damages are not awarded because even if it was allowed, the amount of money courts would award is very low so they don’t want many claims for such small amounts

Question 13

Exception to the recoverable rule for annoyance and vexation

Answer 13

• where the purpose of the contract is to remove one from the baggage of ordinary life (holiday contracts)
• there could be recoverable loss for the lack of provision promised (Jarvis v Swans Tours)
• if there is an express term designed to ensure that a particular source of vexation doesn’t exist

Question 14

Are damages recoverable for Loss of Amenity?

Answer 14

• construction of pool
• builder by mistake builds a pool that isn’t to the contractual specifications (not deep enough)
• breach made no difference to utility of the pool
• it was still safe
• added depth added no utility
• the breach doesn’t seem to result in any real loss
• houseowner was displeased as it wasn’t what he contracted for
• to make the pool deeper you had to destroy it and start again which costs over 20,000
• houseowner wanred that amount to rectify what builder did
• court decided this cost was too high and the cost of curing the pool subject t reasonableness test
• it wasn’t reasonable
• courts still awarded modest sum for loss of amenity which was a decrease in level of enjoyment of the pool

Question 15

What happens where the fact of the breach and what followed is not a matter of history, but of conjecture?

Answer 15

-courts have to determine what would likely have happened using balance of probabilities and draw legal consequences that would flow from that

Question 16

If the matter of conjecture lay within the control of either of the two litigating parties…

Answer 16

• normal principles apply
• C must prove on balance of probabilities what they wold have done and that the breach has made them loose out on something
• courts will quantify the loss based on evidence before them

Question 17

If the matter of conjecture doesn’t depend on C or D but what some 3rd party would have done…

Answer 17

-its charcterised as the claimant’s loss of an opportunity/chance and different approach to quantify damages

Question 18

Allied Maples v Simmons (1982)

Answer 18

• Cs were clients of D (solicitors)
• D negligent and failed to alert C of the impact of a particular contract term that had a bad impact on C
• C wished to sue solicitors in damages for breach of contract
• court held C was entitled to sue for loss of an opportunity to re-negotiate that term but didn’t know what would’ve happened if C had gone to property company before contract
• they could’ve been rejected them
• impossible to tell the outcome of re-negotiation
• C must show that they would’ve indeed tried to negotiate and they had a real chance of sucess
• if they can prove that they’ve established loss of on opportunity then courts decide the value of it
• courts also reflect the strenght of chance is assessing damages

Question 19

Reliance loss, Anglia TV v Reed (1972)

Answer 19

• R was an actor, entered contract with A to play leading role in their tv play
• R cancelled participation, agent double booked him
• R honoured other obligation/broke contract with A
• A was unsuccesful in findinf a replacement and were forced to cancel the project
• sued R for damages for breach of contract
• if not for the breach the play would’ve been produced
• there’s no way to no way to know–> we don’t know how commerically successful the play would be
• it would be a matter of pure speculation
• anglia made another claim and sued because they spent a lot of money on the project which was wasted by R’s breach
• that claim succeeded

Question 20

Main propositions of mitigation

Answer 20

• IP cannot fail to take reasonable steps to avoid/minimize loss at the expense of the contract breaker
• if you elect not to act the response of the law is to regard any furrther as caused by IP’s failure to mitigate loss and it may not be recoverabe through damages
• it must be possible for you avoid/reduce losss otherwise flowing from a breach of contract

Question 21

Exception to mitigation

Answer 21

• if it isn’t possible to avoid/redice loss
• if there is no availble market to buy subsititute goods or to sell
• if mitigation isn’t reasonable
• if IP lacks resources to take mitigatory act

Question 22

Clayton-Greene v De Courville (1970)

Answer 22

• actor refused to take substitute contract (mitigation)
• courts held it was reasonable because if he went back to a minor rule it would’ve injured his overall career progression
• it was reasonable for the actor to claim damages for breach of contract

Question 23

What happens if the mitigatory act costs money? Is it recoverable?

Answer 23

• expenses reasonably incurred in mitigation are themselves recoverable from GP
• they constitute damages for breach

Question 24

Sale of goods act s51(3), quanitfying damages for breach (non-delivery)

Answer 24

-where there is an available merket for goods, the measure of damages is the difference between the contract price and the market price of goods at the time it ought to have been delivered or time of refusal to deliver

Question 25

What effect can Post breach events in mitigation?

Answer 25

• after the contract is broken but before the court settles the damages to be paid
• damages can be reduced/wiped out by showing that even if contract was performed loss would have still ensued

Question 26

What is a liquidated damages clause?

Answer 26

-express contract terms that state how much should be paid for damages for breach of contract

Question 27

What are the advantages of liquidated damages clause?

Answer 27

• avoid difficulties of assessing/calculating damages

- all you have to do is read what contract says

Question 28

Disadvantages of liquidates damages clause?

Answer 28

• where there is an inequality of baragaining power in negotiations the dominant party might insert a clause that provides for a very large sum if the other party breaks the contract
• L.D instead of being compensatory could be abused by the other party

Question 29

What is the control mechanism for abusive L.D clauses?

Answer 29

the penalty rule

Question 30

If a clause is penal what follows?

Answer 30

• clause is invalid and is deleted from the contract

- parties must go back to common law remedies, damages are no longer available from invalid contract term

Question 31

Is the clause subject the penalty rule?

Answer 31

-rule is only concerned with contract terms that quantifies secondary contractual obligation to make reparation for a breach of primary contractual obligations

Question 32

Is a contract fee of early termination subject to the penalty rule?

Answer 32

• No

- it has nothing to do with breach of contract, just taking advantage for something the contract ALLOWS you to do

Question 33

Lord Dunedin on penal L.D clauses in Dunlop v New garage motor (1915)

Answer 33

a clause is penal if the sum it provides should be paid is “extravagant and unconscionable in comparison with the greatest conceivable loss”

Question 34

Lord Dunedin’s guidelines in Dunlop v New garage motor (1915)

Answer 34

• if the breach consists of only non-payment and the sum payable is greater it’ll be penal
• if the clause provides the same amount of money to be paid irrespective whether the breach is serious/trivial its likely penal
• where it’s impossible to pre-estimate loss as long as sum isn’t absurd it’ll be upheld

Question 35

Facts of Dunlop

Answer 35

• contract contained minimum price clause
• distributor told manufacturer they can only sell to approved customers and it must be at X price
• contract said if they broke these obligations each time they have to pay 5 pounds
• the loss didn’t seem to be compensatory
• the distributor buys from dunlop at a fixed rate and if they sell at a discount it does not affect Dunlop directly, so how is the 5 pound fee justified
• HL held clause was valid
• D’s fee wasn’t about each sale, it was trying to regulate the way its products were marketed
• D had genuine interest in it’s distribution network and terms in which its products were put into the market
• Clause was a legitimate way to achieve this
• clause was commercially justifiable

Question 36

Cavendish square holdings v Makdesi (2015)

Answer 36

• SC asked to revisit penalty rule
• SC asserted importance of broader commercial perspective and underlined the actual decision in Dunlop
• new rule= a clause is penal only where it is disproportionate to the legitimate interests of the beneficiary of the clause
• if the clause provides for payment that is disproportionate to that legitimate intrest it is penal
• the penalty jurisdiction is now to control major abuses, the vast majority of L.D clauses will be upheld

Question 37

Are Dunedin’s guidelines irrelevant? Can they still be applied?

Answer 37

-they can only be applied where the legitimate interest of the innocent party is specifically in financial compensation for the consequences of the breach

Question 38

When are equitable remedies appropriate?

Answer 38

-where they are considered justifiable or the common law remedies are insufficient on the facts

Question 39

What do equitable remedies do?

Answer 39

-they force GP to live up to the terms of the contract

Question 40

Two types of equitable remedies?

Answer 40

• specific performance

- injunction

Question 41

What is specific performance?

Answer 41

-a positive order that GP does what they promised in the contract

Question 42

Where are common law damages inadequate and equitable specific performance kicks in?

Answer 42

-if the product is rare or it has value that is not financial

Question 43

What role does the conduct of the claimant have in seeking an equitable remedy?

Answer 43

• where the court is asked to exercise judicial discretion based on fairness the claimant’s conduct must be able to withstand scrutiny
• claimant must also be prepared to perform in the same way their demanding

Question 44

What role does the circumstances of the defendant have in seeking an equitable remedy?

Answer 44

• award of SP might be unduly onerous/harsh on D

- in Patel v Ali an award of SP would have caused serious hardship on D and so courts refused to use it

Question 45

What role does mutuality have in seeking an equitable remedy?

Answer 45

-SP may be refused if it couldn’t be granted against C

Question 46

Constant supervision in Cooperative insurance society v Argyle stores

Answer 46

• tenancy agreement of a supermarket in a shopping centre
• D supermarket was key tenant and it had a positive obligation to keep premises open for retail during normal business hours
• supermarket was forced to close down stores and D shut their store without telling the landlord
• C sued and wanted the company back and trading (SP)
• HL said no
• SP couldn’t be given due to constant supervision
• obligation wasn’t to achieve a particular result on 1 occasion but to maintain an activity over an extended period of time throughout the duration of the lease
• if SP was given and D didn’t listen it would damage their reputation or cause high financial penalties
• it could cause even more dispute between both parties

Question 47

two types of injunctions

Answer 47

• prohibitory injunctions (you should cease to do something you promised not to do)
• mandatory injunction (used to require someone to undo what they did in brach of contract)

Question 48

What are courts wary of when it concerns injunctions?

Answer 48

-they don’t want to end up granting SP indirectly in circumstances where it wouldn’t be granted if applied for directly

Question 49

The Scaptrade (1983)

Answer 49

• time charterparty
• shipowner unlawfully withdrew ship from service of charterer and charterer cannot seek SP requiring the ship back
• charterer wants injunction that restrains shipowner from withdrawing the vessel from his service
• not granted
• its the same as the shipowner being compelled to make ship available
• its specific performance in disguise
• no injunction granted

Question 50

Rule for contracts of personal service/employment and equitable remedies

Answer 50

-SP and injunctions generally arent available

Question 51

Trade unions and labour relations consolidation act 1992, s2(3(6))

Answer 51

• can’t have order for SP/injunction against employee, stopping them from breaking contract of employment where the order would compel the employee to work for the employer
• employer can still sue for breach/damages but can’t do equitable remedies

Question 52

If an employer unlawfully, in breach of contract dismisses and employee they cannot…

Answer 52

get an order from court requiring employer to take them back

Question 53

Lumley v Wagner (1852)

Answer 53

• singer entered into contract with L to sing at his theatre for 3 months
• contract provided for those months, W wouldn’t sing for anyone else in England without L’s written consent
• withiut consent W agreed to sing at rival establishment
• L sought prohibitory injunction to prevent W from singing anywhere unless he permitted it
• injunction was granted
• it wasnt indirect SP
• contract was only for 3 onths and she could probably sing outside England
• she had money and could afford not singing for 3 months, so injunction didn’t force her to sing for L if she really did not want to

Question 54

Warren v Mendy (1989)

Answer 54

• W enters into contract with young boxer
• relations sour, B enters into contract with M to manage his affairs
• it infringes on contract with W
• if W sought prohibitory injunction to prevent B from renaging on their contract it would be indirect SP
• B was just starting ot his career, contract was for 3 yrs
• injunction woudl’ve meant either box for W or give up boxing
• it would force him to box for W
• no injunction granted

Question 55

What discretion does the court have under Senior courts act s5

Answer 55

-to award damages in addition to SP/injunction or instead of it