Remedies Flashcards
Different ways to measure damages
Expectation
Reliance
Restitution
Expectation measure
Putting the innocent party into the position they would have been in had the contract been properly performed. Concerned with fulfilling the expectations of the party, so far as money can, as to the anticipated benefits that would have flowed from the successful completion of the contract. In particular, where the innocent was, as will commonly be the case, expecting to make a profit as a result of the contract, this will generally be recoverable
Robinson v Harman. Park B stated “the rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do, to be placed in the same situation with respect to damages as if the contract had been performed”.
How is expectation measured
This could be done through difference in value by reference to market value. Or through the cost of cure / the cost of remedying the breach.
Case for market value vs loss
Ruxley. Failure by the claimants to construct a swimming pool of the depth set out in the contractual specification. They claimed for cost of cure which was over £20,000. House of Lords held that there were two approaches in construction contracts for damages. The difference in value and the cost of reinstatement. Where it would be unreasonable to aware the cost of reinstatement (because for example the expense would be totally out of proportion to the benefit) the court should award the different in value. Given that the defendant had a perfectly serviceable swimming pool, appropriate measure was difference in value. Only nominal damages recoverable.
Reliance measure
this aim is to put the parties in the position they were in before the contact was made. Relates to expenses incurred by the claimant in reliance of the contract being performed. Injured party may opt to recover reliance loss instead of expectation loss.
Case for reliance measure
Seen in Anglia Television v Reed. The defendant contracted with the plaintiffs to play the leading man’s part in a television play. A few days later the defendant repudiated the contract. The plaintiffs could not get a substitute for the defendant and accepted his repudiation. They abandoned the production but incurred expenses. Elected to recover reliance loss to get expenses back.
When must reliance be used
Where expectation loss is too speculative then reliance loss must be claimed. McRea -CDC sold plaintiff the salvage rights over an oil tanker which was wrecked on a reef. Plaintiff conducted expedition at some expense to find there was no oil tanker or reek at the place the CDC had stipulated. The plaintiff sued for breach of contract and loss of profits. Loss of profits were too speculative therefore could only claim reliance loss.
However, not always available. This will be the case where the claimant had made a bad bargain so that even if the contract had been properly performed the claimant would not have covered their expenses.
Restitution
Aim here is to strip the defendant of profits made by breaching a contract. Where it is ‘just’ the courts may order disgorgement of illicit profits made by the defendants, even where the claimant appears to have suffered no direct loss. This operates in exceptional circumstances. Where ordinary contractual damages are not adequate, court may order party to hand over illicit profits
Cases for restitution
Wrotham Park Estate. Parkside build houses on its land which was in breach of a restrictive covenant with Wrotham Park Estate. WPE sought an injunction which would mean the houses would have been torn down. Courts refused as this would have been a waste of much needed housing. The construction of the houses had not caused any financial loss to the claimant. WPE were awarded 5% of anticipated profits. This account for the sum they might have received in order to consent to build the houses.
WWF World Wife Fund v World Wrestling Federation 0 dispute regarding the use of the initials WWF. 1994 Agreement the initials belonged to the nature group and the wrestling would stop using them, however until 2002 there was continued use. Court of Appeal held the agreement had been breached and the nature group petitioned for millions in damages, based on the Wrotham Park principle. However, there was no evidence that the wrestling organisation financially damaged the charity and the petition was unsuccessful.
Limits on compensation
Causation (novus actus interveniens)
Remoteness
Mitigation
Non-pecuniary
Causation
Loss must have been caused by the breach. Issues may arise where the defendant claims that, although there has been a breach, the loss has resulted from some other factor. Where the claimant is negligent and the negligence is a novus actus interveniens, this action provides a complete defence because it breaks the chain of causation.
Beoco Ltd v Alfa Laval – defendants supplied a defective machine. Plaintiffs put it back into operation without carrying out tests. It exploded causing damage and loss of production. Held that at one time the plaintiffs had a right of recovery for breach of contract but this was lost due to their negligent action. Any loss arising from the breach was extinguished by the explosion which destroyed the machine and was not attributable to the defendants.
Remoteness
Under the rules of remoteness of damage in contract law set out in Hadley v Baxendale (1854), a claimant may only recover losses which may reasonably be considered as arising naturally from the breach or those which may reasonably be supposed to be in the contemplation of the parties at the time the contract was made.
Is the loss a natural consequence of the breach? If not, is there specific knowledge of the potential losses in the mind of both parties when the contract is formed?
Specific knowledge
Specific knowledge case – Victoria Laundry. Boiler ordered from the defendant for the plaintiff’s laundry business. The defendant was aware of the nature of the plaintiff’s business and that he wanted the boiler for immediate use. The defendant was delayed in delivering the boiler. It was held they were liable for all losses reasonably foreseeable as a result of a delay, but not the loss of a highly lucrative government contract which was a one off and the details of which had not been communicated to the defendant.
Reasonable contemplation limits
Parsons – held that, when a loss is in the contemplations of the parties’ the extent of this need not be. This case considered a contract for the sale of an animal feed hopper. The ventilation of the hopper was defective amounting to breach of contract. The famers livestock became il through eating the feed as it was moldy due to the defect. The herd had to be destroyed. The defendants were liable since it was in the reasonable contemplation that there was a serious possibility that the pigs might become ill as a result of the defects.
Jackson v RBS – there are no limits to the extent of the loss that could be recovered if it was a loss that occurred naturally or was in the contemplation of the parties.
Mitigation
The aim of the doctrine of mitigation is to prevent the avoidable waste of resources. To minimise the amount of loss suffered. Generally, the injured party will be prevented from recovering losses which he failed to mitigate.
Mitigation case
Payzu – defendant agreed to sell silk to the plaintiff, payment to be made a month after delivery. Defendant breached the contract by refusing to make further deliveries except for cash. Plaintiff repudiated and bough more silk elsewhere. Plaintiff sued for damages on the difference between the contract price and the market price at the date of repudiate as the market price had risen. Held that, as the market price had risen, it would have been cheaper to accept the sellers offer to deliver for cash. Buyer had failed to mitigate so could not recover the full amount of damages. Thus, claimant will be debarred from claiming any part of the damage the would have been avoided by such steps.
Non-pecuniary losses
Damages for disappointment and distress are generally not recoverable in contract law. This can be seen in Addis. An employee was wrongfully dismissed in a particularly abrupt way could not recover damages for injury to his reputation by the manner of his dismissal. The law will generally allow damages for lost opportunity since it can generally be identified as financial loss. However, refused to awarded damages for injured feelings caused by humiliating and wrongful dismissal
Exceptions to non-pecuniary losses
- Where the main purpose of the contract was to provide mental satisfaction
In the case of Heywood, the plaintiff ordered solicitors to bring an action to stop a man from molesting her. They failed to secure a non-molestation order. She claimed damages for distress. This was successful as it was a failure to ensure peace of mind and freedom from non-molestation - Where the mental distress suffered was as a direct consequence of physical injury or inconvenience caused by the defendants breach.
Perry – claimant was led to buy a house that was falling down. The loss was foreseeable. It was held that the mental distress suffered was a direct consequence of physical injury or inconvenience caused by the defendants breach.
Agreed remedies - two types
Agreed remedies occur when the contracting parties agree what sum shall be payable in the event of a breach. This is used as it allows both parties to know what their liability will be. There are two types of agreed damages clauses: liquidated damages clause and a penalty clause.
Liquidated damages clause vs penalty clause
A liquidated damages clause is a genuine pre-estimate of the loss likely to result from a breach. A penalty clause is not a genuine pre-estimate, rather it is a threat to compel performance. For example If the estimate of loss of profits due to non delivery is £5000. The liquidated damage clause would be £5000, however a penalty clause could be £20,000.
Effect of LDC
The effect of a liquidated damages clause provides for fixed damages. Once a clause is held to be a LDC, the sum will be payable whether the actual loss is greater or smaller than this sum. Cellulose Acetate – defendant agreed to build a chemical plant for the defendant. If it took longer than the time stipulated they would have to pay £20 per week. Defendant completed 30 weeks late, but the claimant lost £5,850 as a result. Defendant argued they were only liable for £600 damages. Found it was a genuine estimate of the likely loss therefore was LDC and defendant only entitled to recover £600.
Effect of penalty clause
The effect of a penalty clause. The clause will be found to be invalid and the award of damages will be determined by the ordinary principles of contract law instead. If the actual loss is lower than the penalty amount, only the actual loss can be recovered because the penalty is invalid. If the actual loss is greater than the penalty amount, the non-breaching party should be able to claim its higher actual loss (Alder v Moore).
Case for penalty clause
Alder v Moore
Alder v Moore
In this place associations football players and union took out a policy of insurance on behalf of its member. According to the policy if a footballer were injured and suffering permanent disability from playing as professional, the footballer would be entitled to £500. One footballer was injured and totally disabled so claimed the £500 from the insurance. Signed declaration under terms of policy after he was paid agreeing to take no part as a playing member in any form of professional football in future otherwise he will be subject to penalty, returning the £500. However, he began to play prof football on a part time basis. He therefore had to pay the £500.
