Remedies

Question 1

what are damages and what is their aim?

Answer 1

a monetary award for breach of contract

aiming to compensate the claimant for damage, loss or injury they suffered as a result of the defendant’s breach

the aim is not to punish the defendant

Question 2

what are nominal damages?

Answer 2

nominal damages are a small amount awarded to the claimant to acknowledge that there was a breach where the claimant did not suffer loss due to the breach and where no other remedy is available

Question 3

what are the 2 main ways of assessing damages?

Answer 3

(1) expectation interest

(2) reliance interest

the claimant can choose which it seeks

Question 4

what is the aim of assessing damages based on the expectation interest?

Answer 4

damages to put the innocent party in the same position they would have been in had the contract been performed properly (had the breach not occurred)

this is to put the innocent party in the position they ‘expected to be in’

Question 5

what are the different mechanisms for calculating the expectation interest? (3)

Answer 5

(1) cost of cure

(2) diminution in vale

(3) loss of amenity

Question 6

what is the cost of cure?

Answer 6

mechanism for calculating the expectation interest in damages

cost of cure is the cost of substitute or remedial work to put C in the position they would have been in had the contract been performed properly

this is the method usually used for contracts involving defective building works - the cost of cure would be rebuilding the defective works

Question 7

what is diminution in value?

Answer 7

mechanism for calculating the expectation interest in damages

the expectation interest may be calculated by reference to the difference in value between the performance received and the performance promised in the contract

Question 8

what is loss of amenity?

Answer 8

mechanism for calculating the expectation interest in damages

the expectation interest may be calculated by reference to the non-economic loss of pleasure resulting from the breach

however, this is rare in commercial context

Question 9

what is the aim of assessing damages based on the reliance interest?

Answer 9

damages to put the innocent party in the position they would have been in had they never contracted

it allows recovery of the expenses which have been incurred in preparing for or in part performance of the contract which are rendered pointless by the breach

Question 10

what type of expenses are recoverable when assessing damages on the reliance interest?

(2 features to the expenses)

Answer 10

(1) losses incurred prior to the breach (not as a consequence e.g., for remedying the breach)

(2) wasted expenditure - i.e., innocent party cannot recover expenses that would have been wasted whether or not the breach occurred

Question 11

when would it be appropriate to assess damages based on the reliance interest rather than the expectation interest?

Answer 11

when assessment of damages on the expectation interest would be speculative and uncertain, the court employs the reliance interest

Question 12

are damages recoverable for mental distress, anguish, or annoyance?

is there an exception?

Answer 12

damages for mental distress, anguish, or annoyance are generally not recoverable

exception: they may be recoverable where the whole or major purpose of the contract is to provide pleasure, relaxation, and peace of mind

(rare in commercial contracts, not recoverable for hurt feelings from dismissal in employment contracts)

Question 13

are damages recoverable for loss of reputation?

is there an exception?

Answer 13

not recoverable

Question 14

are damages recoverable for loss of chance?

Answer 14

damages for loss of chance are recoverable if:

(a) the lost chance is quantifiable in monetary terms
AND
(b) there was a substantial chance that the opportunity might have come to fruition (i.e., not too speculative)

(note: courts are reluctant too treat such loss as speculative and will award damages on expectation interest even if the quantification of loss is not straightforward)

Question 15

are damages recoverable for loss suffered by another party?

Answer 15

no

Question 16

what is the restitution interest and when can it be awarded (2)?

Answer 16

the restitution interest represents the interest a claimant has in the restoration to them of benefits which the defendant has acquired at their expense from a breach of contract (unjust enrichment)

e.g., account for profits

it may be awarded where:
(1) other traditional remedies are inadequate,
AND
(2) the claimant has a legitimate interest in depriving the defendant of their benefit / profit

Question 17

what is a claim of restitution, when can it be claimed, and what is its effect?

Answer 17

restitution is a remedy where there is a total failure of consideration (one party received something of value under a contract but the other received nothing)

restitution will operate to reverse the unjust enrichment of one of the parties

Question 18

what are liquidated damages?

Answer 18

A liquidated damages clause stipulates a certain sum which is to be payable on a particular breach of contract

example: Company A hires a van from Company B. The contract provides that if A is late in returning the van to B then A will pay damages of 160 per day not returned (this is a liquidated damages clause).

Question 19

Why have a liquidated damages clause

Answer 19

• it fixes the amount that is due for a breach as a DEBT arising under the contract without the claimant having to deal with the uncertainty of establishing its case for damages in accordance with the principles of causation, remoteness, proof of loss, mitigation
• clarifies the risk of breaching the contract - which is taken into account when determining price of contract

Question 20

what is a penalty clause?

Answer 20

A penalty clause is a liquidated damages clause which requires a party in breach to pay an excessive sum , such that it becomes a penalty

Question 21

will courts enforce a penalty clause?

Answer 21

no

courts will strike penalty clauses and instead assess the claimant’s damages as unliquidated damages based on normal principles (causation, remoteness, mitigation, and proof of loss)

Question 22

what is the test for determining whether a clause is a penalty clause or an enforceable liquidated damages clause?

(Makdessi)

Answer 22

(1) If the clause is a primary clause, then it will not be a penalty and will be upheld

(2) If the clause is a secondary clause:

• it will not be a penalty if it protects a legitimate interest and imposes a detriment which is not disproportionate to protecting the legitimate interest
• it will be a penalty if it imposes a detriment out of proportion to any legitimate interest in performing the primary contract obligations

Question 23

what is a primary clause vs secondary clause?

(in determining whether a liquidated damages clause is a penalty)

Answer 23

a primary clause is part of the primary obligations in the contract and furthers its commercial objective

a secondary clause is an obligation which is triggered by a breach of primary obligation (e.g., to compensate the innocent party)

Question 24

what is the court’s approach to liquidated damages clauses in commercial contracts?

Answer 24

the court is reluctant to find a penalty clause in a contract freely negotiated between parties of equal bargaining power

Question 25

what is the remedy of specific performance?

Answer 25

an order of specific performance issued by the court will require the defendant to carry out its obligations under a positive term of the contract

positive term = requires a party to do something

Question 26

what is the remedy of prohibitory injunction?

Answer 26

a court order restraining a party from breaching a negative term of the contract

negative term = term requiring a party not to do something

Question 27

what is the benefit of pursuing a specific performance/ prohibitory injunction?

Answer 27

The benefit of the court telling a party to do something which the contract already requires or prohibiting a party from doing something that the contract prohibits is that breaching a court order has more severe consequences than breaching a contract – it can be treated as contempt of court and lead to imprisonment

Question 28

when can a claimant ask for specific performance / prohibitory injunction?

Answer 28

only when damages are not an appropriate or adequate remedy

(otherwise, they will not be granted)

e.g., specific performance may be available for breach of contract of land because land is unique, but not for failure to deliver a commonly available car as damages are adequate to allow replacement

Question 29

specific performance / injunction are discretionary remedies - what does this mean?

Answer 29

means that the court can consider all relevant circumstances and there are no clear criteria which, if satisfied, entitle a party to an injunction

Question 30

specific performance / injunction are equitable remedies - what does this mean?

Answer 30

means that the following equitable principles apply:

(1) claimant must come with clean hands - court takes claimant’s conduct into account (e.g., if C breached the contract or did not give complete account of events)

(2) claimant must bring the action with reasonable promptness

Question 31

6 additional principles applying to orders for specific performance

Answer 31

1) SP will not be awarded where it would cause undue hardship on the defendant

2) SP will not be awarded for promise given for no consideration (even if made by deed)

3) SP will not be awarded for breach of contracts of employment

4) SP will not be awarded for other contracts of services if there was a breakdown of trust and confidence between parties, or if the court would need to consider subjective opinions regarding performance

5) SP will not be awarded for breach of an obligation to perform a series of acts which would need the constant supervision of the court

6) SP will not be awarded for breach of a contract which is not binding on both parties – where a contract is voidable at the option of party A, party B will not get specific performance against party A

Question 32

2 additional principles applying to prohibitory injunctions

Answer 32

1) The court has the power to decide the extent of any prohibitory injunction it wishes to grant, and the court may limit an injunction to what it considers reasonable in all the circumstances of the case

2) Prohibitory injunctions are granted only where ‘just and convenient’

Question 33

why would a party prefer a guarantee, indemnity, or both to be included in a contract?

Answer 33

these provide additional protection aside from damages

the difference between damages and guarantees/ indemnities is that an award of damages must satisfy the rules of causation, mitigation, remoteness, and proof of loss while guarantees and indemnities do not

Question 34

what is a guarantee?

Answer 34

A guarantee is a promise by a party to ensure that another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so

Question 35

is a guarantee a primary or secondary obligation - and what does this mean?

Answer 35

secondary obligation

this means (if C guarantees A’s obligation to B):
(1) C’s obligation is defined by and dependent on A’s obligation to B
(2) C cannot face any obligation that is greater than A’s obligation
(3) If A’s obligation ceases (e.g., contract between A and B is set aside), C’s obligation also ceases
(4) If there is a change to the contract between A and B after the guarantee is given, the guarantee will always be discharged

Question 36

what are the formalities of creating a guarantee?

Answer 36

must be in writing and signed by the guarantor

Question 37

what is an indemnity?

Answer 37

An indemnity is a promise by a party to reimburse someone in the event that they suffer a stated loss

this can be either:
1) C indemnifies B from any losses which arise from A’s failure to perform its obligation to B
2) A agrees to indemnify B in relation to losses suffered in A’s performance of its contract with B

Question 38

is an indemnity a primary or secondary obligation - and what does this mean?

Answer 38

primary obligation

this means (if C indemnifies A’s obligation to B):
(1) C’s obligation is legally independent of A’s obligation to B
(2) C’s liability might be more than A’s was
(3) If A’s obligation ceases (e.g., contract between A and B is set aside), C’s indemnity will remain in place
(4) If there is a change to the contract between A and B after the indemnity is given, the indemnity will remain in place