Remedies

Question 1

What is the aim of damages for breach of contract?

Answer 1

To compensate the claimant for the damage, loss or injury they have suffered as a result of the defendant’s breach. This means putting the innocent party in the same position post-breach that they should have been in had the contract been performed.

If not suffered loss the damages recoverable are purely nominal (£1) - to acknowledge that there has been a breach of contract in a case where no other remedy is available.

Question 2

What is an expectation interest?

Answer 2

Putting the claimant in the position they ‘expected’ to be in.

Question 3

What are the three mechanisms for calculating the expectation interest?

Answer 3

• Cost of cure
• Diminution in value
• Loss of amenity

Calculating damages in some instances can be difficult.

Question 4

What is the cost of cure?

Answer 4

Represents the cost of substitute or remedial work required to put the claimant in the position they would have been in had the contract been properly performed.

Claimant must act reasonably in relation to the defective works (e.g. if they demolish a whole building and put up an entirely new building based on aesthetics their remedy was limited to the costs which would have been incurred for remedying the defects in the original building)

Question 5

What is diminution in value?

Answer 5

The difference in value between the performance received and that promised in the contract.

Question 6

Ruxley v Forsyth

Answer 6

A pool built 6 feet deep but was supposed to be 7.5 feet deep.

Court held the cost of cure would be unreasonable because the expense to rebuild the pool would be out of proportion to the benefit to be obtained (and the claimant did not intend to rebuild it).

Diminution in value was £0 - the pool had the same value at 6ft vs 7.5ft.

Calculated based on loss of amenity - reflecting the non-economic loss of pleasure the claimant suffered in not getting the pool he contracted for. - not likely in a commercial setting.

Question 7

What is loss of amenity?

Answer 7

Loss of amenity is awarded to reflect the non-economic loss of pleasure the claimant suffers for the breach of contract.

Fairly rare - and very unlikely to be awarded in commercial cases.

Question 8

How are expectation damages calculated?

Answer 8

Calculated by finding the difference between expected profit and actual profit.

Expectation damages = expected profit - actual profit

Question 9

What is the reliance interest?

Answer 9

This allows the claimant to recover the expenses which have been incurred in preparing for, or in part performance of, the contract which have been rendered pointless by the breach.

This aims to put the claimant in the position they would have been in had they never contracted.

Question 10

When will the reliance interest be used?

Answer 10

Relevant where expectation damages are highly speculative.

Reliance losses are incurred prior to breach NOT as a consequence.

Question 11

What are the special types of loss

Answer 11

• Mental distress
• Loss of reputation
• Loss of chance

Question 12

Damages for mental distress

Answer 12

Generally not awarded for breach of contract (e.g. no award for humiliating dismissal from employment).

Exceptions:

1) Cases involving contract whose purpose was the provision of pleasure, relaxation and peace of mind

2) Cases where major object (though not the whole purpose) of the contract was to provide pleasure, relaxation and peace of mind.

Question 13

Damages for loss of reputation

Answer 13

General rule is that damages will not be awarded for loss of reputation.

Exception:
Damages have been awarded for financial loss which was suffered due to an inability to obtain alternative employment due to employers breach of the implied term of trust and confidence - having worked for a corrupt bank negatively influenced his employment prospects.

Question 14

Damages for loss of chance

Answer 14

The loss of an opportunity is recoverable in damages if the lost chance is quantifiable in monetary terms and there was a real and substantial chance that the opportunity might come to fruition. Otherwise opportunity would be speculative.

Chance must be “real and substantial” - more than 50%.

Question 15

When can damages be recovered?

Answer 15

Can only be recovered if they are caused by the breach.

Cannot be recovered if they are too remote from the breach.

Damages can be reduced if the claimant has failed to take reasonable steps to mitigate its losses.

Question 16

What is causation for damages?

Answer 16

Claimant must establish a causal link between the defendant’s breach of contract and its loss in order to recover damages. Must assess:

Factual causation: ‘common sense approach’, defendant’s breach should be a dominant or effective cause of the loss if that loss it to be recoverable.

Legal causation: Must not be any break in the chain of causation. In particular intervening acts - if the intervening event was ‘likely to happen’ it will not break the chain
- a customer using an obviously broken coupling was treated as breaking the chain.

Question 17

Remoteness of damage

Answer 17

Not all losses flowing from a breach of contract are recoverable, the test is from Hadley v Baxendale. Damages should:

1) Loss of a type ordinarily and naturally arising from the breach
- not based on actual knowledge of the particular parties - looks at the ‘usual course of things’ and what loss is liable to result from a breach of contract in that ‘usual course’. If is deemed a normal type of loss - then will be recoverable under the first limb

if not:

2) the particular defendant had sufficient actual knowledge of the particular and special circumstances to be aware of those losses

Question 18

What is mitigation?

Answer 18

Where one party has suffered loss resulting from the other party’s breach of contract, the injured party should take ‘reasonable steps’.

Technically no obligation to mitigate, but losses attributable to a failure to do so are not legally recoverable. The claimant will not be able to recover the losses attributable to the failure to mitigate.

What steps are reasonable is one of fact.
Has been held it may include accepting performance under a new contract even when that performance amounts to a breach of the original contract - if defendant’s offer of performance remains the best substitute then it would be unreasonable not to go to that source.

Question 19

What is the restitution interest?

Answer 19

It represents the interest a claimant has in the restoration to them of benefits which the defaulting party has acquired at their expense - for a breach of contract.

There are exceptional cases where the court can require the defendant to account to the claimant for benefits received from a breach of contract

BUT common law damages for breach of contract cannot be awarded for the purpose of depriving the defendant of profits made as a result of the breach (other than in exceptional circumstances)
e.g. using state secrets to right a book and make £££
- awarded for egregious breach of terms that were known to be fundamental and strictly non-negotiable

Note: An innocent party cannot recover expenses that would have been wasted whether or not the breach of contract occurred

Question 20

When will restitution interest be awarded?

Answer 20

Not clear but this is what is gleaned:
- inadequacy of other remedies
- claimant has a legitimate interest in depriving defendant of their profit
- an efficient breach will not alone justify (a breach which puts the breaching party in a better position than if there had been no breach)

Question 21

What is total failure of consideration?

Answer 21

Occurs where one party party has provided something of value under the contract but has received nothing in return - in such circumstances the court may use the principles of restitution to prevent a party from benefitting from the lack of consideration.

Restitution will operate to reverse the unjust enrichment of one of the parties.

Question 22

What is a restitution claim?

Answer 22

Arises when there is a total failure of consideration.

Question 23

What are the thee remedial options to a consumer under the CRA 2015?

Answer 23

• Short term right to reject
• Right to repair or replacement
• Right to a price reduction or the final right to reject

Question 24

What is the short term right to reject?

Answer 24

Short term right to reject is available to the consumer for 30 days. Running from the time:
(i) ownership has passed; and
(ii) the goods have been delivered; and
(iii) in cases where the trader is required to install the goods or take other action to enable the consumer to use the goods, the trader has notified the consumer that steps have been undertaken

Question 25

What is the right to repair or replacement?

Answer 25

Is available unless repair or replacement is either impossible or disproportionate (in the sense it imposes an unreasonable cost on the trader relative to other remedies)

Question 26

What is the right to a price reduction or the final right to reject?

Answer 26

Consumer is not entitled to BOTH a price reduction and final reduction.
Remedy may only be exercised where:
(a) after one repair or one replacement the goods do not conform to the contract;
(b) the consumer can require neither repair not replacement of the goods (because it is impossible or disproportionate)
(c) required them to replace the goods but the trade is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer

General rule: where final right to reject is within 6 months they should be entitled to a FULL refund with no deduction for use (but doesn’t apply to motor vehicles)

Question 27

What are the two remedies for non-conforming digital content?

Answer 27

a) The right to repair or replacement:
- within a reasonable time and without significant inconvenience to the consumer - depends on facts
- precluded where this would be impossible or disproportionate

b) The right to price reduction: only exercisable where the consumer either cannot require repair or replacement or where the trader has failed to repair or replace the digital content within a reasonable time or without sig inconvenience to the consumer

Question 28

What are the remedies where the trader had no right to supply the digital content?

Answer 28

Right to a refund - where trader had no right to supply the digital content it supplied - must be given within 14 days (no fee for refund)

Question 29

What are the remedies where the digital content causes damage to device or other content?

Answer 29

Where digital content causes damage to a device or other digital content which belongs to the consumer and is a damage of the kind that would not have occurred if the trader had exercised reasonable care and sill - then consumer is entitled to repair or compensatory payment.

Question 30

What are the remedies where a service is non-conforming?

Answer 30

a) Right to require repeat performance: repetition must be within a reasonable time and without significant inconvenience to the consumer - consumer cannot require repeat performance if completion in conformity with the contract is impossible

b) Right to a price reduction: only available where repeat performance is impossible or where the trader has failed to provide repeat performance within a reasonable time and without significant inconvenience to the consumer

Question 31

What is a liquidated damages clause?

Answer 31

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

Question 32

What is a penalty clause?

Answer 32

A penalty clause is a liquidated damages clause which requires the party in breach to pay an excessive sum, such that it becomes a penalty and therefore the clause will not be upheld by the courts.

If struck out by the court the claimant will only be entitled to unliquidated damages as compensation for the breach.

Question 33

What is the test for if a clause is a penalty clause?

Answer 33

1. Is the clause a primary or secondary obligation?

a) A clause will be primary if it is part of the primary obligations in the commercial context of the contract (ie furthers the commercial objective of the contract)

b) A clause will be secondary if it is an obligation triggered by a breach of contract to compensate the innocent party.

If primary the cause will not engage the penalty rule at all (so will be valid)

2. If secondary, the clause will be a penalty if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation:

a) What (if any) legitimate business interest is served and protected by the clause?

b) Is the detriment imposed to protect that interest extravagant, exorbitant or unconscionable?

Burden is on the person alleging that the clause is a penalty.

Question 34

Examples of penalty clauses

Answer 34

Difficult to prove penalty where parties on level playing field have negotiated a contract.

• e.g. damages for non-compete clause was not a penalty
  e.g. parking fee for staying longer than limit was not a penalty

Drafting can make a difference:
e.g. £1000 for every day late in completion might be a penalty
BUT a lower payable price with a ‘bonus’ for delivery on time might be a primary obligation and avoid law on penalties

Question 35

What is specific performance?

Answer 35

An order of specific performance is issued by the court of the defendant, requiring it to carry out its obligations under a positive term of the contract.

If party fails to do it they will be in contempt of court which is imprisonable - making it more powerful than the original contract.

ONLY awarded in exceptional cases and only where damages would be an inadequate remedy.

Question 36

What is a prohibitory injunction?

Answer 36

A court order restraining a party from breaching a negative term.

If party breaches they will be in contempt of court which is imprisonable - making it more powerful than the original contract.

ONLY awarded in exceptional cases and only where damages would be an inadequate remedy.

Question 37

When will damages not be adequate?

Answer 37

Usually in cases where the subject matter is unique or irreplaceable - eg the sale or lease of land as in many cases the land is unique.

Question 38

What are the relevant equitable principles for specific performance and prohibitory injunctions?

Answer 38

a) The conduct of the claimant - must come to equity with clean hands (eg can’t also be in breach of contract)

b) The action must be brought within reasonable promptness - delay defeats equities.

Question 39

What principles apply to specific performance?

Answer 39

a) Will not be awarded where it would cause undue hardship on the defendant

b) A promise given for no consideration is not specifically enforceable, even if made as a deed.

c) Specific performance will not be awarded for contracts of employment. For other contracts of service will not be awarded if there has been a breakdown of trust and confidence between the parties or if the court would need to consider subjective opinions regarding performance.

d) Will not be awarded for breach of an obligation to perform a series of acts which would need the constant supervision of the court.

e) Will not be awarded for breach of contract which is not binding on both parties (i.e. if voidable at option of party A, party B will not get specific performance against party A) - especially important for minors

Question 40

What principles apply to prohibitory injunctions?

Answer 40

Only granted where ‘just and convenient’.

I.e. where a term of the contract is very broad, may grant an injunction on more narrow terms

Question 41

Deciding whether specific performance or injunction?

Answer 41

Court will look at substance not form - something may appear preventative (injunction) but is actually requiring the party to do something.

E.g. injunction to stop the party from ending the contract early is actually requiring the party to continue with the contract - specific performance is more appropriate.

Question 42

What is a guarantee?

Answer 42

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.

e.g. guaranteeing a loan

Question 43

What is an indemnity?

Answer 43

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

This means they have a primary obligation.

Can be two-party or three-party.

Question 44

Indemnity v Guarantee

Answer 44

Don’t look at what it is called, look at the substance.

If a contract is set aside, the obligation under the guarantee will also cease but an indemnity will remain in place.

Guarantees require formality - must be executed in writing and signed by the guarantor. Indemnities do not require any formalities.