Remedies

Question 1

What is the Purpose of Damages?

Answer 1

To compensate the Claimant for Loss suffered, thereby protecting its Exepctation Interest.

In exceptional cases, the Reliance Interest or Restitution Interest may instead be used as the given benchmark.

Question 2

On which Principles will the Court award Damages?

Answer 2

• Causation.
• Remoteness.
• Mitigation.

Question 3

What are the Two Types of Causation?

Answer 3

Factual Causation:

• The Breach is objectively the primary cause of the Loss.

Legal Causation:

• The Defendant is directly, and thus legally, responsible for the Loss.
• If an Intervening Act disrupts the Chain of Causation, there will be no liability.

Question 4

What is the Principle of Remoteness?

Answer 4

The Loss must be closely linked to the Breach, either because:

• It naturally arises therefrom; or
• The Parties had Actual or Constructive Knowledge of the risk.

Although this is the default analysis, where it clearly conflicts with a specific commercial context, the Test is whether the Defendant assumed responsibility for the risk.

Question 5

What is the Principle of Mitigation?

Answer 5

• Unmitigated Losses are unrecoverable; therefore
• The Claimant must take reasonable steps to minimise its Loss after the Breach.

Question 6

What is the Expectation Interest?

Answer 6

The position the Innocent Party would have enjoyed had there been no Breach.

Question 7

How does the Court approximate the Expectation Interest?

Answer 7

• Cost of Cure.
• Diminishment of Value.
• Loss of Amenity.

Question 8

How is Exepctation Interest approximated using Cost of Cure?

Answer 8

By evaluating the amount required to correct the Breach, limiting Costs accordingly if the Claimant has acted unreasonably.

This is most often used in Contracts involving defective works.

Question 9

How is Exepctation Interest approximated using Diminishment of Value?

Answer 9

Where Cost of Cure is disproportionate, the Court will award the difference bewteen:

• The value of the Performance promised; and
• The value of the Performance received.

Question 10

How is Exepctation Interest approximated using Loss of Amenity?

Answer 10

Where Cost of Cure and Diminshment of Value are disproportionate, the Court will evaluate the Claimant’s Non-Economic Losses.

This includes such things as inconvenience, emotional distress, or loss of enjoyment.

Question 11

What is the Reliance Interest?

Answer 11

• The position the Claimant enjoyed before the Contract.
• As such, Wasted Expenditures are what the Court will use to calculate Damages; but
• The Claimant cannot resultantly enjoy a better position than Full Performance would have afforded.

Question 12

When will the Court use the Reliance Interest instead of the Expectation Interest?

Answer 12

When the Exepctation Interest is very difficult to calculate, particularly if it involves high degrees of uncertainty or speculation.

Question 13

What is the Restitution Interest?

Answer 13

The unwinding of the position the Defendant unjustly enjoys at the Claimant’s expense.

Question 14

When will the Court use the Restitution Interest instead of the Expectation Interest?

Answer 14

When traditional Compensatory Remedies are inadequate, particularly in light of:

• The nature of the Breach;
• The Breached Obligation’s Purpose; and
• The Claimant’s legitimate interest in preventing the Defendant from unjustly profiting.

Question 15

Which Types of Loss have Special Rules?

Answer 15

• Mental Distress.
• Loss of Reputation.
• Loss of Opportunity.

Question 16

What are the Rules concerning Mental Distress?

Answer 16

General Rule:

• Damages for Mental Distress are not recoverable.

Exception:

• The Substantive Purpose of the Contract is for Pleasure, Relaxation, or Peace of Mind.

Question 17

What are the Rules concerning Loss of Reputation?

Answer 17

General Rule:

• Damages for Loss of Reputation are not recoverable.

Exception:

• The Contract includes a Term of Trust and Confidence (Express or Implied).

Question 18

What are the Rules concerning Loss of Opportunity?

Answer 18

General Rule:

• Damages for Loss of Opportunity is only recoverable if:
  • The lost opportunity is financially quantifiable; and
  • It had a real and substantial chance of materialising.

Odds and Recovery:

• If the odds are over 50%, the Claimant may recover Damages as if it happened.
• If the odds are at least 50%, the Claimant may recover Damages based on the odds.

Question 19

When will Restitution be Awarded in lieu of Damages?

Answer 19

When there is a Total Failure of Consideration, meaning the Claimant provides value but receives none in return.

This is chiefly done to prevent Unjust Enrichment.

Question 20

What are Liquidated Damages?

Answer 20

Contractually-specified Damages.

Question 21

When will a Liquidiated Damages Clause be construed as a Penalty?

Answer 21

It imposes a cost disproportionate to the Claimant’s legitimate business interests beyond mere compensation.

This assumes the Clause is a Secondary Obligation — Primary Obligations cannot be Penalties.

Question 22

What is Specific Performance?

Answer 22

A Court Order to Perform a Positive Term under the Contract.

Question 23

When is Specific Performance usually Awarded?

Answer 23

• Damages would prove inadequate.
• The Subject is unique or irreplaceable.
• It would not cause undue hardship to the Defendant.
• The Subject does not:
  • Involve a Personal Service; or
  • Require constant monitoring by the Court.

Ultimately, it is at the Court’s discretion.

Question 24

What is a Prohibitory Injunction?

Answer 24

A Court Order to prevent the Breach of a Negative Term under the Contract.

Question 25

When is a Prohibitory Injunction usually Awarded?

Answer 25

• Damages would prove inadequate.
• It would not cause undue hardship to the Defendant.

Ultimately, it is at the Court’s discretion.

Question 26

What is a Guarantee?

Answer 26

A Secondary Obligation where a Third Party promises to:

• Ensure the Obligor Performs it Obligations;
• Perform the Obligations in the Obligor’s place; or
• Compensate the Obligee accordingly.

Question 27

What is an Indemnity?

Answer 27

A Primary Obligation where:

• A Third Party promises to compensate the Obligee for a specific Loss;
• Regardless of the Obligor’s Performance.

Indemnities can also exist just between two Parties.

Question 28

To what extent do Guarantees and Indemnities Depend on the Obligor’s Obligations?

Answer 28

Guarantee:

• The Third Party’s liability is directly dependent on the Obligor’s Obligation.

Indemnity:

• The Third Party’s liability is wholly independent from the Obligor’s Obligation.

Question 29

What are the Consequences of a Change in the Underlying Contract on a Guarantee vs. an Indemnity?

Answer 29

Guarantee:

• The Third Party will likely be released from liability if any significant changes are made.

Indemnity:

• The Third Party will not be released from liability if any significant changes are made.

Question 30

What are the Consequences of a Discharging the Underlying Obligation on a Guarantee vs. an Indemnity?

Answer 30

Guarantee:

• Guarantees are automatically released upon Discharge of the relevant Obligation(s).

Indemnity:

• Indemnities remain intact even after Discharge of the relevant Obligation(s), unless otherwise stated expressly.

Question 31

What are Formalities of Guarantees and Indemnities?

Answer 31

Guarantee:

• A Guarantee must be in writing and signed by the Third Party.

Indemnity:

• An Indemnity has no formalities.

Question 32

How are Guarantees and Indemnities Enforced?

Answer 32

Guarantee:

• The Obligee must first attempt to recover from the Obligor before turning to the Third Party, as its liability only arises if the Obligor defaults.

Indemnity:

• The Obligor can attempt to recover from the Third Party immediately.