Remedies Flashcards
What is the default approach to calculation of damages?
Putting the innocent party in the same position post-breach that they should have been in had the contract been performed - ‘expectation interest’
What are the three mechanisms for calculating expectation interest?
- Cost of cure
- Diminution in value
- loss of amenity
When is cost of cure used?
Defective works: the cost of substitute or remedial work required to put claimant in position they would have been in
- the claimant must act reasonably regarding the defective works
What is diminution in value?
The difference in value between performance received and that promsed in the contract
What is loss of amenity?
Reflects the non-economic loss of pleasure - unusual in commercial setting
What is reliance interest?
Allows the claimant to recover expenses incurred in preparing for, or in part performance of, the contract which have been rendered pointless by the breach
What position does the reliance interest put the claimant in?
Puts the claimant in position the would have been had they never contracted
Only allows recovery of wasted expenditure incurred prior to breach
Expenses must have been recoupable if it had been properly performed - defendant must prove they would not have been
Are damages available for mental distress?
General rule - damages not available for mental distress, anguish or annoyance
Exception - allowed if major object of contract was to provide pleasure
Are damages available for loss of reputation?
General rule - not available
Are damages available for loss of chance?
Recoverable if lost chance is quantifiable in monetary terms and there was a real and substantial chance the opportunity might have come to fruition
- Where the chance of winning or obtaining the benefit is 50% or greater, the claimant should seek to recover their expectation loss in full and they will succeed if this can be proved on the balance of probabilities
Why are reliance losses relevant?
As the courts will not award expectation damages if they are highly speculative
Instead, the claimant is limited to its reliance loss (a more cautious, back-ward looking approach)
Can damages be recovered on behalf of another?
General rule - damages cannot
Exception - privity of contract
What is restitution interest?
Interest a claimant has in restoration of benefits which the defaulting party has acquired at their expense
Rare - only awarded where other remedies are inadequate and C has legitimate and exceptional interest in depriving D of profit
What is the requirement for factual causation?
Is breach dominant or effective cause of loss?
Damages can only be recovered if there is a causal link (factual and legal causation) between breach of contract and loss
What is the test for legal causation?
An act which would not be deemed likely to happen = breaks the chain of causation
What is the two limb test for remoteness?
- Does the loss arise naturally, according to the usual course of things, from the breach?
- Yes (normal type which would follow from breach) = loss recoverable
- No = consider limb 2 - Was it reasonably in contemplation of both parties at the time of contracting, as the probable result of breach? Burden of proof on claimant to establish this
Was does it mean for the probable result of the breach to be in ‘contemplation’?
- Particular defendant has actual knowledge and special circumstances to b aware of the risk
MCQ - ‘x did not tell y of these contracts’ - there is not evidence of actual knowledge
If there is no actual knowledge = losses are too remote and not recoverable
At what point is contemplation judged from?
At the time of contracting, not at the time of breach
How does restitution interact with unjust enrichment?
- Provides a remedy where there is a total failure of consideration
- Court may use principles of restitution to prevent party benefitting from lack of consideration
- Restitution will reverse the unjust enrichment of one of the parties
CRA 2015 - Remedies where goods are not of satisfactory quality / reasonably fit for purpose / corresponding with description
- short term right to reject available for 30 days
- right to repair / replace unless impossible or disproportionate
- right to price reduction / final right to reject if
a) impossible/disproportionate to repair/replace
b) tried once and goods still did not conform
c) trader failed to replace/repair within reasonable time
CRA 2015 - Remedies where digital media does not conform to contract at any time within 6 months beginning with day of supply
- right to repair/replace within reasonable time without inconvenience
- right to price reduction
- right to refund within 14 days if trader has no right to supply the content
- right to repair or compensation if digital content damages device
CRA 2015 - Remedies where services are non-conforming
- Right to repeat performance within a reasonable time/without inconvenience
- right to price reduction only where repeat performance is impossible or trader has failed to do so within reasonable time
What is a liquidated damages clause?
Clause stipulating a sum which is to be payable on a particular breach of contract, no more or no less
What is a penalty clause?
A liquidated damages clause which requires the party in breach to pay an excessive sum, such that it will be struck out by Court and claimant will only be entitled to unliquidated damages (assessed in normal way)
What is the test for determining whether a clause is a valid ‘liquidated damages’ clause vs a penalty?
- Primary or secondary obligation?
- primary (furthers commercial objective) = valid
- secondary (obligation triggered by breach of contract to compensate innocent party) = limb 2 - Imposes a detriment out of all proportion to any legitimate interest of the innocent party in performance of the obligation?
- what legitimate business interest is served and protected by clause?
- is detriment imposed to protect that interest extravagant, exorbitant or unconscionable?
Who bears burden of proof for penalty clause?
The person alleging it is a penalty
- hard to argue there is a penalty clause if negotiated on level playing field with professional advisors
What is required for specific performance / prohibitory injunction to be awarded?
- Prove subject matter of contract is unique or irreplaceable, or an award of damages would be ineffective for adequate compensation
- discretionary and equitable remedy
What is a guarantee?
A promise by a party to ensure another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so
What is an indemnity?
A promise to reimburse someone in the event they suffer a stated loss
What happens to C under a guarantee vs indemnity if the contract between A and B is set aside?
- Guarantee - C’s obligation also ceases
- Indemnity - C’s obligation remains in place
What are the formalities for a guarantee or indemnity?
- Guarantee - must be writing and signed by the grantor
- Indemnity - no formalities
What are damages?
A financial remedy that aims to compensate the injured party for their loss caused by breach of contract. The injured party should be put in the position they would have been in had the contract been properly perfromed.
Three ways to obtain damages:
1. Liquidated damages clause
2. Claim for debt
3. Unliquidated damages
What is an example of a justified liquidated damages clause which protects the legitimate interest of the innocent party?
It covers the loss suffered and protects the commercial interests of the innocent party
E.g., deterring the party from breaching a term which would damage the innocent party’s commercial position - such as not underselling their product
What is the advantage of a claim for a debt or action for price?
Claims for debt are not subject to the restrictions of damages: causation, remoteness or mitigation
Innocent party has a right to claim the fixed, unpaid amount as a debt (common in delivery contracts when delivery company delivers goods and buyer refuses to pay)
Why must a claimant mitigate?
Any losses incurred from a failure to mitigate or from unreasonable steps will be rejected.
If claimant fails to mitigate, and that failure to mitigate causes loss, that loss is not recoverable
Courts take claimant friendly approach
When is specific performance available as a remedy for breach of contract?
- Damages are not adequate
- Rules of equity are satisfied
- Cannot be a contract for personal services
What do you need to look for in a liquidated damages clause?
The legitimate interest that the clause is trying to protect
It can be struck out as a penalty if it does not protect a legitimate interest and is excessive
What is the innocent party entitled to when there is a total failure of consideration?
The innocent party is entitled to be refunded any amount paid upfront (via restitution)
What is the claimant’s obligation to mitigate?
There is no obligation to mitigate, but losses attributable to a failure to do so are not recoverable
Claimant should take reasonable steps to mitigate, such as:
- taking immediate action to minimise the impact of the breach;
- finding an alternative supplier
- it is not necessarily reasonable to expect the claimant to negotiate a lower price, especially if the primary goal is to enable the claimant to continue operating without disruption
What must a liquidated damages clause be in order to be valid?
It must be a genuine assessment of losses
- The figure must bear a relation to the legitimate interest that the innocent party is seeking to protect. Otherwise it will be a penalty
E.g., a penalty sum of 10% for breach, where the actual loss incurred is less than 1% is not valid as it does not reflect the innocent party’s legitimate interest
What will a liquidated damages clause be considered if it is a penalty?
A penalty and unenforceable where the sum to be paid by the defendant is ‘extravagant and unconscionable in comparison with the greatest loss that could be conceivable’
