Remedies

Question 1

What is the default approach to calculation of damages?

Answer 1

Putting the innocent party in the same position post-breach that they should have been in had the contract been performed - ‘expectation interest’

Question 2

What are the three mechanisms for calculating expectation interest?

Answer 2

1. Cost of cure
2. Diminution in value
3. loss of amenity

Question 3

When is cost of cure used?

Answer 3

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

Question 4

What is diminution in value?

Answer 4

The difference in value between performance received and that promsed in the contract

Question 5

What is loss of amenity?

Answer 5

Reflects the non-economic loss of pleasure - unusual in commercial setting

Question 6

What is reliance interest?

Answer 6

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

Question 7

What position does the reliance interest put the claimant in?

Answer 7

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

Question 8

Are damages available for mental distress?

Answer 8

General rule - damages not available for mental distress, anguish or annoyance

Exception - allowed if major object of contract was to provide pleasure

Question 9

Are damages available for loss of reputation?

Answer 9

General rule - not available

Question 10

Are damages available for loss of chance?

Answer 10

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

Question 11

Why are reliance losses relevant?

Answer 11

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)

Question 12

Can damages be recovered on behalf of another?

Answer 12

General rule - damages cannot

Exception - privity of contract

Question 13

What is restitution interest?

Answer 13

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

Question 14

What is the requirement for factual causation?

Answer 14

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

Question 15

What is the test for legal causation?

Answer 15

An act which would not be deemed likely to happen = breaks the chain of causation

Question 16

What is the two limb test for remoteness?

Answer 16

1. 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
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

Question 17

Was does it mean for the probable result of the breach to be in ‘contemplation’?

Answer 17

• 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

Question 18

At what point is contemplation judged from?

Answer 18

At the time of contracting, not at the time of breach

Question 19

How does restitution interact with unjust enrichment?

Answer 19

• 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

Question 20

CRA 2015 - Remedies where goods are not of satisfactory quality / reasonably fit for purpose / corresponding with description

Answer 20

• 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

Question 21

CRA 2015 - Remedies where digital media does not conform to contract at any time within 6 months beginning with day of supply

Answer 21

• 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

Question 22

CRA 2015 - Remedies where services are non-conforming

Answer 22

• 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

Question 23

What is a liquidated damages clause?

Answer 23

Clause stipulating a sum which is to be payable on a particular breach of contract, no more or no less

Question 24

What is a penalty clause?

Answer 24

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)

Question 25

What is the test for determining whether a clause is a valid ‘liquidated damages’ clause vs a penalty?

Answer 25

1. Primary or secondary obligation?
   - primary (furthers commercial objective) = valid
   - secondary (obligation triggered by breach of contract to compensate innocent party) = limb 2
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?

Question 25

Who bears burden of proof for penalty clause?

Answer 25

The person alleging it is a penalty

• hard to argue there is a penalty clause if negotiated on level playing field with professional advisors

Question 26

What is required for specific performance / prohibitory injunction to be awarded?

Answer 26

• Prove subject matter of contract is unique or irreplaceable, or an award of damages would be ineffective for adequate compensation
• discretionary and equitable remedy

Question 27

What is a guarantee?

Answer 27

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

Question 28

What is an indemnity?

Answer 28

A promise to reimburse someone in the event they suffer a stated loss

Question 29

What happens to C under a guarantee vs indemnity if the contract between A and B is set aside?

Answer 29

• Guarantee - C’s obligation also ceases
• Indemnity - C’s obligation remains in place

Question 30

What are the formalities for a guarantee or indemnity?

Answer 30

• Guarantee - must be writing and signed by the grantor
• Indemnity - no formalities

Question 31

What are damages?

Answer 31

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

Question 32

What is an example of a justified liquidated damages clause which protects the legitimate interest of the innocent party?

Answer 32

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

Question 33

What is the advantage of a claim for a debt or action for price?

Answer 33

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)

Question 33

Why must a claimant mitigate?

Answer 33

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

Question 34

When is specific performance available as a remedy for breach of contract?

Answer 34

1. Damages are not adequate
2. Rules of equity are satisfied
3. Cannot be a contract for personal services

Question 35

What do you need to look for in a liquidated damages clause?

Answer 35

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

Question 36

What is the innocent party entitled to when there is a total failure of consideration?

Answer 36

The innocent party is entitled to be refunded any amount paid upfront (via restitution)

Question 37

What is the claimant’s obligation to mitigate?

Answer 37

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

Question 38

What must a liquidated damages clause be in order to be valid?

Answer 38

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

Question 39

What will a liquidated damages clause be considered if it is a penalty?

Answer 39

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’