Remedies

Question 1

What structure should you take toward a contractual remedies question?

Answer 1

1. Parties
2. Agreement
3. Terms
4. Breach
5. Condition, warranty, or innominate term
6. Liquidated damages clause or penalty clause
7. Unliquidated damages
8. Limiting factors
9. Conclusions

Question 2

What is the difference between a liquidated damages clause and a penalty clause?

Answer 2

Genuine pre-estimate of loss

Question 3

What guidance does Lord Dunedin give in determining whether a clause is a liquidated damages clause of penalty clause?

Answer 3

1. The word ‘liquidated’ or ‘penalty’ is not conclusive
2. The essence of a penalty clause is it is used to intimidate and the essence of a liquidated damages clause is genuine pre-estimate of loss
3. The clause must be judged from the time the contract was agreed and make take into account:
   a) extravagant or unconscionable fines
   b) if the breach is non-payment and the fine is greater it is a penalty
   c) where several different breaches arbitrarily demand the same fine it is a penalty
   d) there is no barrier to the fine being a genuine pre-estimate of loss if the consequences of breach are impossible to calculate precisely

Question 4

In which case did Lord Dunedin give his guidelines for determining a penalty clause?

Answer 4

Dunlop v New Garage and Motor Co

Question 5

If a penalty clause is found, what is the next step to determining damages?

Answer 5

We move on to unliquidated damages.

Question 6

What three types of unliquidated damages may a claimant sue for?

Answer 6

1. Expectation (Robinson v Harman confirmed in The Golden Victory) ie what C would have won had the contract been performed
2. Reliance (Anglia TV v Reed) ie what C has spent on reliance of the contract being performed
3. Restitution (AG v Blake) ie the profit D has made through breach is recovered by C.

Question 7

What three types of expectation interest are there?

Answer 7

1. Cost of cure (Birse Construction v East Telegraph) ie what it will take to fix the damage
2. Diminution in value (Ruxley Electronics v Forsyth) ie the loss in value of the subject matter due to the breach
3. Loss of amenity (Ruxley) ie C expected better performance, satisfaction or pleasure but there is no diminution in vaue

Question 8

What type of contracts is loss of amenity ‘unusual, if not impossible’ to obtain?

Answer 8

Commercial contracts (Regus v Epcot)

Question 9

Does the claimant have the option between which type of damages he seeks ie expectation or reliance?

Answer 9

Yes (Anglia TV v Reed), unless the expectation is too speculative (McRae v Commonwealth Disposals Commission).

Question 10

In what situation can C not claim for reliance?

Answer 10

When it is evident that C would not have recouped his expenses had the contract gone ahead (C & P Haulage v Middleton).

Question 11

Which case affirms that D has the burden of proof in showing C could not have recouped their reliance interest?

Answer 11

Omak Maritime v Mamola

Question 12

Is it possible to recoup expenses after the breach?

Answer 12

No

Question 13

What kind of remedies should be inadequate before applying for restitution interest?

Answer 13

Injunctions and specific performance.

Question 14

What must the claimant show he has to apply for restitution interest?

Answer 14

‘Legitimate interest’. It is not enough to show that a) the breach was cynical and deliberate, b) the breach enabled D to enter a more profitable contract elsewhere, and c) the breach put D out of his power to perform the initial contract.

Question 15

Why did the court apply the restitutionary measure in Esso v Niad?

Answer 15

1. Compensatory damages were excluded because Esso had no way of calculating loss of sales attributable to breaches
2. Esso’s legitimate interest resided in the corruption of their entire ‘Pricewatch’ scheme

Question 16

Esso v Niad has been criticised as taking a liberal approach to the restitutionary measure. Which three cases restore the conservative approach?

Answer 16

1. The Sine Nomine - regular commercial agreements will not attract the measure
2. Experience Hendrix v PPX Enterprises - distinguished from national security case AG v Blake
3. WWF v WWF

Question 17

Is it possible to obtain damages for mental distress?

Answer 17

Generally no (Johnson v Unisys Ltd), unless the purpose of the contract is for pleasure, relaxation or peace of mind (Jarvis v Swan Tours), or where a major object of the contract is for pleasure (Farley v Skinner (No 2)).

Question 18

Is it possible to obtain damages for loss of reputation flowing from breach of contract?

Answer 18

Generally no, but in Malik v BCCI the court recognised an implied term on the defendant employer to act honestly.

Question 19

Is it possible to obtain damages from loss of an opportunity?

Answer 19

Yes, if the damage is quantifiable and it is substantially likely the opportunity would have arisen (Chaplin v Hicks).

Question 20

What are the four limiting factors to unliquidated damages?

Answer 20

1. Causation (Galoo Ltd v Bright Grahame Murray)
2. Remoteness (Hadley v Baxendale)
3. Mitigation (British Westinghouse Electric v Underground Electric Rail)
4. Contributory Negligence (Vesta v Butcher)

Question 21

What is the rule for causation under Galoo Ltd v Bright Grahame Murray?

Answer 21

The breach should be the ‘dominant’ or ‘effective’ cause of loss.

Question 22

When may a novus actus interveniens break the chain of causation?

Answer 22

If it was unlikely (Monarch Steamship v Karlshamns c/f Lambert v Lewis).

Question 23

What is the two stage test in Hadley v Baxendale to determine if loss is not too remote?

Answer 23

1. If the loss may be reasonably considered to arise in the usual course of things (D is imputed knowledge), or failing that,
2. The loss was in the contemplation of both parties at the time of contract as a probable result of breach (D has actual knowledge).

Question 24

How was the test in Hadley v Baxendale applied in Victoria Laundry v Newman?

Answer 24

Victoria Laundry were able to recover for loss of profits accruing from plans to grow the business, but were not able to recover for loss of large government contracts.

Question 25

How does the test for remoteness in contract compare to that in tort?

Answer 25

According to The Heron II remoteness in contract is narrower in that the losses must be ‘not unlikely’ rather than ‘reasonably foreseeable’

Question 26

In which two cases was the ‘not unlikely’ test from The Heron II applied?

Answer 26

1. Balfour Beatty v Scottish Power - it was not in the contemplation as likely that a power cut would cause BB’s loss as BB were using unmanned concrete appliances
2. The Achilleas - it was not unlikely that charter prices would drop

Question 27

What additional test on top of remoteness may have been created in the case of The Achilleas according to Chitty on Contracts?

Answer 27

Two judges placed emphasis on the appellants not assuming responsibility for the drop in charter prices. Chitty says this amounts to a new element in addition to the test of remoteness.

Question 28

In which case did Lord Denning criticise the difference between the tests for remoteness and contract?

Answer 28

In H Parsons v Uttley, Denning LJ said the test should be the same where property damage was suffered.

Question 29

What does the case of British Westinghouse v Underground Electric Rail say the claimant should do?

Answer 29

The claimant should take ‘reasonable steps’ to mitigate their losses. The case makes clear there is no requirement to mitigate but losses attributed to failure to mitigate cannot be recovered.

Question 30

What is meant by ‘reasonable steps’ to mitigate?

Answer 30

1. C does not have to embark on difficult litigation (Pilkington v Wood)
2. C may have to take D’s offer if it’s the best value despite their breach (Payzu v Saunders)
3. C does not have to risk its reputation in order to mitigate losses (Banco de Portugal v Waterlow) and D is usually precluded from arguing that C did not mitigate enough because mitigation is not weighed in ‘nice scales’.

Question 31

When does the duty to mitigate not apply at all?

Answer 31

When D has wrongfully repudiated the contract and C decides to affirm the contract (White and Carter v McGregor).

Question 32

What is the only situation in which contributory negligence will apply according to Hobhouse J in Vesta v Butcher?

Answer 32

When D’s liability in the contract is the same as that arising in the tort of negligence. C would not be at fault if D had breached a strict contractual duty or an obligation expressed in terms of D taking care.