Remedies

Question 1

I – Breach

2 kinds

Answer 1

• Anticipatory:
  o Repudiation (expressly or impliedly evincing an intention, by words or conduct, not to perform all or part of the contract, before performance is due) or
  o Impossibility (disabling oneself from performing before performance is due, ex. By selling the subject matter of the contract)
• Actual: failure to perform when performance is due

Question 2

In case of repudiation

Answer 2

of repudiation:

• If not express refusal, question is whether D’s acts or omissions would lead a reasonable person to conclude that D no longer intends to perform.
• Breach occurs at time of repudiation (not time performance is due), so that (if sufficiently serious) it entitles C to terminate the contract immediately and claim for damages:

Hochster v De La Tour (1853) 2 E & B 678

• Facts: D employed C to commence works for three months commencing in June, but repudiated in May. C could claim damages immediately and did not have to wait until June.

Question 3

II – Termination

A/ Effect of termination

Answer 3

• Discharges both parties from further performance of their primary obligations under the contract (though there are secondary obligations to pay monetary compensation for C’s loss) (Photo Production per Lord Diplock).
• Accrued and other continuing obligations remain enforceable, as do clauses relating to post-termination situation (agreed damages clauses, exclusion clauses…).
• Restitutionary claims are available (barring double recovery) – allowing C to sue for:
  o Restitution of money paid if there is total failure of consideration
  o Quantum meruit of reasonable value of goods or services supplied but not yet paid for under the contract

Question 4

II – Termination

B/ Conditions of termination

Answer 4

If breach is total C can obviously terminate, but if partial:

• Breach of a condition = termination allowed
• Breach of warranty = termination not allowed

Question 5

II – Termination
B/ Conditions of termination
1/ The levels of abstraction

Level I

Answer 5

• contingent or promissory obligation?
  o If contingent condition (condition precedent or subsequent) there is no question of breach so no termination (simply, the parties’ obligations don’t arise or are discharged)
  o If promissory condition (condition that one party has an obligation to bring about) go to Level II

Question 6

II – Termination
B/ Conditions of termination
1/ The levels of abstraction

Level II

Answer 6

• dependent or independent obligation?
  o Independent condition (C’s promise is independent of D’s performance) C cannot terminate if D fails to perform (though D is still liable for the breach)
  o Dependent condition (each party’s obligation to perform is dependent on the other’s performance or willingness to perform) go to Level III

Question 7

II – Termination
B/ Conditions of termination
1/ The levels of abstraction

Level III

Answer 7

• entire or divisible obligation?
  o Entire obligation (when D’s obligation must be completely performed before C is obliged to perform) C can terminate and does not need to perform, except:
  ♣ If D substantially performed (Hoenig v Isaacs), C cannot withhold performance but must pay after deducting loss suffered from the incomplete or defective performance
  ♣ D can claim restitution for the benefit conferred and accepted by C, or a quantum meruit (market value) if C had the opportunity to reject but accepted the benefit.
  o Divisible obligation breach gives C an action for damages, but not necessarily terminate (depending on the status of the term (go to Level IV)

Question 8

II – Termination
B/ Conditions of termination
1/ The levels of abstraction

Level IV

Answer 8

o	Condition (an essential term at the formation of the contract)  C can terminate and sue for damages for losses up to termination and loss of bargain
o	Warranty (a non-essential, subsidiary term at the formation of the contract)  C cannot terminate and can only claim in damages up to the time of the action (not loss of the bargain because the contract continues) 
o	Innominate term (if impossible to say at the time of formation how important the term is because the consequence of breach will vary in seriousness depending on the circumstances)  whether C can terminate depends on the seriousness of the actual consequences of breach for C:
♣	Whether the breach has/will deprive C of substantially the whole benefit it was intended he should obtain from the contract (Hong Kong Fir, Diplock LJ)
♣	Bar is very high – the test is the same as that of frustration (Telford Homes, Lewison LJ)

Question 9

II – Termination
B/ Conditions of termination
1/ The levels of abstraction

*Hong Kong Fir Shipping v Kawasaki [1962] 2 QB 26

Answer 9

• Facts: D chartered a ship to C for 24 months, but breached a term requiring the ship to be fitted for ordinary cargo service (seaworthiness term) by failing to provide competent personnel to maintain the ship. Thus the ship had many serious breakdowns and was only at sea for two out of the first seven months.
• Held: the seaworthiness term was an innominate term whose breach would only entitle the charterer to terminate if the consequence was so serious as to frustrate the commercial purpose of the venture (because such a term can be breached in many (some trivial) ways, it would be contrary to common sense to suppose that every breach would entitle termination). In this case, because of D’s steps to remedy the situation and significant length of charterparty left, C was not substantially deprived of the whole benefit and cannot terminate. Thus, C’s purported termination itself amounted to a repudiatory breach and D was allowed to sue for loss of profits.
• Diplock LJ: the legal consequences of breach of innominate terms do not follow automatically from a prior classification as a condition or warranty. It depends on whether the breach has/will deprive C of substantially the whole benefit it was intended he should obtain from the contract.

Question 10

II – Termination
B/ Conditions of termination
2/ The classification of terms

a/ By statute
*Sale of Goods Act 1979, ss 12-15A

Answer 10

• Conditions:
  o Title (s12(1))
  o Correspond with description (s13(1)) or sample (s15(2))
  o Satisfactory quality unless buyer’s attention was drawn or buyer’s examination ought to have revealed (s14(2) and s14(2C))
  o Reasonably fit for purpose that buyer has made known to seller (s14(3))
• Warranties:
  o Goods sold are free from charges or encumbrances in favour of third parties not disclosed or known, and quiet possession (s2(2), s2(4-5))
• No example of innominate term, but such is the effect of s15A(1) (which says that breach of implied conditions entitle buyer to reject (terminate), but the buyer must treat the breach as one of warranty if it is so slight to be unreasonable to reject)

Though NB:

The Hansa Nord [1976] QB 44

Question 11

II – Termination
B/ Conditions of termination
2/ The classification of terms
a/ By statute

The Hansa Nord [1976] QB 44

Answer 11

• Facts: D agreed to sell C animal feed with a term that “shipment to be made in good condition.” By the time the shipment arrived the market price of the feed had dropped. Some of the feed was found damaged (though some of it was substantially good condition), and C rejected the entire cargo, claiming restitution of the price paid because the shipment was not made in good condition. The seller then sold the goods to a third party who resold them to the original buyer for 1/3 the price.
• Held (CoA):
  o (1) That the term “shipment to be made in good condition” was not a “condition” but an innominate term which gave no right to reject unless the breach went to the root of the contract
  o The court was not precluded bysection 11 (1) (b) of the Sale of Goods Act 1893from so holding
  o Since the whole cargo was used for its intended purpose as animal feed, the breach did not go to the root of the contract and the buyers, though entitled to damages, were not entitled to reject
  o (2) That since the pellets were bought for use in cattle feed and were used for that purpose they were of “merchantable quality” and there was no breach of section 14 (2) of the Act of 1893.
  o (3) That although the buyers were not entitled to reject the goods they were entitled to damages for the difference in value between the damaged goods and sound goods

Question 12

II – Termination
B/ Conditions of termination
2/ The classification of terms
b/ By the parties

Answer 12

In principle possible for the parties to classify, but can be exploited by the stronger party so:

1) Court might find that parties used the label in a non-technical sense, leaving courts free to classify it as innominate
* Schuler v Wickman [1974] AC 235
- Facts: D had the sole right to sell C’s goods for four years. A clause made it a “condition” that D’s representatives should visit manufacturers each week to promote C’s goods. They failed to do so.
- Held (HL): it was not a condition because this would turn one missed visit (out of 1400 due) into a repudiatory breach. Though the label used by the parties is a “strong indication”, the fact that it leads to a very unreasonable result must be a relevant consideration (Lord Reid), so that the more unreasonable, the more necessary for the parties to make their intention abundantly clear.

2) Courts might interpret the termination clause restrictively to reduce their scope

Question 13

II – Termination
B/ Conditions of termination
2/ The classification of terms
c/ Classification by the courts

If statute nor parties classified, court must classify:

Answer 13

• Where there is a binding precedent, certainty generally requires it to be followed, though Lord Wilberforce warned that some previous classifications were overly technical and open to re-examination by HL
• Where there is no binding precedent, courts default to innominate term unless this is contra-indicated, though courts should not be slow to classify as a condition if intentions of the parties so indicates, especially in case of time clauses in commercial contracts (Bunge v Tradax)

Question 14

II – Termination
B/ Conditions of termination
2/ The classification of terms
c/ Classification by the courts

More likely condition if:

Answer 14

• Single performance with clearly specified time limit
• Can only be breached in one way
• Vital to the contract
• Necessary for commercial certainty

Question 15

II – Termination
B/ Conditions of termination
2/ The classification of terms
c/ Classification by the courts

More likely innominate if:

Answer 15

• Can be breached in different ways with varying degrees of seriousness
• Performance to take place over long time and substantial performance given
• Obligation is loosely framed

Question 16

II – Termination
B/ Conditions of termination
2/ The classification of terms
c/ Classification by the courts

*Bunge Corp v Tradax [1981] 1 WLR 711

Answer 16

• Facts: the buyer of soya bean meal was required to nominate the time for shipment, giving seller 15 days’ notice of quantity required. The seller would then nominate a port to load the goods. Shipment was required by 30 June. The buyer only notified on 17 June. The seller argued that it could terminate the contract.
• Held: the term breached was a condition because:
  o The need for certainty in commercial transactions
  o The seller’s obligation to nominate a port and be ready to load was dependent on buyer’s giving the notice
  o Damages for breach would be difficult to assess
  Precedents on similar time terms and predominant commercial practice

Question 17

II – Termination
B/ Conditions of termination
3/ The formal conditions of termination

Because a repudiatory breach doesn’t automatically terminate the contract (but gives C a right to elect whether to terminate or affirm):

Answer 17

• Termination must be clear and unequivocal (≠mere inactivity), and must generally be communicated to the other party
• Termination can only come after repudiatory breach (saying “if you don’t do X we’re going to terminate” is not enough – it evinces merely an intention to terminate and isn’t effective termination)
• C is not bound to elect at once (but can wait for performance or negotiate), though the amount of time C can wait will depend on the contract.
• There is no causal link required between breach and termination (if there is a repudiatory breach, C can terminate even if the real motif is to escape a bad bargain or some other reason – as in The Mihalis Angelos), though the fact that C is trying to terminate in bad faith can lead the court to say that there was no repudiatory breach (as in The Hansa Nord)

Question 18

II – Termination
B/ Conditions of termination
3/ The formal conditions of termination

The Mihalis Angelos [1971] 1 QB 164

Answer 18

• Facts: a ship was chartered to load a cargo of ore at Port X. The charterparty provided that (i) the vessel was “now trading and expected ready to load under this charter about July 1, 1965.” (“expected readiness clause”) and (ii) “should the vessel not be ready to load on July 20, charterers have the option of cancelling the contract”. On July 17, the charterers purported to cancel on grounds of force majeure (because there was no ore as a result of war-like activities). The ship owner accepted the charterers’ conduct as repudiation of the contract, and sued for damages. However, at that time, the ship was still in Hong Kong and could not have gotten to Port X in time, which would have entitled the charterparty to cancel anyway.
• Held (CoA):
  o The “expected readiness” clause was a condition, so that the charterers were entitled to terminate the contract on July 17.
  o However, had the “expected readiness” clause not been a condition, then on a true construction of the other clause, the charterers could not exercise their option to cancel until after July 20, so they would not have been entitled to cancel on July 17 (Lord Denning dissenting on this point) so would have committed an anticipatory breach. However, since the charterers would have cancelled anyway after July 20, the owners would have suffered no loss from the repudiation and would only have been entitled to nominal damages.

Question 19

II – Termination
B/ Conditions of termination
3/ The formal conditions of termination

The Mihalis Angelos [1971] 1 QB 164
Megaw LJ:

Answer 19

• Where there is an anticipatory breach of contract, the breach is the repudiation once it has been accepted, and the other party is entitled to recover by way of damages the true value of the contractual rights which he has thereby lost, subject to his duty to mitigate. If the contractual rights which he has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then the damages which he can recover are not more than the true value, if any, of the rights which he has lost having regard to those predestined events (post, pp. 209H - 210B).

Question 20

II – Termination

C/ Electing for affirmation instead

Answer 20

C may also (rather than terminate) affirm (continue with) the contract – C must evince an unequivocal intention (expressly or impliedly) to continue with the contract, with knowledge of the facts giving rise to the breach and their legal right to elect.
Once C has communicated their affirmation, it is irrevocable (Johnson v Agnew), though if D persists with their non-performance or commits another breach, C can use that to terminate.
If C affirms, both parties remain bound to perform their primary obligations, but C is entitled to damages for loss from the delay, and can sue for specific performance when performance becomes due.
However, C cannot always affirm – in White and Carter v McGregor, the advertiser was allowed to affirm but Lord Reid set out two limits:
- Need for the contract breaker’s cooperation (cannot affirm if C’s performance is dependent on D’s cooperation)
- Cannot affirm if no legitimate interest in performing the contract rather than claiming damages
o Burden on contract-breaker to show no legitimate interest

Question 21

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Makes two main arguments:

Answer 21

• That common-law courts deciding contracts cases had actually been attempting to protect people’s reliance expenditures, notwithstanding the fact that the doctrinal focus of the cases was often elsewhere, or that courts often claimed to be protecting people’s expectations.
• That the reliance interest, rather than the expectation interest, was the appropriate object of judicial protection:
  o There is not only a policy in favor of preventing and undoing the harms resulting from reliance, but also a policy in favor of promoting and facilitating reliance on business agreements – agreements mean little unless they are made on the basis of action; we aren’t only interested in preventing collisions, but also speeding traffic.

Question 22

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

There are three theories of damages:

Answer 22

• Expectation theory (put C back to position without breach)
• Reliance theory (put C back to position without promise)
• Restitution theory (make D return benefits derived from C because of the promise)

Question 23

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Thus, ranked in order of amount typically recoverable:

Answer 23

• Restitution interest (what breacher had obtained from the nonbreacher) ≤ reliance interest (whatever nonbreacher lost, whether or not the breacher got the corresponding benefit) ≤ expectation interest (restoring to the nonbreacher everything he gave up in reliance + any net profits he would have made had the contract been performed)

Question 24

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

IAO reliance interest was more worthy of protection than was commonly recognized:

Answer 24

• Restitution is the most worthy of protection because it corrects both the unjust enrichment of the breacher and impoverishment of the non-breacher
• Reliance interest presents only half as strong a claim as restitution since corrects the latter but not necessarily the former
• Expectation interest is least worthy because we pass from compensation for change of position to compensation for loss of expectancy, thereby changing from corrective to distributive justice. The law no longer seeks merely to heal a disturbed status quo, but to bring into being a new situation.

Question 25

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Policy arguments for expectation interest

Answer 25

Policy arguments for expectation interest is strongest in the case of a promise which forms part of a bargain and which has for its subject matter some economic value dealt with on an open market. However, courts have sometimes refused to protect the expectation interests in cases ranging from:

• Bargained for promises
• Promises not subject of bargains
• Situations that don’t even involve promises, much less bargains

Question 26

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Cases were “certainty” prevents enforcement of expectation interest

Answer 26

• The objection that expectation damages should not be allowed because “too conjectural” only succeeds where:
  o The contract relates to a subject matter of uncertain value, that is, having no “market” here the expectation interest is simply too uncertain to quantify so resorting to reliance damages in this case can be seen as a mere application of the certainty principle.
  o Where the plaintiff seeks to recover business profits which were indirectly prevented by the defendant’s default (ex. where the defendant breaks a contract to provide the plaintiff with premises needed for business purposes) here the profits are too “conjectural” so court substitutes expenditure, so can be seen as certainty. But there appears to be deeper considerations (ex. where D’s breach is wilful, this uncertainty doesn’t seem to matter as much), so that the application of the certainty standard varies (ex. it doesn’t seem to prevent expectation damages where the contract itself (and not profits) is uncertain)
• Thus, what is principally revealed in the actual application of the standard of certainty is a judicial disinclination to impose on the defendant liability for those injurious effects of his breach which do not result “directly,” but are due to the internal structure of the plaintiff’s business.
• Thus, in the principle of certainty are a number of considerations:
  o (1) a desire not to broaden unduly the liability of the defaulter by making “remote” injuries compensable;
  o (2) a desire not to impose on the defendant a liability felt to be disproportionate to the gains which he stood to make from the contract;
  o (3) a desire to restrict the liability imposed on the “innocent” defaulter in comparison with that imposed on the “wilful” defaulter;
  o (4) a desire for an easily administered rule.

Question 27

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Cases where enforcing the expectation interest would place an “undue burden” on the contract-breaker

Answer 27

• Example – in case of implied warranty of title in contracts for the sale of land, usually liability does not extend to the expectation measure (but protects restitution and some sort of reliance loss)

Question 28

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Cases where performance is interfered with by external events

Answer 28

• Here, though the courts don’t say it openly and use terms like “restitution” instead, it is clear that they protect the reliance interest as a compromise between the extremes of no liability at all, and liability for the full expectation measure.

Question 29

II – Termination
Commentary

Fuller and Perdue, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52, 373

Bargains relating to a subject matter non-commercial in nature

Answer 29

n/a

Question 30

|NOTE Katz (1988)

Answer 30

Argues that there is a missing remedy in F/P’s scheme, if we classify remedies based on:

IAO calls this fourth missing remedy “liquidated specific performance” (liquidated as in taking the form of money, and specific performance as in putting the promisor at the welfare level she would have enjoyed had she performed the contract).
The typical approach of law and economics to contract damages is to evaluate the standard damage measures on the criterion of efficiency (which measure maximizes the sum of social benefits less social costs):
- Efficiency of performance (damages should induce the promisor to perform when cost of performance <= promisee’s gain; otherwise breach) expectation damages protects this the most and reliance damages (insofar as it diverges) induces excessive breach or excessive performance
- Efficiency of reliance (damages should induce the promisee to make reliance investments when the social value of those investments exceeds their cost, and not otherwise) both expectation and reliance damages induces overreliance as it basically immunizes the promisee from the risk of non-performance (the optimal level of reliance being undertaking all investments less than a “discounted” cost for the chance of non-performance)
- Efficiency in risk bearing (damages should mimic the optimal insurance policy covering the risk of breach that the promisee would buy from the promisor in a perfect market) depending on the context all four theories can facilitate this
IAO it is wrong to try to argue that any one of the measures of damages is the most “normatively justified”: in each case, we are and should be moved by the perspective of both the promisor and the promisee, and both forward-looking and backward-looking perspectives have some appeal in concrete situations. We should simply enquire which best fulfills our conceptions of justice.

Question 31

|Ogus, Harris and Phillips, “Contract Remedies and the Consumer Surplus” (1979) 95 LQR 581

Answer 31

Consumer surplus is the subjective value of a thing in excess of its market value. Courts take them into account through specific performance or cost of replacement and by evaluating consumer surplus in calculation of damages, but are reluctant to do so because of overcompensation, reluctance to differentiate between commercial and consumer contracts, and economic waste.

Radford v De Froberville C argued that the wall on the boundary of his land was worth more to him than the increase it would make to the market value of his land because he liked the architecture and privacy it afforded.

Consumer surplus = maximum consumer would pay – market value = subjective value to contracting party in excess of market value.

Examples

• Holidays, family/wedding pictures – non-commercial
• A thing’s contribution to profit-making – commercial

How courts take account Rarely explicitly taken into account – often done indirectly

1) Discretionary power to force promisor to perform
2) Award enough money for C to hire a third party to perform
3) Evaluate consumer surplus when awarding damages for loss

Inhibiting factors preventing courts from taking into account

1) Reluctance to differentiate between consumer and commercial contracts: courts accustomed to think in terms of loss of profit/commercial interests
2) Fear of overcompensation/providing a ‘windfall’
3) Actual performance of contract would result in ‘economic waste’ (cost>utility)

Question 32

|Friedmann, “The Performance Interest in Contract Damages” (1995) 111 LQR 628

Answer 32

Performance interest is the sole pure contractual interest and Fuller’s and Perdue’s marginalization (by classifying restitution and reliance interest as more important) is erroneous as when you buy a house, you expect to get the house more than the money, and when you have stocks, you should get the market value rather than the money that you spent on it. Though F/P had a significant impact on academic thinking, it had little impact on substantive law as this evolved in the other direction with increased recognition of performance interest.

Performance interest =

• The interest in getting the promised performance
• The only pure contractual interest (sole purpose for formation of contracts)

Remedies

Specific remedies:

• specific performance and injunction
• Recovery of debt

Substitutional remedies:

• ‘Loss of bargain’/‘performance’ damages (put C into same position as if performed)
• Recovery of ‘substitute’ – promisor can’t perform but hires substitute
• Restitution of profits made by D through breach

Three interests ranked according to judicial recognition

1) Restitution interest – not a contractual interest (X who buys a house has an interest in getting the house, not his money back. So why does getting his money back rank higher than getting the house?)
2) Reliance interest – not a contractual interest
3) Expectation interest – inappropriate term for performance interest (Fuller and Perdue inappropriately classed this as ‘expectancy’ which hints at a benefit in the future not a legal right)

Performance interest marginalised by Fuller and Perdue

Recognizing reliance interest over performance interest is divorcing binding nature of contract from remedies resulting from its breach (like saying that if I buy stocks for $300 that are now worth $1000 I can only get back $300 – illogical because I should get back market value (expectation interest) not expenditure (reliance interest))

Contract vs. Tort

• Fuller and Perdue: adopting ‘tort principle’ (reliance interest) in contract would blur the barrier between branches and benefit legal thinking
• Author claims this is erroneous because there is no barrier: F/P’s analysis stems from the idea that tort look backwards (put C in position before tort) whereas contract looks forward (put C in position after contract performed), so adopting reliance interest puts C back to pre-contract and is beneficial.
• This is a misconception because basic principle is the same: in both contract and tort damages put C in position he would have been in had the wrong (tort/breach) not been committed. Differing results in contract/tort is because they protect different rights

Impact of F/P: substantive

Didn’t expressly advocate curtailing performance interest, but questions its justification

However, though impacted academic legal thinking, did not impact substantive law and performance interest continues to function at the heart of contract:

• Strengthening of protection of performance interest (traditional limitations removed)
• Principle that C should be placed in position as if contract were performed consistently applied
• Rules that limited prospect of obtaining full performance damages lost effect
• Where performance unsatisfactory, trend is to award cost of repair even if it exceeds difference in value
  Where cost of repair is significant and difference in value nil, trend towards awarding performance damages (Ruxley)

Question 33

Coote, “Contract Damages, Ruxley and the Performance Interest” [1997] CLJ 537

Answer 33

Court in Ruxley assessed value subjectively with respect to C rather than objectively with respect to a potential buyer, and the disparity between CoA and SC decision highlights ambiguity in the area of law governing cost of cure damages. The law in many instances protects performance interest, in line with the CoA decision, but the HL decision can be justified because contract can be read as “a little more or less” if contract greatly exceeds need.

• Judge in Ruxley reasoned that C didn’t want to install a diving board so 6ft was perfectly safe for diving off the pool edge (but not for a diving board); thus seems to assess value subjectively with respect to C rather than objectively with respect to potential buyer
• Very different decisions in SC and CoA illustrate ambiguity in this area of law (whether cost of cure or simply difference in value should be considered)
• Protection of performance interest:
  o Specific performance and injunction
  o Damages for fungible goods = cost of alternative
  o Right to reject for breach of an essential term, and to refuse to pay anything for less than substantial performance
• If the primary purpose of damages is to give substance to performance interest, then the CoA result in Ruxley would be consistent. But even the HoL result may be justified based on performance interest:
  o If D knew that C wanted the pool for a diver to prepare for the Olympics, then cost of cure would probably have been granted
  o But if depth contracted is greatly exceeding that needed, then contract can be read as “a little more or less”

Question 34

Cunnington, “Should Punitive Damages be Part of the Judicial Arsenal in Contract Cases?” (2006) 26 Legal Studies 369

intro

Answer 34

Argues that there is no reason for allowing punitive damages for tort and not contract, that Addis v Gramophone provides very weak authority for this proposition, and that the efficient breach argument is to be rejected because it vastly underestimates the cost of breach. Argues that in some cases, punitive damages can be a useful remedy to uphold the performance interest and the facilitative functions of contract.

Question 35

Cunnington, “Should Punitive Damages be Part of the Judicial Arsenal in Contract Cases?” (2006) 26 Legal Studies 369

Rejection of objections to punitive damages:

Answer 35

• In Addis (cited by Beatson as authority for no punitive damages), only two Lords addressed the issue, and one was in dissent. It should not be regarded as authority.
• Burrows suggests that because contractual obligations are imposed courts ought to tailor remedies to what the parties agreed (≠tort, where obligations are imposed).
  o But as Craswell notes the distinction isn’t that simple – tortious duties arise (i) in the performance of voluntary actions and (ii) sometimes can be excluded through exclusion clauses. Contracts are (iii) objectively interpreted.
  o Also, even if Burrows is right, it doesn’t prove anything because (i) contracts rarely say anything about remedies and (ii) surely the closeness of contractual relationships justifies harsher remedies than the arms-length relationships in tort.
• US CoA (Thyssen v SS Fortune Star) suggests that contracts govern commercial relationships (compensation easily quantified) whereas tort compensates injury and personal interests (hard to quantify, so noncompensatory damages justified).
  o Argument #1 = contractual damages are easy to quantify
  ♣ This is simply no longer true (because contract now compensates non-commercial interests)
  ♣ Even if it were it doesn’t explain why when compensatory damages are inadequate there shouldn’t be punitive damages
  o Argument #2 = contracts govern commercial relationships where stability and predictability are of crucial importance (so punitive damages should be denied) cited by Lord Atkinson in Addis to deny punitive damages
  ♣ False dichotomy (simply not true that contract = commercial; tort = personal)
  ♣ Even if it were true, (i) we have no interest in people planning to breach their obligations to be able to anticipate and budget for the cost of breach, and (ii) argument doesn’t apply to wilful contract breakers who can get the same certainty under punitive damages by negotiating release.
• Holmes Jr’s efficient breach theory should be rejected because:
  o Economically inefficient in:
  ♣ Failing to distinguish between opportunistic (breaching party attempts to get more than bargained for at the expense of other party) and efficient breach, the former doesn’t create wealth but merely redistributes it from one party to the other.
  ♣ Failing to take account of transaction costs (Coase) – efficient breach is actually unnecessary because people would simply negotiate release.
  • Posner disagrees and argues that negotiating release increases costs because it requires a new transaction.
  • But Friedman argues that Posner wrongly assumed that the payment of damages by the contract-breaker has no transaction costs.
  • Posner replies that negotiating release is likely to be very costly because of the existence of a “bilateral monopoly” (neither party has a real alternative to dealing with each other so would behave strategically.
  • IAO this is overstated because wrong to assume that litigation costs would be less (litigation for damages also occurs in a bilateral monopoly)
  o Fails to correspond to the present law which presupposes a duty to perform:
  ♣ Specific performance
  ♣ Tort of inducing breach of contract (Lumley v Gye – assumes that contractual performance was a right belonging to C)
  ♣ Right to repudiate for breach of essential terms
  o Fails to correspond to the expectations of contracting parties (Buckland – one doesn’t buy a right to damages, one buys a horse)

Question 36

Cunnington, “Should Punitive Damages be Part of the Judicial Arsenal in Contract Cases?” (2006) 26 Legal Studies 369

The future of punitive damages:

Answer 36

• Recent developments show that courts may recognize a role for punitive damages in contract: in A v Bottrill (PC (NZ), 2003) Lord Nicholls said that the availability of punitive damages should be co-extensive with its rationale…. Could punitive damages be co-extensive with the rationale of contract?
• Lord Devlin (Rookes) = a key function of punitive damages is the vindication of the strength of the law. Lord Nicholls adopted this view and added that sometimes the conscious wrongdoing and disregard for C’s rights by a D is so outrageous that compensatory damages are insufficient to show that the law will not tolerate such behaviour.
• AG v Blake = HL said that compensatory damages are not always adequate to protect C’s performance interest. However, the alternatives (injunction, specific performance) are discretionary and not always available so gain-based damages may be needed.
• This serves not only the individual but also society in preserving the security of transactions (by deterring D’s conduct).
  Most of the time, compensatory damages, injunction, specific performance and gain-based damages combined will be sufficient, but sometimes gain-based damages will be unavailable because D didn’t make a profit, and this is where punitive damages should come in.

Question 37

|Robertson “The Basis of the Remoteness Rule in Contract” (2008) 28 Legal Studies 172.

Answer 37

Argues that the identification of an implicit allocation of risk does not and cannot determine remoteness cases in contract - the remoteness rule is a gap-filling device which provides a method by which the courts can allocate risks which the contracting parties have failed to allocate.
The justice of the remoteness rule is not based on the notion that the defendant undertook responsibility for the risk in question, but on a concern that the defendant should have a reasonable opportunity to consider the risks that might arise from breach and take action to avoid them.
Insisting that remoteness can be resolved by reference to the intention of the contracting parties paints a misleading and simplified picture of the institution of contract. Contract is not exclusively concerned with obligations that have been voluntarily assumed. At the margins, at least, it is necessary for judges to fill gaps in the contractual allocation of risk and to determine the limits of the parties’ contractual obligations.

Question 38

|Whittaker ‘Distinctive Features of the New Consumer Contract Law’ (2017) 133 LQR 47 esp. 57 – 66

Answer 38

The terminology of rights and remedies in the2008 Regulationsand2015 Actis unhelpfully complicated and at times inconsistent (esp. as to relationship between substantive rights under the contract and consumers’ remedy when not met):
- 2008 Regs confer on consumers a “right to redress” in respect of some types of unfair commercial practices, so while they refer to “rights”, what the consumer actually enjoys are remedies (redress). The Regs confer a right to these remedies:
o Right to unwind is exercisable by the consumer unilaterally (merely rejecting the product within the time limit makes the contract come to an end), and gives rise to a right to refunds etc.
o Right to discount or damages need to be claimed from the trader, but if the trader rejects the court must enforce (and doesn’t have any discretion to refuse or substitute)
- Part I CRA 2015 is different:
o It appears that consumers in goods contracts enjoy a substantive right to the satisfactory quality of the goods, and then a series of special rights in respect of goods failing to conform (short-term right to reject, right to repair or replacement…). But the consumer might not enjoy the special remedies that they “have” because there is a double judicial discretion (s58)
o Also Chapter 2 (delivery of the wrong quantity of goods) give the consumer an entitlement to reject goods where trader fails to deliver in way foreseen, which “entitlement” may be to exercise the short-term right to reject (s26(3)). So the consumer might have an entitlement (right) to exercise a right to a remedy…

Question 39

|Whittaker ‘Distinctive Features of the New Consumer Contract Law’ (2017) 133 LQR 47 esp. 57 – 66

The rights themselves:

Answer 39

• Consumer’s right to cancel distance contract (Reg 34) = contract is said to be “cancelled”, but doesn’t seem to be entirely rescinded because the provisions that impose duties on traders arising from cancellation are treated as included in the contract as terms (so that failure to make restitution etc. constitutes a breach of contract)
• The rights to redress in respect of misleading actions and aggressive commercial practices (//misrepresentation, duress and undue influence):
  o Conditions are different but two of the rights look similar:
  ♣ Consumer’s right to unwind // misrepresentee’s right to rescind: consumer’s right can be exercised only for 90 days
  ♣ Consumer’s right to damages // misrepresentee’s right to damages (s2(1) MA 1967)
  o However, the consumer’s right to a discount is original and differs both from the remedies available under the general law and from other special remedies available to consumers.
  ♣ Law Com thought pre-set bands was easier than damages because difficult for consumers to establish loss
• Rights under Part I CRA 2015 also differs from general law:
  o Right to repair/replacement + right to repeat performance ≠ right to terminate the contract and/or recover damages which may cover cost of performance by third party (general law)
  o Hierarchy of rights (corrective remedies are primary) reflects (i) Consumer Sale’s Directive requirements for sale contracts, which reflect (ii) continental position where the binding force of contractual obligations is seen as requiring performance in the interests of both parties (consumer gets performance, and trader gets a “right to cure” performance and keep the price).
  ♣ But the CRA adopts this way of thinking for other goods contracts and services contracts which don’t fall into the scope of the Directive
  ♣ And in the Continent the creditor’s right to corrected performance reflects a general right to first performance, but the CRA doesn’t provide a right to specific enforcement of seller’s (primary) obligation to deliver conforming goods in the first place. This creates a disharmony where specific performance of the trader’s primary obligation remains exceptional (at common law) but specific performance of secondary corrective obligations becomes the norm (under the Act)…
  o Judicial discretion to (i) decide which special right the consumer should enjoy and (ii) as to enforcement of the consumer’s specific corrective remedies (s58).
  ♣ Thus courts have a discretion to order specific performance to enforce asecondaryobligation (replace/repair/repeat) whereas under the general law specific performance is available only to enforce a party’sprimarycontractual obligations under the Act specific performance protects the consumers’ remedial rights, rather than directly protecting their substantive rights under the contract.
  ♣ IAO this “discretion” cannot be exercised in the same way as common law discretion to award specific performance, because though it is governed by national procedural autonomy, it is subject to the principle of effectiveness.
  ♣ One way to reconcile the need to maintain the genuine character of the consumer’s right to repeat performance and concerns in awarding specific performance is to use the court’s statutory power to award damages in lieu of specific performance (s50 SCA 1981) the court can order damages in lieu of specific performance of the trader’s obligation to repeat performance.

Question 40

|Bridge, “Mitigation of Damages in Contract…”, (1989) 105 L.Q.R. 398

Answer 40

Inaccurate to speak of duty to mitigate because D doesn’t have corresponding right to mitigation; it is rather a factor taken into consideration when deciding on damages
Justifications for duty to mitigate
- Loss is not in fact caused by D’s breach of contract
- Loss is too remote – not in reasonable contemplation of parties at time of contract
- Contributory negligence
- Legal system should not sanction economic waste: objection is that legal system is not best placed to evaluate the allocation of community resources but should focus on the interaction between C and D
- Counter the strictness of contractual obligations
o Common law treatment of contracts differs from civil law in that it considers all contracts as strict and does not differentiate between degrees of strictness
o Thus mitigation is a disguised way of countering the strictness of contracts because it is discretionary and not governed by fixed legal principles
o Thus mitigation is a way to express what cannot be rationally reasoned out; avoiding economic waste can be one of the factors expressed, but is not the whole cause
- Disfavouring a one-way speculation at D’s expense
- Self-help: full damages may be too harsh on D when C has the means to reduce loss