Remedies: Damages

Question 1

Most commonly sought form of relief in Contract Law

Answer 1

The common law remedy of damages is the most frequently sought relief in cases of breach of contract.

Question 2

How are damages calculated?

Answer 2

While in tort, damages are calculated to restore a plaintiff to the position in which she would have been in had the tort not occurred, in contract, damages are assessed with the aim of putting the
plaintiff in the position in which she would have been had the contract been performed

Question 3

Hickey v HSE [2008]

Answer 3

“The rule of the common law is that where a party
sustains a loss by reason of a breach of contract,
he is, so far as money can do it, to be placed in the
same situation, with respect to damages, as if the
contract had been performed.”

Question 4

Doran v. Delaney [1999], Geoghegan J

Answer 4

“If a party to a contract breaks that contract the
other party is entitled to be compensated on the
basis of what he has lost by reason of the contract
not being performed.”

Question 5

Remoteness of Damage

Answer 5

Where there has been a breach of contrat, all sorts of dreadful consequences could flow from that. But, that does not mean all those losses will be compensated.

If you book a taxi to bring you to the airport, tomorrow morning at 7am. The taxi driver doesn’t turn up, at all. Because they don’t turn up as agreed, you aren’t at the airport in time for your flight, miss your flight, and miss your job interview with a law firm. Because it is missed, you don’t get offered a job by them. And you miss out on your highly lucrative commercial law career in London. Had a breach of contract with the Taxi driver, can you recover indefinitely? No. Taxi driver is not liable for everything. Remoteness

Question 6

British Columbia Saw-Mill Co Ltd v Nettleship [1868]

Answer 6

Man going on horseback to marry an heiress. Horse had a problem with this shoe.
Goes to a Blacksmith to remedy the issue, but, did his job so badly, that it was rendered lame.
Arrived so late, heiress married somebody else.
Sues Blacksmith for loss of marriage, and he recovered. Since then, things have tightened up

Question 7

LEADING CASE: Hadley v Baxendale [1854]

Answer 7

Where the defendants had breached their contract with the plaintiffs by making late delivery of an engine shaft for a mill in Gloucester.
Delivery was required by the contract to be performed within one day, but it actually took a week.
This meant that the mill was out of operation for a full week, resulting in a loss of profits. Could these be recovered as against the defendant?

The Court held that damages were available either if the damages were (a) such as would flow naturally from a particular breach of contract; or (b) such as may reasonably have been supposed to be in the contemplation of both parties, at the time of making the contract, to be a probable result of a particular breach

This damage did not flow naturally from the breach: could have had a spare part, reasonable clause. The fact that they did not have such a contingency plan in operation was a special circumstance of which the defendant did not have actual knowledge. However, it was also not communicated to the defendant
that the mill would have to shut down, were the shaft to be delivered late.

If plaintiff had have made urgency known, e.g. that it was required to allow the mill to function, then it may have been recoverable as it would have been within the contemplation of both parties at the time the contract was entered.

Question 8

Balfour Beatty Construction v Scottish Power PLC [1995]

Answer 8

Plaintiffs were the main construction company on the Edinburgh bypass, aqueduct. Defendants agree to supply electricity. Power-cut.

Difficulty. Breach of contract. Temporary power-cut, all of the work done on the aqueduct was rendered worthless as it required a constant supply of electricity, and it had to be demolished.

Massive loss but, the damage was too remote! HOL would not reward damages. Applying Hadley,
1. Not the sort of damage that usually arises from a power-cut to a construction site
2. Defendant did not know about the need for a constant supply of electricity, nor was there any reason why they should be presumed to know about it.
3. Special circumstances of the aqueduct had not been communicated by the plaintiff.

If this had been communicated, the plaintiff may have not recovered, by not entering the contract due to the risk, or by charging at a much higher price to reflect the risk they carried at the plaintiff’s request.

Question 9

Parsons Ltd v Utley Ingham [1978]

Answer 9

Plaintiff pig farmers ordered a storage hopper for storing pig nuts. Filled and released periodically to automatically feed the pigs

Storage hopper was negligently installed by the defendants, so when the nuts are fed in, they rotted.

Rotted nuts fed to the pigs, causing intestinal disease of such severity, so that 254 pigs perished.

Breach of contract. Defendants attempted to argue that the death of the pigs was too remote of a consequence, and they should not be liable. Severity was unforeseen.

Court rejected the defendants’ argument. It
was enough for the plaintiff to establish that illness was the natural consequences of the defective feed being given to the animals.

Fact that the illness caused the deaths of a
significant number of pigs did not make the loss too remote (which makes sense as remoteness does not relate to the size of the loss, but rather its proximity in causation terms to the breach of contract).

Question 10

Kemp v. Intasun [1987]

Answer 10

Element of formality to the communication of the Hadley test.

Mrs Kemp and her daughter called to Thomas Cook to book a summer holiday. Referred specifically in chatting to the sales assistant, to the fact that her husband suffered from asthma, and that special health insurance was required due to her husband’s condition.

Booked a room in a particular hotel – “The America 1”- in Mallorca. The booking form had a space for “special requests” but nothing entered. The hotel was full and the Kemps were taken to an inferior hotel, where their room was in staff quarters and was filthy and dusty. Breach of contract -> holiday promised was vastly different from the holiday delivered.

Mr Kemp ended up suffering an asthma attack which caused him and his family considerable distress. An award of £400 for inconvenience and disappointment was not appealed by Intasun but an extra award of £800 for the consequences of the asthma attack was appealed by Intasun as being too
remote.

Intasun should have reasonably contemplated that
the conditions in a room provided by way of alternative accommodation might foreseeably be injurious to Mr Kemp’s health. Mrs Kemp’s evidence
established that the conversation in Thomas Cook’s had been casual and not part of the booking arrangements.

Kerr LJ found that the trial judge had erred in attributing any contractual consequences to that casual conversation, at the time of the conversation (whatever about later in the transaction), Thomas Cook was not Intasun’s agent. Too remote!

Question 11

Heads of Loss

Answer 11

When there has been a breach of contract, your losses can be quantified under different headings. Can recover under any heading you like, but cannot double-count or recover the same loss twice when they overlap under headings. There are three generally recognised primary types or heads of losses:
1. Expectation loss: compensates the plaintiff for the expected profit had the contract been carried out
2. Reliance loss: compensates the plaintiff for wasted expenditure incurred in reliance on a person to carry out a contract e.g. hiring of staff, getting materials, etc.
3. Restitutionary loss: arises where the plaintiff has conferred some benefit on the defendant under the contract, e.g. a deposit. If the defendant then fails to perform the contract it is open to the court to order that the benefit be returned to the plaintiff.

But, presumption that the performance of the contract will make a profit - not always true! Have to prove that the contract would have been profitable. May be better off recovering wasted expenditure rather than expectation, etc.

Question 12

Anglia Television v Reed [1972]

Answer 12

US actor Robert Reed pulled out of a contract in order to be free to make a TV movie at the last minute. Could not be replaced so the original film
– a film of the play “The Man in the Wood” - had to be
abandoned.

Plaintiff has incurred considerable expenditure in preparing for the movie, both before and after the contract was entered - hiring actors, engaging script writers, etc.

Defendant contended that only the expenditure incurred after the contract was entered into could be recovered. Not liable for any prior expenditure, but, casting is one of the last things to be done.

Case heard by Lord Denning, very little enthusiasm for film or films. The plaintiff could recover all that loss which flowed from breach of contract notwithstanding that the particular expenditure was incurred before the contract was concluded. The plaintiff could not claim both for loss of profits and
wasted expenditure Plaintiff had a choice as to which head of loss they would claim.

Hard to prove a shitty sounding film would have made profit. Tactically, better off recouping wasted expenditure rather than for lost profits that may not satisfy the judge.,=

Question 13

If a plaintiff would have lost money but for the breach of contract by the defendant, then…

Answer 13

…it cannot recover damages to compensate in respect of expenditure incurred in reliance on the contract.

Question 14

Bowlay Logging v Domtar [1978]

Answer 14

The defendant contracted to provide trucks to transport logs to the plaintiff’s sawmill.
They failed to provide a sufficient number of trucks, in breach of contract.
However, the plaintiff would not have made a profit had sufficient trucks been available: the sawmill was an economically unviable operation which was losing money on each consignment of logs.
It would have made an even greater loss had the defendant actually performed its obligations under the contract.
The plaintiff claimed, not for expected profits (which were obviously non-existent) but for the recovery of expenditure incurred in the expectation that sufficient trucks would be available.
It was held that damages were not recoverable. The plaintiff’s losses on full performance would have exceeded its losses on expenses thrown away.
It was contrary to the principle of reliance loss to put the plaintiff in a better position than it would have been in had the contract not been performed. Reliance here had not led to any loss. Concept of how damages are awarded does not make sense here.

Question 15

Intangible Loss -> Lost Chances

Answer 15

The quantification of damages in situations where loss is intangible is particularly difficult. However, the courts have taken a pragmatic approach to the assessment of loss in these circumstances. One question which arises is whether a party can claim for “loss of a chance”, i.e. claim that but for the defendant’s breach of contract, a certain event might have happened.

Lost chances used to be dismissed as too conjectural to ground a claim for damages. This changed with the case of Chaplin v Hicks [1911]

Question 16

Chaplin v Hicks [1911]

Answer 16

The defendant was an actor and theatrical manager who advertised a particular contest for actresses, inviting applications from young women.
Under the terms of this contest, 12 winners would be selected and would be engaged for a three-year term (4 actresses working for £5 per week, 4 for £4 per week and 4 for £3 per week).
The plaintiff was selected as one of 50 finalists who would then compete for one of the 12 prizes (under a sort of “shortlist” system) but the defendant failed properly to notify her. She missed her interview and as a result was passed over.
The court held that the defendant had breached his contract with the plaintiff by failing to use reasonable efforts to notify her and a jury awarded her £100 damages in compensation.
The defendant argued that the plaintiff should receive only nominal damages of, say, one shilling, since the harm suffered was too remote and speculative, and he appealed.

The English Court of Appeal upheld the jury verdict on the ground that the mere fact the prize was contingent did not mean that the chance of winning had no value or that its value could not be assessed. The plaintiff’s chance of winning was about 1 in 4 and it was open to the jury to take that into account when determining the value of the chance.

If one considers winning to be an “all-or-nothing” process, then compensation for the loss of a chance seems illogical. Is the defendant not right to complain that the plaintiff’s chance of loss should be over 50% (thereby rendering his loss more probable than not) before he or she is compensated in contract? On the other hand, it is the chance of winning which is being recognised as having some value. In a television quiz show, for example, the chances of winning may be not very large and on the balance of probabilities an individual player may be more likely to lose than to win. Despite this, the opportunity to participate has some value to its holder in advance of the result.

Question 17

Hawkins v Rogers [1950]

Answer 17

Thee plaintiff and the defendant were in a horse-racing partnership which broke up.
The claim concerned a horse known as “Lonely Maid”. At the time of its sale by the partnership, Lonely Maid had been entered for three upcoming “classic” races.

The plaintiff’s complaint was that he had bought the horse from the partnership with its engagements and that, a few days later (and without consulting him), the defendant had, in breach of the contract of sale, struck the horse out of all engagements in its name. The defendant responded that he did this with every horse he sold, lest he should become liable for forfeits in respect of any animal in which he had ceased to have an interest -> economic fear.

Don’t need to establish contract or if it was breached, but, difficulty in quantifying damages. All we know for sure is that the plaintiff’s horses have lost the chance to participate in these races. We don’t know if they would have won.

As best it can, the Court will consider the likely value of the lost opportunity. In this case, previous records of the horse, or the odds on the horse.

Question 18

Emotional Distress

Answer 18

Sometimes little or no financial loss may have taken place but the plaintiff has suffered emotional distress, annoyance or frustration. The court found that, in an appropriate case, damages for mental distress can be recovered in contract and an appropriate case might concern a contract for holidays or any other contracts where the purpose of the contract is to provide entertainment or enjoyment

Question 19

Addis v Gramophone [1909]

Answer 19

The plaintiff was fired by the defendant employer and sued for damages for wrongful dismissal. While the plaintiff had been given the required 6 months’ notice, he was prevented by the defendant from working out his contract, simply given a cheque.
The plaintiff sought to recover his lost earnings but also additional compensation for the humiliating manner in which he had been dismissed.
The House of Lords said that, in cases of wrongful dismissal, damages are for the financial losses suffered by the plaintiff, and there was no scope for compensation for any emotional pain incurred via the manner of dismissal or for harm to reputation.

Question 20

Hobbs v. London & SW Railway [1875]

Answer 20

the plaintiff took a train from Wimbledon to Hampton Court. The train diverted from this scheduled route and went to Esher station instead.

This left the plaintiffs to walk 3 miles with their children on a wet night. The plaintiffs were awarded damages for the physical inconvenience of having to walk, but were refused damages for the element of annoyance involved.

Mellor J issued the following general statement of principle: “[F]or the mere inconvenience, such as annoyance and loss of temper, or vexation, or for being disappointed in a particular thing which you have set your mind upon, without real physical inconvenience resulting, you cannot recover damages. That is purely sentimental, and not a case where the word inconvenience, as I here use it, would apply.”

Question 21

Jarvis v. Swan Tours [1973] -> Lord Denning decides to rewrite the law, as per usual

Answer 21

The plaintiff, a solicitor, skiing holiday in Switzerland based on a travel brochure. The holiday turned out to be a disaster. There were few other guests, the owner of the hotel did not speak English, the nice Swiss cakes promised turned out to be potato crisps, and the bar consisted of an unoccupied annex which only opened one night a week. The yodelling evening which had been promised ended up consisting of one local man who came along in his work clothes and sang four or five songs very quickly before disappearing.

Question 21

Jarvis v. Swan Tours [1973] -> Lord Denning decides to rewrite the law, as per usual

Answer 21

The plaintiff, a solicitor, skiing holiday in Switzerland based on a travel brochure. The holiday turned out to be a disaster. There were few other guests, the owner of the hotel did not speak English, the nice Swiss cakes promised turned out to be potato crisps, and the bar consisted of an unoccupied annex which only opened one night a week. The yodelling evening which had been promised ended up consisting of one local man who came along in his work clothes and sang four or five songs very quickly before disappearing.

At first instance, the plaintiff was awarded the difference in value between what he paid for and what he got. He appealed this, arguing that he was also entitled to damages to reflect the loss of enjoyment he had suffered.

Lord Denning in the Court of Appeal considered that the decision in Hobbs was “out of date”. The court found that, in an appropriate case, damages for mental distress can be recovered in contract

An appropriate case might concern a contract for holidays or any other contracts where the purpose of the contract is to provide entertainment or enjoyment. -> Not the case with an employment contract.

Question 22

The Irish Times (2 May 1995) reported a Circuit Court case where a Dublin woman’s wedding suffered so many set-backs that it “would rival a low-grade comedy film,” -> circuit and district courts!

Answer 22

Having hired David Kenny Studios to organise limousines and photography, a white Rolls-Royce never turned up to collect the bride and her husband-to-be thought he was “going to be left stranded at the altar”. The bride had to be driven 7 miles to the church in a friend’s white two-seater sports car, squashed between the driver and her father and holding up the hoops of her wedding gown to save it from being destroyed. The ceremony started 40 minutes late due to this and had to be rushed to facilitate two other couples who were (literally) queuing up to get married. The plaintiff’s evidence was that she could not look at the video or wedding albums and had vacated the court-room while the judge watched a video of the wedding. Judge Kelly also heard psychiatric evidence in relation to the plaintiff’s suffering. He awarded the plaintiff €13,000 in damages.

Question 23

High Court case of Dinnegan v. Ryan [2002]

Answer 23

Holidays will rarely be worth in excess of €38,000, and so have not generally been dealt with by the Superior Courts. There, damages for distress were recoverable against a publican, in breach of contract, refused entry to his pub to the newlywed plaintiffs and their wedding guests.

Murray J (as the then was) said:

The loss sustained by the plaintiffs arising from the breach of contract was not just disappointment at losing the advantages which might accrue from a successfully completed commercial transaction. The loss which they sustained, was the denial to the plaintiffs of an occasion for enjoyment and happiness to be shared with their
family and friends.

That was the essence of the contract. For that loss they are entitled to compensation. The degree of that loss was undoubtedly exacerbated by the manner in which the contract was breached, namely, without forewarning and at the last minute when they arrived in the public house.

This meant that instead of their wedding day ending on a memorable and high note, it was plunged to the depths of humiliation, shock and disappointment, which not only brought it to a distressing end but engraved a permanent blotch on the memory of what should always have been a day of good memories.

Given the nature and purpose of the contract, the loss in this regard which the plaintiffs sustained was reasonably foreseeable and, moreover, flows directly from its breach.

Damages are intended to be compensatory. In the circumstances of this case, I am satisfied that the plaintiffs are entitled to be compensated for the fact that they were wrongfully and in breach of contract deprived of their happy occasion to celebrate their wedding day and suffered the distress and disappointment which is inevitably a direct consequence of the breach of such a contract.

Question 24

McMahon v. Irish Road Haulage Association [2009]

Answer 24

Irish High Court awarded damages for distress and embarrassment arising out of the wrongful expulsion of the plaintiff from the defendant association in breach of the constitutional guarantee of fair procedures.
The defendant having accepted said breach, the only issue for the court was assessment of damages. There was no established damage to reputation, and the defendant had publicly apologised to the plaintiff (albeit two years after the event).
Laffoy J said, “As regards the likely impact of the wrong, it seems to me to be more akin to the holiday and special event cases than to employment cases. In his evidence, in outlining the effect of the expulsion on him, the plaintiff emphasised that he felt unable to attend truck festivals and vintage truck and car rallies after his expulsion. He felt that he was distanced from his peers. In my view, the distress and embarrassment he felt as a result of his expulsion was such as must reasonably be supposed to have been in the contemplation of the parties when the membership contract came into being as the probable result of the breach thereof. However, the wrong was substantially redressed after two years.”
Awarded 7,500 in Damages

Question 25

Browne v Iarnród Éireann [2014]

Answer 25

Hogan J had occasion to consider Jarvis and Johnson and related case-law in assessing the damages to be awarded to a plaintiff who had been compelled by economic circumstances to return to work following the defendant’s wrongful failure to honour a voluntary severance offer accepted by the plaintiff. (See discussion in chapter 1of the judgment in Browne v Iarnród Éireann [2014] 2 IR 506 in which Hogan J found the defendant to be guilty of breach of contract.)

Hogan J awarded the plaintiff €60,000 in damages for inconvenience and lost expectation. He held that a party accepting wrongful repudiation of a contract, even if compelled by force of circumstance to do so, thereby forfeits the right to sue in debt for the liquidated sum promised by due performance of that contract.

Accordingly a summary claim for the full monetary value of the early retirement package failed. However, where the convenience of a plaintiff is an important benefit to be obtained from due performance, the law should endeavour to compensate for inconvenience and lost expectation arising from breach of that contract.

Question 26

Contracts for the Sale of Land -> 4 Rules

Answer 26

1. Rule in Bain v Forthergill
2. Damages Following Breach of Specific Performance
3. Deposit
4. Incorrect Advice on Value of Property

Question 27

Bain v Fothergill

Answer 27

Previously, where a seller or lessor of land failed to complete the contract through a defect in his title, the purchaser could not claim damages for the loss of his bargain, but was restricted to recovery of his deposit and his expenses in investigating title: Bain v. Fothergill (1874) LR 7 HL 158. The rule was considered by commentators as “unnecessary today” and its abolition was recommended by the Law Reform Commission. This has now occurred through Section 53 of the Land and Conveyancing Law Reform Act 2009: the rule in Bain v. Fothergill no longer applies to contracts made after 1 December 2009 (although it does continue to apply to contracts made before that date).

Question 28

Damages Following Breach of Specific Performance** More Cases

Answer 28

An old line of English authority held that a person who had decided to sue for and obtain a writ of specific performance was bound by this election; if the decree was unenforceable, the holder thereof could not get damages instead. The House of Lords abandoned this principle in Johnson v. Agnew [1980] but, is clear that damages are recoverable in Irish law in such a situation: Vandeleur & Moore v. Dargan [1981]

Damages may also be granted in lieu of specific performance. Very recently in Duffy v. Ridley Properties Ltd [2008] 4 IR 283, the Supreme Court confirmed that damages may only be granted in lieu of specific performance where the court would have had jurisdiction to grant a decree of specific performance.

Whilst damages for breach of contract are generally calculated at as of date of breach of contract, the Supreme Court in Duffy held that a court awarding damages in lieu of specific performance may fix a date other than the date of breach or the date of judgment.

The same principles as in Duffy apply where a contract has been induced by misrepresentation. Duffy was recently considered in Darlington Properties Ltd v. Meath County Council [2011] Darlington Properties was not a case involving damages in lieu of specific performance but rather concerned an assessment of damages where a contract for the sale of land would never have been entered into had it not been for negligent misrepresentation. Kelly J held that the “basic principle” was that “an award of damages should put the plaintiff in the position it would have been in if the representation had not been made to it” and observed that the plaintiff in the case before him “would not have borrowed and expended the monies on buying the land had it known 29
the true state of affairs”. He therefore awarded damages on the basis of the monies actually expended by the plaintiff, less credit given for the value of the lands retained.

Question 29

Deposit

Answer 29

Where a purchaser of land pays a deposit to the vendor, this may be both part payment and also provide security against non-performance by either party. It was previously the case that, where the purchaser failed to complete his side of the bargain, he could not recover this sum, the courts holding it to be liquidated damages.

Section 54 Land and Conveyancing Law Reform Act 2009 now provides: Where the court refuses to grant specific performance of a contract for the sale or other disposition of land, or in any action for the return of a deposit, the court may, where it is just and equitable to do so, order the repayment of the whole or any part of any deposit, with or without interest.

Question 30

Incorrect Advice on Value of Property

Answer 30

Where a purchaser of land pays more than the land is really worth due to incorrect advice from a professional adviser (e.g. estate agent, solicitor, valuer, surveyor, architect), the measure of compensation is equal to the difference between the market value of the property at the date of purchase and the price actually paid: Ford v. White & Co [1964] endorsed in this jurisdiction in Taylor v. Ryan & Jones

Question 31

Penalty Clauses and Liquidated Damages

Answer 31

The parties to a contract may agree to a term such as the following: “In the event of a breach A agrees to pay B the sum of £100”. But is such a clause enforceable? The answer will depend on whether the clause is a so-called “penalty clause” or is a genuine “liquidated damages clause”.

A penalty clause is an attempt to deter breach of contract by imposing a penalty, and is unenforceable. Such clauses often seek to impose a penalty which is disproportionate to any loss actually suffered and have traditionally been treated with suspicion by the courts.

However, if such a clause is a genuine attempt to reduce the cost of litigation and assessment of damages by making an advance assessment of the damages likely to be suffered in the event of breach, it is termed a “liquidated damages clause” and is enforceable

Question 32

Dunlop Pneumatic Tyre v New Garage & Motor Company [1915]

Answer 32

TEST FOR PC V LD

The clause in question was part of a resale price maintenance agreement for tyres and provided that the sale of any tyres at prices other than those agreed or to persons on a blacklist would create an obligation to pay £5.

Lord Dunedin declared that the court should look at whether the amount is out of all proportion to the possible consequences of the breach, and whether the amount is the same for each of a number of possible breaches of varying seriousness. The terminology used by the parties is not conclusive: in other words, a penalty clause dressed up as a liquidated damages clause will not be treated as the latter despite the description of the parties.

Lord Dunedin set out the following principles;

a)The sum will be held to be a penalty clause if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

(b)The sum will be a penalty if the breach consists only in paying a sum of money, the sum stipulated being greater than the sum which ought to have been paid.

(c)There is a presumption that a clause is penal when a single lump sum is payable on the occurrence of one or more or all of several events, the events occasioning varying degrees of loss.

(d)If the consequences of breach are difficult to estimate in financial terms this, far from being an obstacle to the validity of the clause, will point in favour of upholding it, the courts taking the view that it is better for the parties themselves to estimate the damages that will result.

Applying the above factors, Lord Dunedin concluded that the sum of £5 was a genuine estimate of damages, notwithstanding that it applied to a number of different events. As the precise harm of each breach could not be accurately quantified, it was reasonable for the parties to quantify the damage in advance at a fixed figure which was not extravagant.

The test as outlined above in Dunlop has been approved of in this jurisdiction by Barron J in the Supreme Court in O’Donnell v. Truck and Machinery Sales [1998] 4 IR 191.

Question 33

Mitigation of Loss

Answer 33

A person who suffers loss by reason of a breach of contract is under a duty to mitigate that loss so far as possible. The duty to mitigate is only a duty to make reasonable efforts. The courts do not forget that it is the other party who has breached the contract: they simply require that any damages should be in respect of losses reasonably incurred.

Question 34

Lennon & Ors v. Talbot

Answer 34

The plaintiffs were motor-dealers whose dealership agreements were wrongfully terminated by the defendant motor importer and distributor. The plaintiffs were given the option of entering into new dealership agreements with the new importers of the cars in question, but for the most part refused. The terms of the new agreements would have been significantly different in a number of ways from their existing agreement, and not to their advantage.

Keane J (as he then was) held that a court would not reduce an award of damages if satisfied that a wronged party had acted reasonably in the circumstances as they appeared to be at the time. Even if the benefit of hindsight might show that some other measures to reduce their loss might have been available, that will not reduce the award. In these circumstances, it was not reasonable to expect the plaintiff to enter into new disadvantageous agreements with the new importers, and accordingly their damages would not be reduced by reason of their failure to do so

Question 35

Date for Assessment of Damages

Answer 35

The usual rule that the date for assessment of damages is the date on which the cause of action arose (i.e. the date of breach) has recently been re-considered in favour of a more flexible approach which allows for a later date of assessment to enable compensation to be more accurately calculated, subject to the duty to mitigate loss and providing that that principle is not infringed.

In Golden Strait Corporation v. Nippon Yusen Kubishika Kaisha, The Golden Victory [2007]there was a repudiatory breach by charterers after just 3 years of a 7-year charterparty.

Fifteen months thereafter, the Iraq War commenced which, under a war clause, would have entitled the charterers to terminate (and it was assumed that they would have exercised this entitlement).

The question for the court was whether damages should be assessed at the date of breach (with 4 years to go on the charterparty and ignoring the outbreak of war) or at the date of trial (taking into account knowledge of the war and treating the charterparty as having only 15 months to run).

By a 3-2 majority, the House of Lords assessed damages on the latter basis as it more accurately reflected the claimant’s known loss. The minority considered that principles of commercial certainty required adhering to the rule that the date of breach provided the appropriate date for legal assessment

Question 36

Criticism of Golden Victory

Answer 36

Some commentators as lacking certainty but was recently considered and affirmed by the UK Supreme Court in Bunge v Nidera [2015] UKSC 43.

The central question was as to the appropriate quantum of damages in circumstances where sellers of a consignment of Russian milling wheat had wrongfully repudiated a contract for the purchase of the wheat, but a Russian governmental embargo on the export of wheat announced during the summer of 2010 would have provided the sellers with a right of termination had the contract continued in effect.

The Supreme Court unanimously rejected criticism of The Golden Victory and confirmed its status as good law.

Furthermore, the Supreme Court considered that the common law principle underpinning the decision in The Golden Victory had not been excluded by a clause in the contract between the parties which stipulated that “[i]n default of fulfilment of contract by either party … [the] damages payable shall be based on, but not limited to the difference between the contract price and … the actual or estimated value of the goods on the date of default …”.

An appeal panel of the Grain and Free Trade Association, the Commercial Court, and the Court of Appeal, all found for the buyers on the basis that, on the date the repudiation was accepted, the difference between the contract and market price was $3,062,500.

The Supreme Court, however, considered that the default clause did not entail the result that the court should assess damages as at the date of default if, in fact, the buyers had suffered no loss with the benefit of hindsight.

On the basis of The Golden Victory the buyers were entitled to nominal damages only, having suffered no loss: had the contract not been terminated, the sellers would have been entitled to avail themselves of a contractual right of termination. Damages were awarded in the amount of 5 Dollars.

Following Bunge, when assessing damages arising from an anticipatory breach (i.e. a repudiation which has occurred before the time specified for performance), a court can and should take into account supervening events known at the date of assessment which would have caused the loss suffered to be reduced or even extinguished regardless of the repudiation