Unit 4

Question 1

What is the principle of causation in relation to damages?

Answer 1

To recover damages, the claimant must prove that loss has been suffered as a result of the defendant’s breach and the loss or damage must not be too remote a consequence of the breach.

Question 2

What is a claim for expectation loss?

Answer 2

Aims to put the claimant in the position they would have been had the contract been properly performed.

Expectation loss refers to an innocent party’s “loss of bargain”.

Question 3

What is the calculation for damages under expectation loss?

Answer 3

Loss of profits they would have expected to receive from the contract, had it been properly performed, minus the costs they would have incurred to earn the profit.

Question 4

When would you use dimunition in value?

Answer 4

For defective goods.

Question 5

What is dimunition in value?

Answer 5

The market value difference between the goods / services received and the goods / services promised.

Question 6

When is cost of cure usually used?

Answer 6

Defective services.

Question 7

What is cost of cure?

Answer 7

The cost of rectification.

Question 8

When will cost of cure not be awarded?

Answer 8

If it is unreasonable (i.e., the cost of cure is out of all proportion to the benefit to be obtained, or if there is no intention to remedy the defect).

Question 9

What is the test of reasonableness for cost of cure (ruxley construction v forsyth)?

Answer 9

1) Proportionality – is the cost of cure out of all proportion to the benefit to be obtained?

2) Intention – does the claimant actually have the intention to remedy the defect?

Question 10

When is loss of amenity awarded?

Answer 10

Where a consumer loses something of non-monetrary value (i.e., an aesthetic preference).

Question 11

What is the general rule on damages for ‘injured feelings’?

Answer 11

There are no damages for injured feelings.

Question 12

What is the exception to this rule?

Answer 12

1) Where amenity / pleasure is an important part of the contract

– Farley v skinner – loss of amenity awarded because an estate agent sold a house under a flight path to a man who wanted peace and quiet.

2) Where pleasure is the main part of the contract

– Jarvis v Swans Tour – Contract was for a holiday and the entire purpose was enjoyment & pleasure.

Question 13

When a claimant has “disappointed expectations” what will they recieve?

Answer 13

loss of amenity.

Question 14

What is reliance loss?

Answer 14

Where the loss of profit is too speculative, i.e., cannot be quanitified, the claimant will go for reliance loss. The claimant is here simply cutting their losses by claiming wasted expenditure that is not too remote.

Question 15

What can a claimant claim for under reliance loss?

Answer 15

• Can only claim for pre-breach losses, not losses incurred in remedying the breach.
• The claimant can choose whether to claim his expectation or reliance interest (Anglia Television v Reed)
• Reliance loss can also apply to pre-contractual expenses (Anglia v Reed) but cannot apply to losses incurred as a result of breach.
• The claimant must show they would’ve broken even, i.e., at least made their money back if the contract had been performed properly. The burden of proof is on the defendant to prove that the claimant would not have broken even (Omak Maritime Ltd Mamola Challenger Shipping Co Ltd)

Question 16

When is resttitution claim available?

Answer 16

A remedy based upon the principle of unjust enrichment. Restores the claimant to the position they were in before the defendant had been unjustly enriched at its expense.

Question 17

When do restitution claims arise?

Answer 17

1) total failure of consideration –i.e., one party has paid money to another and the other party has done none of what they’re contractually obliged to (or what they’ve done is useless). The payer can bring a claim in restitution against the payee.

2) Where one party agrees to work/supply goods to another party and the other party breaches their obligations (say, by not paying), the party doing the work/supplying the goods may claim quantum meruit/ quantum valebant.

Question 18

What is QUANTUM MERUIT?

Answer 18

Reasonable sum for the work done.

Question 19

What is QUANTUM VALEBANT?

Answer 19

Reasonable value of goods sold & delivered.

Question 20

What should a claimant do to mitigate their loss?

Answer 20

Take reasonable steps to mitigate their loss.

Question 21

On the assessment of damages, what is the general rule?

Answer 21

Damages are assessed by reference to the time of the breach.

Question 22

Example of assessment of damages =

Answer 22

For example, assume that the claimant had agreed to buy goods from the defendant for £5,000. The goods were to be delivered on 31 January. The defendant refused to deliver the goods. On 31 January the claimant could have purchased similar goods for £7,000. At the time of the hearing, the goods cost £10,000. The claimant would be awarded £2,000 damages based on the cost of the goods at the date of the breach.
This relates to the principle of mitigation. The claimant should take reasonable steps to mitigate their loss, and if a seller refuses to deliver goods this usually means that the buyer should act quickly and buy replacement goods rather than delaying and risking a rise in prices.

Question 23

What are the limiting factors to consider for damages?

Answer 23

1. remoteness
2. mitigation
3. contirbutory negligence
4. specified damages / penalty clauses

Question 24

What is the contract damages test for remoteness?

Answer 24

Hadley v Blaxendale:

Losses will be recoverable if:

a) They arise naturally in the usual course of things (imputed knowledge); or

b) They may be supposed to have been in the reasonable contemplation of both parties at the time of contracting.

This means that the claimant must establish (1) that losses are not too unusual, or (2) that the particular defendant had sufficient actual knowledge of the risk of the loss arising when the contract was made.

Question 25

Will a claimant be able to claim for an especially lucrative contract under damages?

Answer 25

If 1) they arise naturally in the usual course of things; or

2) the parties both had it in contemplation, then YES.

If 1) or 2) are not satisfied, then no.

Question 26

What is the rule on mitigation?

Answer 26

1) claimant must take reasonable steps to mitigate their losses.

Mitigation = minimise the effects of the breach.

Question 27

What are examples of “reasonable steps” for mitigating loss?

Answer 27

Reasonable Steps = Can include seeking other work, seeking other contractors/service suppliers, may include accepting the performance offered by the defendant under a new contract, even when the performance is in breach of the original contract, if it’s the next best alternative.

Question 28

Who has the burden to show that loss was mitigated and what is the effect of failing to mitigate loss?

Answer 28

Burden of proof – The burden is on the party in breach to show that the claimant could have mitigated but did not do so. If the defaulting party can do this, then the court will not award damages for the part of the loss which was caused by the claimant’s failure to mitigate (the loss which was not caused by the breach).

NOTE – The claimant does not have to mitigate, but any losses attributable to failure to mitigate are irrecoverable, so damages will be reduced.

Question 29

A clause where the parties include a provision in the contract which states the amount of compensation which will be paid if the contract is broken is …

Answer 29

Can either be:

1) Specified damages clause or
2) Penalty clause

Question 30

What is a specified damages clause?

Answer 30

Outlines the damages payable on the event of a breach.

– If it is valid, it determines the damages and there is no need to discuss measures of damages or mitigating factors.

Question 31

What is a penalty clause?

Answer 31

An attempt to put pressure on a party to perform the contract.

– A penalty clause is invalid and unenforceable.

– Where the clause is a penalty, the court is free to assess damages in the usual way and the principles of measure of damages, remoteness and mitigation apply.

Question 32

Before determining the actual validity of the specified damages, you need to check…

Answer 32

1) incorporation – e.g., signature, reasonable notice or a course of dealing

2) construction – e.g., the clauses true construction determines whether it is a valid liquidated damages clause, or a penalty clause.

Question 33

What are the 3 requirements to be satisfied if it is a specified damages clause?

Answer 33

1) There is a legitimate interest in imposing the consequences on the person in breach

2) it is a genuine pre-estimate of loss

3) Even if it is not a genuine pre-estimate of cost, but it is still commercially justifiable, it will be upheld as long as it is not extravagant, exorbitatnt or unconsionable.

Question 34

What is the Makdessi Test for distinguishing between liquidated damages and penalty clauses?

Answer 34

1) Is the clause a primary or secondary obligation? If primary, it will not engage the penalty rule.

o A clause will be primary if it is part of the primary obligations in the commercial context of the contract, i.e. furthers the commercial objective of the contract (part of determining how the contract will be performed)

o A clause will be secondary if it is an obligation triggered by breach of contract to compensate the innocent party (e.g. an amount payable at the point of breach)

2) If the clause is secondary, the clause will be a penalty if it is exorbitant, extravagant or unconscionable or imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation.

(Note – whether or not a sum is ‘extravagant’ or ‘unconscionable’ is not in relation to the actual loss suffered but in relation to the loss that might have followed from the stated breach).

Question 35

When considering specified damages / penalty clauses DO…

Answer 35

– Consider whether the clause is designed to protect the legitimate interests of the innocent party

– Consider whether the clause is exorbitant, extravagant or unconscionable (i.e., out of all proportion to the legitimate interest of the innocent party). A clause which requires the breaching party to pay a sum which is disproportionately higher than the highest possible sum that would be awarded in damages for breach of contract will be a penalty clause.

Question 36

When considering specified damages / penalty clauses DONT…

Answer 36

– When considering whether a clause is a penalty clause, do not consider whether the clause is designed to intimidate or deter a breach. While a genuine pre-estimate of loss is unlikely to be a penalty clause, it is not conclusive in deciding whether or not something is a penalty clause (Cavendish)