Unit 4: Damages Flashcards
TRUE OR FALSE:
The object of awarding damages is to compensate the claimant for their loss and not to punish the defendant.
TRUE
Which ONE of the following is WRONG ?
A) The remoteness rule in contract is that the loss must be within the reasonable contemplation of the parties.
B) The remoteness rule in contract is that the loss must be reasonably foreseeable.
C) The normal aim of the court when assessing damages in contract is to put the innocent party in the position he would have been in if the contract had been properly performed.
CORRECT ANSWER B
B refers to the remoteness rule in tort, not contract.
Jane agrees to buy goods from Ben for £1,000, payment on delivery. Ben refuses to deliver the goods. In fact he has sold them elsewhere for £1,800. Jane can buy similar goods for £1,500.
Assuming the court uses the usual method of assessing damages in contract, which one of the following amounts is Jane likely to get?
A) Nominal damages only
B) £800
C) £500
D) £1500
CORRECT ANSWER C £500
Jane would have paid £1,000 but because of Ben’s breach she now has to pay £1,500 for similar goods. Therefore she needs £500 to put her in the position as if her contract with Ben had been properly performed.
TRUE OR FALSE ?
If the court assesses damages on a reliance loss basis this basically means that the court will award damages for expenditure wasted as a result of the breach.
TRUE - Have a look at the case of Anglia Television v Reed [1972] 1QB 60 CA
Two weeks ago Gary bought a computer from Starkes Ltd for use in his business. Due to a manufacturing defect there was an electrical fault in the computer which caused a fire. The computer was destroyed, Gary’s property was damaged and Gary suffered minor burns. Starkes Ltd are in breach of s14 Sale of Goods Act 1979.
Which one of the following statements is CORRECT?
A) Gary can sue Starkes Ltd for breach of contract and obtain damages for the damage caused to his property but not for damage in relation to the computer or his injury.
B) Gary can sue Starkes Ltd for breach of contract and obtain damages for the damage caused to his property and the computer and for his injury
C) Gary can sue Starkes Ltd for breach of contract and obtain damages for damage caused to his property and the computer but not for his injury.
D) Gary can sue Starkes Ltd for breach of contract and obtain damages for damage caused to his property and for his injury but not for damaged computer.
CORRECT ANSWER B
Damages can be awarded in contract for all of Gary’s loss or damage, including his injury.
Which of the following cases decided that, if a particular type of loss is within the parties’ contemplation as a serious possibility, then all loss of that type is recoverable even if more serious than could have been contemplated?
A) Hadley v Baxendale
B) Parsons v Uttley Ingham
C) Victoria Laundry v Newman Industries
D) The Heron II
CORRECT ANWER B
In this case the court said it was within the contemplation of the parties that the pigs might be ill if they ate the mouldy food. The fact that the illness was more serious than could have been contemplated was not relevant.
TRUE OR FALSE:
When deciding whether loss is too remote there is no general rule that contracting parties are presumed to have knowledge of all techniques in each other’s business practices. However, the simpler the activity, the easier it will be to imply knowledge.
TRUE - This is what the House of Lords said in the case of Balfour Beatty Construction ( Scotland) Ltd v Scottish Power plc (1994).
Which one of the following statements is WRONG?
A) A party cannot recover damages for losses which he could have avoided by taking reasonable steps.
B) The onus of proof is on the claimant to show that he mitigated his loss.
C) The onus of proof is on the party in breach ie he must show that the claimant could have mitigated but did not do so.
D) If the claimant does take reasonable steps to mitigate he can claim any expenses incurred in trying to mitigate even though his attempt was unsuccessful.
CORRECT ANSWER B
Buildco agree to build an extension for Kamla. A clause in the contract provides that if Buildco breach the contract in any way they will pay £1,000 to Kamla as a penalty.
Which one of the following is CORRECT?
A) When deciding whether the clause is a penalty the court regards the wording of the contract as conclusive
B) The clause will be a penalty if the sum is extravagant and unconscionable in comparison with the greatest loss that can flow from the breach.
C) The clause here will definitely be a penalty as a single lump sum is payable on the occurrence of one or more of several events, some of which may cause serious damage and some minor damage.
D) The fact that the loss is difficult to pre-estimate prevents it being a specified damages clause.
CORRECT ANSWER B
All four points were dealt with in the case of Dunlop Pneumatic Tyre Co. Ltd v New Garage Ltd (1915).
A is not correct because the court may decide that the parties were not using the word “penalty” in its legal sense.
C is not correct because the clause will not definitely be a penalty in these circumstances - there is just a presumption that the clause is a penalty.
D is incorrect.Just because it is difficult to pre-estimate a loss does not stop it being a specified damages clause
Which ONE of the following statements is WRONG?
A) Specific performance is an equitable remedy awarded at the discretion of the court when damages alone would be inadequate.
B) Specific performance will not generally be ordered in relation to contracts for personal service e.g. employment contracts.
C) Action for an agreed sum is a debt action and so there are no issues in relation to remoteness and mitigation.
D) Prohibitory injunctions are ordered whenever there is a threatened breach of a restrictive obligation in a contract.
CORRECT ANSWER D
An injunction is an equitable remedy awarded at the discretion of the court and so prohibitory injunctions will not be ordered whenever there is a threatened breach of a restriction in a contract.
A client, a professional tennis player, employed a company to construct a tennis court for practice purposes. When the tennis court was finished the client discovered the length of the court was 1cm too short.
In a claim for breach of contract which of the following measures of damages is a court most likely to award?
A) Consumer Surplus
B) Difference in Value
C) Cost of Cure
D) Distress and Disappointment
E) Nominal
CORRECT ANSWER C
As the client is a professional tennis player the dimensions of the court would be critical. The loss is not just a personal preference that has not been satisfied (Statement A) and the client is likely to use any damages awarded to rebuild the tennis court. Nominal damages will only be awarded where there is no sustainable loss as a result of the breach and so Statement E is wrong. Damages for distress only tend to be awarded where the main purpose of the contract is pleasure/enjoyment and that is not the case here so Statement D is wrong. Statement B is wrong as there may be no, or little, difference in value.
A client agreed to buy goods at a price of £1,000, payment on delivery. Delivery to be on 1 October. The seller refused to deliver because the seller knew he could sell the goods to someone else for £2,300. On 1 October the client could buy similar goods elsewhere for £1,200.
In a claim for breach of contract which of the following most likely reflects the amount of damages the client would be awarded by a court?
A) The client will be awarded £1,300 by way of damages.
B) The client will be awarded £200 plus damages for the distress involved in sourcing the goods elsewhere.
C) The client will be awarded £1,000 damages on a reliance loss basis.
D) On 1 October the client could buy similar goods elsewhere and so will be awarded £200 by way of damages.
E) The client will be awarded £2,300 as the aim of damages is to punish the defaulting party for the breach.
CORRECT ANSWER D
The client will be expected to mitigate his loss by going out in to the marketplace on the date of breach and buying similar goods elsewhere. £200 would represent the client’s loss of bargain.
Statements A and E are wrong as the aim of damages in contract is to compensate the innocent party and not to punish the defaulting party.
Statement B is wrong as damages for distress/ disappointment are normally confined to contracts where the main purpose was to have peace of mind eg a holiday contract.
Statement C is wrong. £1,000 would over compensate the client for loss of bargain.
A client (the ‘Client’) runs a small fitness club, which makes a weekly profit of about £1,000. Last month the Client closed it for refurbishment and as part of this, contracted with a company (the ‘Company’) to rewire the premises.
The rewiring was done negligently and caused a fire which destroyed the club. The cost of rebuilding and refitting the premises will be £300,000 and the club will be unable to reopen for six months. The closure will mean loss of profit in the region of £30,000 including £6,000 on a very lucrative contract the Client recently secured with a national fitness magazine. The Client has also suffered distress as a result of the breach including disappointment in losing the magazine deal.
Which one of the following best describes the Client’s legal position?
A) The Client will be awarded the cost of rebuilding and refitting the premises plus £30,000 loss of profit caused by the breach.
B) The Client will be awarded in the region of £324,000 subject to the Client’s duty to mitigate.
C) The Client will be awarded damages for all losses suffered as a result of the breach, including damages for distress
D) Damages will be awarded for all the Client’s losses: the losses are not too remote and so the extent of them is irrelevant.
E) Provided the Client can prove he took reasonable steps to mitigate loss, damages will be awarded for all losses except distress and disappointment.
CORRECT ANSWER B
The cost of rebuilding/refitting the premises and ordinary loss of profit would not be too remote. Loss of profit on the magazine deal is likely to be too remote and damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind.
Statement C is wrong. Damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind.
Statement A is wrong as loss of profit on the magazine deal is likely to be too remote.
Statement D is wrong. Damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind and loss of profit on the magazine deal is likely to be too remote.
Statement E is wrong. With mitigation the onus of proof is on the defaulting party to show failure to mitigate. Also as stated above loss of profit on the magazine deal is likely to be too remote.
A client, a joiner, decided to set up his own business. He contracted with a builder to convert his garage into a workshop. The price was £10,000 and the work was to be completed by 1 March. However, problems with labour meant that the builder did not finish the work until 1 June.
Which of the following best describes what the client would be able to recover by way of damages?
A) The loss of profit from cancelled joinery contracts for the period between March and June.
B) All loss of profit from cancelled joinery contracts between March and June including loss of profit on a special contract he had with a stately home to make bespoke shelving for its library.
C) Loss of profit from cancelled joinery contracts between March and June and the mental distress caused by the delay in starting the business.
D) The expenditure your client wasted between March and June because expectation loss would be too speculative.
E) Nominal damages in recognition that the contract had been breached and the client had suffered loss as a direct result.
CORRECT ANSWER A
Ordinary loss of profit would be within the reasonable contemplation of the parties as being a likely consequence of breach and so would not be too remote.
Loss of profit on the special contract would be too remote unless the builder had been told about it in advance. That is why B is wrong.
C is wrong because damages for distress are typically only awarded where the purpose of the contract was enjoyment eg in relation to holidays.
D is wrong as expectation loss (ie loss of profit) is unlikely to be too speculative.
Nominal damages are only awarded where a claimant cannot establish a loss as a result of the breach and that is why E is wrong.
A client used to own a business. When the client sold the business the sale agreement included a restrictive covenant not to compete with the business nor to solicit customers. Unbeknown to the buyer the client had already set-up a rival business and the client began operating in competition and poaching customers. As a result the buyer lost a considerable amount of business. The buyer is now suing the client for negotiating damages in relation to breach of the restrictive covenant.
Which of the following statements best describes whether, or not, the buyer will be successful?
A) Yes, because the buyer lost the opportunity to negotiate a fee for relaxing the restrictive covenant and there was no other loss.
B) Yes, because the buyer lost the opportunity to negotiate a release fee and it would be unfair to allow the client to benefit from breaching the restrictive covenant.
C) Yes, because the buyer lost the chance to negotiate a release fee and the client made profit at the expense of the buyer.
D) No, because it would be impossible for the court to know what release fee, if any, would have been negotiated.
E) No, because the buyer suffered an ascertainable financial loss other than the chance to negotiate a release fee.
CORRECT ANSWER E
Negotiating damages will only be awarded where there is no financial loss other than the chance to negotiate a release fee. Here there was loss of business which could be assessed albeit with difficulty.
A, B and C are wrong. Negotiating damages will only be awarded where there is no financial loss other than the chance to negotiate a release fee. Here there was clear loss of business.
D is wrong because in appropriate circumstances a court will award a reasonable sum based on a hypothetical negotiation.
