W9 Damages and Remedies

Question 1

What are liquidated damages?

Answer 1

Any contractual clause prescribing financial consequences

Question 2

When does Makdessi apply?

Answer 2

Test to establish enforceability of penalty clauses.
Applies if triggered by a breach of contractual obligation
e.g. If you fail to do X, then £Y penalty.
Not a penalty if it’s not triggered by a breach of obligation

Question 3

What is the Makdessi test?

Answer 3

1) Is it a penalty clause? i.e. is paying out a secondary obligation in response to a failure?
2) Is the clause proportionate to the legitimate interest being protected?

Note: not concerned with amount of penalty vs amount of actual loss sustained

Question 4

The Makdessi Case

Answer 4

Facts: Breach of a non-compete clause with a penalty - lost the right of future payment under that contract. SC established that if the detriment of the contract maker is proportional to the legitimate interest of the other party, then valid. Holistic view. Even if penalty is greater than greatest possible loss, then allowed as long as there’s a legitimate interest to be protected.

Significance: Enforceability of liquidated damage/penalty clauses

Question 5

What are the types of unliquidated damages?

Answer 5

Expectation - what benefit did you expect to get?
Reliance - what costs have you already incurred?
Restitution - if you suffered no loss, but someone unjustly received a win

Question 6

Examples of expectation loss?

Answer 6

Difference in value
Loss of profit or bargain
Loss of chance - Chaplin v Hicks
Loss of reputation - Malik v BCCI
Loss of amenity - Ruxley v Forsythe
Cost of cure

Question 7

Examples of reliance loss?

Answer 7

Cost of cure (depends)
Wasted expenditure, including pre-contracted expenses - Anglia TV vs Reed

Question 8

Ruxley v Forsythe

Answer 8

Facts: Forsythe had a house and land, wanted a swimming pool. Contracted a company to build a pool. Agreed specs, including depth - 7’ 6”. Price was £20k. Swimming pool was built 6’ 9” deep. Cost of cure was £21.5k. Difference in value was £0. Court was reluctant to award the £21.5k as they didn’t think he’d actually spend it on rectification. Court also felt the benefit of fixing the problem was disproportionate to the cost of realizing the benefit - the extra few inches weren’t worth £21.5k. Court awarded £2.5k to reflect the fact that he’d suffered a breach of contract - similar to an expectation cost.

Significance: Example of loss of amenity in lieu of cost of cure.

Question 9

What are expectation-based damages?

Answer 9

They put you in the position you would be in if the contract had been performed correctly

Question 10

What are reliance-based damages?

Answer 10

They put you in the position you would be in had you never contracted at all

Question 11

Rules on reliance vs expectation damages?

Answer 11

Unfettered choice between reliance and expectation
Can’t claim damages for just a bad deal - C&P Haulage v Middleton
Cannot claim expectation damages if expectation was too speculative - McRae v Commonwealth Disposals

Question 12

C&P Haulage v Middleton

Answer 12

Facts: Garage being rented as an office. Contract said if any work was done on garage, then whatever was done gets left behind with no compensation. Claimant had installed power, walls, etc, but then were wrongfully evicted. No expectation loss, so had to sue for reliance loss. Court ruled they were in no worse position, it was just a bad deal.

Significance: Damages - can’t use them to get out of a bad deal

Question 13

Anglia TV v Reed

Answer 13

Facts: Reed was an actor who pulled out at the last minute. Studio wasn’t able to get a replacement in time, had to cancel the production. Successfully claimed for wasted expenditure - including amount on engaging the actor, but also production costs like costumes, scriptwriting, etc

Significance: Damages - wasted expenditure can include pre-contracted expenses

Question 14

McRae v Commonwealth Disposals

Answer 14

Facts: Salvage ops. Couldn’t recover full expectation of contract as uncertain how much oil was salvageable.

Significance: Damages - expectation loss - can’t be too speculative

Question 15

Esso v Niad

Answer 15

Facts: Esso were running a price watch scheme to ensure local garages could maintain low, competitive prices. Niad were creative in how they reported this to Esso to get an additional profit. Claim for restitution succeeded due to broader public interest point on ensuring just, fair competition.

Significance: Example of restitution

Question 16

Chaplin v Hicks

Answer 16

Facts: Beauty contest, winner was sleeping with judge.

Significance: Damages - example of loss of chance. Only valid when loss is calculable.

Question 17

Malik v BCCI

Answer 17

Facts: Very unethical bank, eventually collapsed. The ethical employees sued what was left of the bank for loss of reputation - Malik couldn’t get a job because he had worked for BCCI. Court ruled employment contracts have an implied term of trust and confidence which was in breach.

Signficance: Example of loss of reputation

Question 18

What are the limiting factors for damages?

Answer 18

Causation - lack of link between cause and loss/novus actus interveniens - Lambert v Lewis
Remoteness - unforeseeable risk
Mitigation - no obligation, but failure to do so is considered

Question 19

What are the non-financial remedies?

Answer 19

Specific performance
Injunction
Rescission
Rectification - correcting the contract

Question 20

Lambert v Lewis

Answer 20

Facts: Sale of a tractor part. Part was faulty, trailer detached and caused an accident. Normally the manufacturer would be liable, however the farmer knew the part was defective and chose to use it anyways, which broke the chain of causation.

Significance: Example of novus actus breaking chain of causation - no damages

Question 21

What is the remoteness test?

Answer 21

1) You can show loss was one that would arise in the normal course of things (objective);
2) If not the normal course of things, you need to show the loss was in reasonable contemplation of the parties at the time of contracting (subjective).
Technically alternatives but good practice to deal with both.

Authority: Hadley v Baxendale

Question 22

Hadley v Baxendale

Answer 22

Facts: Claimant owned a flour mill. Main mill shaft broke and needed replacing. Old mill shaft had to be used as a template for the new one. Contracted with Pickford delivery company to take the old mill shaft to the person building the new one. Courier company was late - breach of contract. Mill couldn’t operate for a longer period of time, sued for loss of profits. Courier company agreed causation, but argued too remote as they expected there to be a spare mill shaft. Dicter of the case was that remoteness required claimant to show the loss was not too remote in one of two ways: 1) You can show loss was one that would arise in the normal course of things; 2) If not the normal course of things, you need to show the loss was in reasonable contemplation of the parties at the time of contracting.

Significance: Source of remoteness test

Question 23

Victoria Laundry v Newman Industries

Answer 23

Facts: Newman installing boilers for the expanding laundry. There was a delay in installation, laundry suffered a loss and couldn’t expand - loss an army contract as a result. Hadn’t told the boiler company about the army contract, so wasn’t contemplated at the time of contracting, so couldn’t claim for the value of the contract

Significance: Remoteness - example of only contemplated by one party at time of contracting

Question 24

Facts: Breach of a non-compete clause with a penalty - lost the right of future payment under that contract. SC established that if the detriment of the contract maker is proportional to the legitimate interest of the other party, then valid. Holistic view. Even if penalty is greater than greatest possible loss, then allowed as long as there’s a legitimate interest to be protected.

Significance: Enforceability of liquidated damage/penalty clauses

Answer 24

The Makdessi Case

Question 25

Facts: Forsythe had a house and land, wanted a swimming pool. Contracted a company to build a pool. Agreed specs, including depth - 7’ 6”. Price was £20k. Swimming pool was built 6’ 9” deep. Cost of cure was £21.5k. Difference in value was £0. Court was reluctant to award the £21.5k as they didn’t think he’d actually spend it on rectification. Court also felt the benefit of fixing the problem was disproportionate to the cost of realizing the benefit - the extra few inches weren’t worth £21.5k. Court awarded £2.5k to reflect the fact that he’d suffered a breach of contract - similar to an expectation cost.

Significance: Example of loss of amenity in lieu of cost of cure.

Answer 25

Ruxley v Forsythe

Question 26

Facts: Garage being rented as an office. Contract said if any work was done on garage, then whatever was done gets left behind with no compensation. Claimant had installed power, walls, etc, but then were wrongfully evicted. No expectation loss, so had to sue for reliance loss. Court ruled they were in no worse position, it was just a bad deal.

Significance: Damages - can’t use them to get out of a bad deal

Answer 26

C&P Haulage v Middleton

Question 27

Facts: Reed was an actor who pulled out at the last minute. Studio wasn’t able to get a replacement in time, had to cancel the production. Successfully claimed for wasted expenditure - including amount on engaging the actor, but also production costs like costumes, scriptwriting, etc

Significance: Damages - wasted expenditure can include pre-contracted expenses

Answer 27

Anglia TV v Reed

Question 28

Facts: Salvage ops. Couldn’t recover full expectation of contract as uncertain how much oil was salvageable.

Significance: Damages - expectation loss - can’t be too speculative

Answer 28

McRae v Commonwealth Disposals

Question 29

Facts: Esso were running a price watch scheme to ensure local garages could maintain low, competitive prices. Niad were creative in how they reported this to Esso to get an additional profit. Claim for restitution succeeded due to broader public interest point on ensuring just, fair competition.

Significance: Example of restitution

Answer 29

Esso v Niad

Question 30

Facts: Beauty contest, winner was sleeping with judge.

Significance: Damages - example of loss of chance. Only valid when loss is calculable.

Answer 30

Chaplin v Hicks

Question 31

Facts: Very unethical bank, eventually collapsed. The ethical employees sued what was left of the bank for loss of reputation - Malik couldn’t get a job because he had worked for BCCI. Court ruled employment contracts have an implied term of trust and confidence which was in breach.

Signficance: Example of loss of reputation

Answer 31

Malik v BCCI

Question 32

Facts: Sale of a tractor part. Part was faulty, trailer detached and caused an accident. Normally the manufacturer would be liable, however the farmer knew the part was defective and chose to use it anyways, which broke the chain of causation.

Significance: Example of novus actus breaking chain of causation - no damages

Answer 32

Lambert v Lewis

Question 33

Facts: Claimant owned a flour mill. Main mill shaft broke and needed replacing. Old mill shaft had to be used as a template for the new one. Contracted with Pickford delivery company to take the old mill shaft to the person building the new one. Courier company was late - breach of contract. Mill couldn’t operate for a longer period of time, sued for loss of profits. Courier company agreed causation, but argued too remote as they expected there to be a spare mill shaft. Dicter of the case was that remoteness required claimant to show the loss was not too remote in one of two ways: 1) You can show loss was one that would arise in the normal course of things; 2) If not the normal course of things, you need to show the loss was in reasonable contemplation of the parties at the time of contracting.

Significance: Source of remoteness test

Answer 33

Hadley v Baxendale

Question 34

Facts: Newman installing boilers for the expanding laundry. There was a delay in installation, laundry suffered a loss and couldn’t expand - loss an army contract as a result. Hadn’t told the boiler company about the army contract, so wasn’t contemplated at the time of contracting, so couldn’t claim for the value of the contract

Significance: Remoteness - example of only contemplated by one party at time of contracting

Answer 34

Victoria Laundry v Newman Industries