Week 3- Breach and remedies for Breach Flashcards
What is the difference between primary and secondary obligations?
what implication does this have on the law?
A primary obligation is one which arises under a contract, whereas a secondary obligation is one which arises due to a breach of the primary obligation.
A court could enforce a primary obligation, enforcing them to do that they initially promised to do.
Or it could ask that they carry out a secondary obligation which is new and must be carried out, usually an obligation to pay money.
What are compensatory damages and how are they quantified in Robinson v Harman?
What position are they said to put plaintiffs in?
Damages are an example of secondary obligations.
Where a party sustains a loss as a result of a breach of contract, he is so far as money can do so, to be put in the same position as if the contract was performed, known as the expectation measure.
This is different from being put in the same position as if the contract had never been made- this means the claimant cannot claim for reliance damages, money spent having relied on the contract in anticipation of it being performed- this is usually compensated for by the compensatory damages because it almost always exceeds the reliance damages, considering most contracts are made to make a profit.
Facts and significance of Omak Maritime v Mamola Challenger Shipping 2010 EWHC 2026.
Facts- The owners were told that the initial charterer did not want their ship. So the owners found someone else to charter the ship, and claimed for compensatory damages for the first charterers breach of contract.
Further they sought to recover the reliance damages for the expenditure in getting the ship ready.
Significance- The charterers were actually in a better position due to the breach of contract, because they gained a more lucrative contract worth more money.
The expectation measure was those that were expected had the contract been performed. Therefore they recovered nominal damages (usually only £1) as a symbol that the contract was breached, but they weren’t entitled to the reliance damages.
What is the problem that arises where losses are said to be non-pecuniary and what themes seem to run through these cases?
What are the two different approaches to measure non-pecuniary losses?
Non-pecuniary losses are hard to quantity in monetary terms at any specific time, because they are said to be more subjective. These are most often in construction cases where a builder has failed to carry out their full contractual obligations, and thus have provided services or built something which has diminished in value compared to what it would be worth had the contract been carried out in full.
The courts have battled with competing ways of calculating non-pecuniary losses, one being a simple cost of cure analysis- what it would cost to re-build/ repair the building. The other approach would be to compensate for a diminution in value of the assets provided compared to what they would be worth. These do not always yield the same results, which is why the courts have struggled.
Radford v Defroberville facts and significance regarding measuring loss?
Facts- D promised to build a wall to separate his land from his neighbours, but breached his duty by not building a wall.
Significance- The failure to build the wall actually maintained the value of the plaintiffs land. Rather the plaintiff claimed the cost of cure, and had the wall built from these damages in order to help cultivate his land
J Oliver- P intended to use any damages to build the wall, rather than to claim a windfall.
Facts and significance of Ruxley v Forsyth and the issue of measuring non-pecuniary damages?
Facts- Man contracted to have pool built to be 7’6 deep, but pool only built at 6’ deep. Plaintiff sought to recover damages for this breach of contract. The issue was that the pool that was built and the pool which he had contracted for was worth the same; there was no diminution in value. Conversely, it would cost £22,000 to dig up the pool and have it rebuilt to the specified depth.
Significance- The court awarded a sum of £2500 to amenity loss as a result of P’s inability to dive. The cost of cure would only be awarded where it was reasonable to do so, and not disproportionate to the additional consumer surplus that would be gained from carrying out the repairs.
Lord Lloyd held the money was compensation for the disappointment/amenity.
Lord Mustill said it was a consumer surplus; P valuing the pool over and above the market rate. Lord Mustill said ‘the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure.’
- The biggest reason was disproportionate
- Whether P intended to use the damages to actually cure the breach; the HL didn’t think it was a prerequisite for the house to award the cost of breach, just one of many factors to consider.
LJ Jauncey- if the contract was substantially performed, it would be unreasonable to award the cost of cure. In Ruxley, it was substantially performed. Defective performance which is in breach of contract may be a better test than the disproportionate test for a number of reasons eg the disproportionate test may encourage builders to hide defects which would only cost a little to fix, but rather wait until the damages are too disproportionate to fix.
Facts and significance of The golden victory 2007 UKHL 12 regarding the assessment of compensatory damages and when it is appropriate to assess said damages?
Facts- The claimant and defendant entered into a 7-year charterparty of the ship, and the defendants repudiated the contract on the 14th December 2001, and this was accepted by the claimants 3 days later, despite the fact it was meant to run until 2005. It was contended when the appropriate time to assess damages was. The claimants argued that should get damages up until the end of the 5 years, but the defendants, relying on the contract clause that the contract would be cancelled in the event of war (USA v Iraq), which broke out in 2003, disputed the claimants claim. Therefore, the claimants shouldn’t be able to claim past 20th March 2003. If the damages were assessed at the time of breach, it would be said that the ship owners were owed 4 years worth of payment for the ship, but assessed at the time of the court, once the war had broken out, clearly the contract would have only ran for 3 years rather than 5.
Significance- Labelled as one of the worst decisions ever, the House of Lords upheld the court of Appeals decision by a majority of 3-2, on the basis that the facts of the case gave rise to an exception to the rule that damages are assessed at the date of breach. Therefore, the Lords held in favour of the defendants, on a strict reading of the compensatory rule, in that the claimant should be put in the same position as if the contract had been performed, which would be up until the war broke out and ended the contract anyway.
-The outbreak of the war before the damages were assessed should have been taken into consideration, said the majority view in favour of the defendants. If they were assessed at the time of breach, they would not have anticipated a break-out of war and therefore damages would have been awarded until the end of the five-year period.
The majority said the purpose of compensatory damages was to put the contracting party as if the contract had been performed. So usually we assess at the date of breach, but here we know what would have happened, and therefore take into account the available evidence ie 2 years of inevitable lost profits.
What does Bingham say in his dissent on the Golden victory?
Bingham’s dissent: “The thrust of the charterers’ argument was that the owners would be unfairly over-compensated if they were to recover as damages sums which, with the benefit of hindsight, it is now known that they would not have received had there been no accepted repudiation by the charterers. There are, in my opinion, several answers to this. The first is that contracts are made to be performed, not broken. It may prove disadvantageous to break a contract instead of performing it. The second is that if, on their repudiation being accepted, the charterers had promptly honoured their secondary obligation to pay damages, the transaction would have been settled well before the Second Gulf War became a reality. The third is that the owners were, as the arbitrator held (see para 7 above), entitled to be compensated for the value of what they had lost on the date it was lost, and it could not be doubted that what the owners lost at that date was a charterparty with slightly less than four years to run. This was a clear and, in my opinion, crucial finding, but it was not mentioned in either of the judgments below, nor is it mentioned by any of my noble and learned friends in the majority. On the arbitrator’s finding, it was marketable on that basis.”
Strict certain rule is more advantageous to the law, also encourages defendants to undertake unethical methods.
What was affirmed in the case of Bunge SSA v Nidera 2015 UKSC?
The majority approach in The Golden victory was affirmed in Bunge, that you generally assess damages at the date of breach, but exceptionally at the date of judgement. 5-0 decision.
What is the general principle of remoteness?
That whilst the defendant has factually caused the loss to the plaintiff as a result of the breach, they should not be held legally responsible for their loss.
What is the traditional approach to remoteness in Hadley v Baxendale?
Facts- P’s shaft for their flour mill broke, contracted with D for the iron shaft for the mill to be repaired. D returned the shaft late, so P lost profits from the flour mill that he would have made had it been returned on time and not in breach of contract.
Significance- Lost profits not recoverable as they were too remote.
Alderson B held that: “where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
Either naturally from the breach or in contemplation of the breach. This encourages to appreciate the risks associated with the contract and to allocate the risk.
Facts and significance of The Heron II, considered by the House of Lords regarding the remoteness test given in Hadley V Baxendale?
Facts- Koufos chartered a ship (the Heron II) from Czarnikow to bring 3,000 tons of sugar to Basra. It was nine days late. The sugar price had dropped from £32 10s to £31 2s 9d. Koufos claimed the difference in the loss of profit. Czarkinow knew there was a sugar market, but not that Koufos intended to sell it straight away.
Significance- The loss was not too remote.
The Lords had different ways to apply the reasonable contemplation test and how big the risk had to be.
Lord Reid- Loss needs to be in reasonable contemplation as not unlikely
Lord Hodgson- held it had to be liable to result from the breach (which is lower test)
Rather, they look at prior applications of the reasonable contemplation in previous cases and proceed by analogy.
Facts and significance of Victoria laundry regarding remoteness and the reasonable contemplation test?
Facts- Defendant delayed delivering boiler to the plaintiff, who ran a laundry business. If boiler delivered on time, they would have made a bigger profit, especially from the minister of supply who offered a very lucrative contract which they could not accept due to the delay.
Significance- CA said that D was liable for some, but not all, lost profits. This is because, in applying Hadley v Baxendale, it was in the reasonable contemplation of the parties that there would be some loss of profits. However, D did not know the particular lucrative contract and therefore not in the reasonable contemplation at the time when the contract was formed. So they were liable for some but not all lost profits.
How does Parsons v Uttley Ingham compare to Victoria Laundry v Newman industries?
How do the courts treat the contention between the two cases?
Facts- Pig farmer was the plaintiff who wanted to store pignuts. Bought food storage from D, D delivered and installed It, but left the ventilator hatch closed, causing them to become mouldy, and killing 254 pigs.
Significance- CA held D was liable. The breach doesn’t need to be in the reasonable contemplation, but just the loss that would occur if the contract was breached, however unlikely it may be. Also the type of damage rather than the extent need to be in the reasonable contemplation.
The actual death was not in the reasonable contemplation, death was just a very high extent of the contemplated illness.
This does not seem consistent with Victoria laundry, as the lost profits were the same type of loss in Victoria laundry. Its reconciled with an unprincipled distinction between ordinary versus lucrative lost profits. Courts appear to be more generous in physical damage cases rather than profits, as per Lord Denning in the minority.
What reason does Lord Reid give for the more strict test of remoteness in contract than in tort in Wellesley Partners v Withers?
The parties enter into a voluntary contract and therefore can advert eachother to the potential for losses and different types of possible losses that may arise. Therefore they become contemplated at the time by virtue of the actions of the parties, allowing them to allocate risks, and change prices and terms. Parties in tort cases do not generally have this opportunity.
Facts and significance of The achilleas 2008 UKHL 48
Facts- Charterer of a vessel delivered the vessel nine days too late, so the owners of the vessel had to negotiate a lower sum rate for the next charterers (for four months), amounting to $8000 a day, reaching $1.3million. The charterers conceded that their liability was capped at $158,000, as this was the difference between the market and charter rates of hire for the 9 days during which the owners were deprive of the use of the ship. The owners sued the charterers for this loss.
Significance- How much profit was recoverable and how much was too remote.
1) Nine days late, so they deprived the owners of 9 days worth of profits
2) The loss of the 4 month follow on charter could be the recoverable loss.
The HL unanimously held that only the 9 days loss of profits were recoverable, and that the lost profits from the further 4 months were too remote. Hoffmann departed from Hadley which would have allowed recovery for the four months, being the natural course following on from the breach of contract (late return of the ship). He said it was logical to find liability for damages on the intention of the party. Was the loss of the kind or type which the contract taker was reasonably likely to have taken responsibility for, which the charterers would not have done.
- The first approach; The court first asked whether the defendant had assumed or accepted responsibility for the type of loss incurred by the charterers. Lord Hoffmann and Hope held that the charterers had assumed responsibility only for the nine days of lateness, rather than the entered follow-on charter, which they could not control such a loss or quantify.
- The Second approach: Lord Rodger and Lady hale- Rodger said that neither party would reasonable have contemplated that an overrun of nine days would ‘in the ordinary course of things’ cause the shipowners the kind of loss for which they claimed damages. It occurred due to an extremely volatile market condition, resulting in excess loss. On their view, the loss was too remote to be recovered (the excess loss, not merely the overrun loss). They seemed to use a very narrow definition of foreseeable loss, because the loss incurred was still of the type foreseen, just to a very great extent.
