WS 4 & 5 Remedies For Breach of Contract Flashcards
Subjective or objective test for condition or warranty?
objective test: would a reasonable person think the parties intended the term to be a condition or a warranty?
Facts of Schuler v Wickman Machine Tool Sales [1974]
House of Lords decided that the parties had not intended to use the word ‘condition’ in its strict legal sense. Term stated that 6 reps from Wickman would visit 6 other firms over long period every week. No provision for substitution, or if another firm said not to. Failure to make a single visit would entitle Schuler to terminate the contract. Court thought this was such an unreasonable result that it was unlikely to be what the parties intended
What, according to Schuler v Wickman, will the court take into account when deciding if a term is a condition or warranty?
- Circumstances surrounding the making of the contract
- The contract as a whole
- Whether the parties described the term as a condition or warranty (can be rebutted)
Define condition
i. Condition: A major term; a term going to the root of the contract
a. The use of the word condition raises a presumption that it is used in the legal sense, but this may be rebutted from evidence of the contract as a whole
Define warranty
Warranty: Less important term
Hong Kong Fir Shipping v Kawasaki [1962] Facts
D’s agreed to hire a ship from the claimants for 24 months. A term of the contract provided that the ship was ‘fitted in every way for ordinary cargo service’ i.e. that the ship was sea worthy. In fact the engines were old and engine room staff inefficient with result that the ship was in port for repairs for 20 weeks. Ds terminated the contract and the claimants sued claiming Ds in breach of contract. House of Lords found they weren’t allowed to terminate the contract as time lost repairing was not sufficient to deprive them of substantially the whole benefit of the contract hire
What are remedies for condition and warranty breach?
i) CONDITION: Can terminate future performance and sue for damages
ii) WARRANTY: Can sue for damages for loss suffered
Hong Kong Fir Shipping test for condition or warranty (INNOMINATE TERMS)
If the breach deprives the innocent party of substantially the whole benefit of the contract, the innocent party can:
What can the party do if the term is a condition under Hong Kong fir shipping rule?
a. Terminate the contract and sue (Hong Kong Fir Shipping v Kawasaki); or
b. Affirm the contract and sue for damages
Traditional classification approach or hong kong?
up to the court to decide whether to adopt traditional classification approach (condition or warranty? Schuler v Wickman) or that of Diplock LJ in Hong Kong Fir Shipping v Kawasaki and classify terms as innominate.
Which implied terms are conditions?
Or terms implied by statute: s.13 and s.14 SGA 1979 and s. 3 and 4 SGSA are conditions
Which implied terms are innominate?
S.13 to s.15 SGSA are described as a term and so treated as innominate.
Broad ethos of damages
Compensatory – the goal is to compensate C, not punish D; C must have sustained loss, or C may have to pay D’s costs (Obagi v Stanborough [1993]
Narrower aim?
expectation loss (Robinson v Harman) or reliance loss (Anglia Television v Reed) [However you can sometimes claim both, Hydraulic Engineering v McHaffie]
Robinson v Harman
a. Expectation Loss: (Robinson v Harman) – put C in position he would have been in had the contract been properly performed. Recovers for loss of benefit he would have obtained had contract been performed
How to measure damages for expectation loss?
i. Difference in value (goods) – difference between actual value of goods and the value the goods would have had if they had not been defective
ii. Cost of cure (services)
iii. Loss of amenity (Ruxley Electronics v Forsyth)
Ruxley Electronics v Forsyth: Facts
- Pool was only 9 inches too shallow, so there was no effect on the market value of the pool – difference in value £0; cost of cure £21,000. Lord Mustill said that the claimant should be compensated for the loss of his ‘consumer surplus’. Lord Jauncey: reasonable ness of an award of damages is to be linked directly to the loss sustained. Here this would only have bestowed a gratuitous benefit.
Decision in Ruxley
award damages for loss of amenity, in this case £2500
Chaplin v Hicks
loss of opportunity
General rule on loss of pleasure?
Addis v Gramaphone: Normally cannot claim for loss of pleasure / emotional distress
Exception to rule in Addis v Gramaphone?
Jarvis v Swan’s Tours: C can claim for loss of pleasure if the object of the contract was the C’s pleasure
Farley v Skinner?
House of Lords made clear that the enjoyment of C only has to be an important object of the contract, not the sole. [Gatwick flight path property case]
Alternative to expectation loss approach?
Anglia TV v Reed - c. Alternative Approach (if we can’t quantify future profits from contract) = Reliance Loss (damages to cover the expense wasted in reliance on the contract)
When might the court decide reliance loss over expectation loss?
sometimes the court will decide that the reliance loss basis is correct approach if the claim for damages on an expectation loss basis is too speculative
Omak Maritime v Mamola Challenger [2010]
MUST SHOW THAT SUFFERED LOSS DUE TO THE D’s BREACH
Hadley v Baxendale: Facts
Mill shaft broke and so the claimants (owners) entered into a contract with Ds for the Ds to take the mill shaft to Greenwich where it would be used as a pattern for a new shaft. Ds delayed and the shaft was delivered late. Mill was idle during th delay. Cs sued for their loss of profit during this period – HELD – loss of profit while mill was idle DID NOT PASS THE REMOTENESS TEST
Rule in Hadley v Baxendale
Loss which may fairly and reasonably be considered either arising naturally from the breach itself, or such as may reasonably have been in the reasonable contemplation of both parties at the time at the time they made the contract as the probable result of the breach because of special circumstances known to them
Balfour Beatty v Scottish Power
Balfour Beatty could not be expected to know about the need for continuous pour of concrete]
(1) Victoria Laundary v Newman
normal profits are foreseeable, but the special contract was not. If a loss falls under limb 1 of Hadley then the D will have imputed knowledge. If it falls under limb 2, then the loss is too remote unless he had actual knowledge
(2) Parsons Livestock v Uttley Ingham
If a particular TYPE of loss is within parties’ reasonable contemplation then the culpable party is liable for the FULL SCALE of that loss, no matter if it is higher than contemplated
(3) Brown v KMR Services
normal profit IS a different type of loss to high profits resulting from a specially lucrative contract
Transfield Shipping v Mercastor
In complex financial cases where loss is difficult to quantify you can look at the commercial context, not simply reasonable contemplation. [Company who rented ship got it back late. He company lost out on lucrative contract. But HoL said this loss was too remote. Due to volatile market conditions
Damages are awarded subject to remoteness and mitigation. What is the mitigation rule?
British Westinghouse v Underground Electric Railway: C must take reasonable steps to mitigate his loss. If the C does take reasonable steps to mitigate, he can claim any expenses incurred in trying to mitigate even if his attempt is unsuccessful.
How can contributory negligence reduce the claimant’s damages for breach of contract?
if the only cause of action for breach of contract is a negligent breach (s.13 SGSA) C’s damages can be reduced in accordance with Law Reform (CN) Act 1945
Time Assessment of Damages
damages are assessed by reference to the time of breach; but, the key principle is that damages must cover the loss suffered, so the normal rule should not be applied if this key principle is offended [EXCEPTION] (Golden Strait v Nippon (The Golden Victory))
What is a specified damages clause? And what is a penalty clause?
Specified: genuine attempt to pre-estimate the loss. states amount payable in the event of breach.
Penalty Clause: an attempt to put pressure on a party to perform the contract - not enforceable
What are the guidelines for deciding whether a clause is specified or penalty?
Dunlop Pneumatic Tyre v New Garage [1915]: House of Lords said it was a question of construction, and the court should look at circumstances at the time of the contract not at the time of breach.
- Is sum extravagant/unconscionable? – Penalty.
a. The amount specified in the clause must be compared with the loss that might have followed from the breach, which of course could be much greater than the loss which was actually incurred. - If breach is not paying a sum of money, if the sum in the clause exceeds the amount that ought to be paid – Penalty
- If a single sum is due on the happening of one of multiple events, varying in severity, there is a presumption of penalty
- Clause CAN be SD clause even if it is difficult/impossible to
Azimut-Benetti SpA (Benetti Division) v Healey [1993
- Commercial considerations area also important e.g. balancing the bargaining power between the parties (Azimut-Benetti SpA (Benetti Division) v Healey [1993] – C entered a contract to build a luxury yacht for the D. Price was £38m, payable in instalments. Buyer breached and C lawfully terminated the contract. Clause in Contract provided that the yacht builder could retain out of payments made by the buyer and/or recover from the buyer an amount equal to 20% of the contract price by way of liquidated (specified) damages as compensation for its estimated losses. Purpose was to balance between the parties upon lawful termination, was not deterrent)
