WS 4 & 5 Remedies For Breach of Contract

Question 1

Subjective or objective test for condition or warranty?

Answer 1

objective test: would a reasonable person think the parties intended the term to be a condition or a warranty?

Question 2

Facts of Schuler v Wickman Machine Tool Sales [1974]

Answer 2

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

Question 3

What, according to Schuler v Wickman, will the court take into account when deciding if a term is a condition or warranty?

Answer 3

• 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)

Question 4

Define condition

Answer 4

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

Question 5

Define warranty

Answer 5

Warranty: Less important term

Question 6

Hong Kong Fir Shipping v Kawasaki [1962] Facts

Answer 6

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

Question 7

What are remedies for condition and warranty breach?

Answer 7

i) CONDITION: Can terminate future performance and sue for damages
ii) WARRANTY: Can sue for damages for loss suffered

Question 8

Hong Kong Fir Shipping test for condition or warranty (INNOMINATE TERMS)

Answer 8

If the breach deprives the innocent party of substantially the whole benefit of the contract, the innocent party can:

Question 9

What can the party do if the term is a condition under Hong Kong fir shipping rule?

Answer 9

a. Terminate the contract and sue (Hong Kong Fir Shipping v Kawasaki); or
b. Affirm the contract and sue for damages

Question 10

Traditional classification approach or hong kong?

Answer 10

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.

Question 11

Which implied terms are conditions?

Answer 11

Or terms implied by statute: s.13 and s.14 SGA 1979 and s. 3 and 4 SGSA are conditions

Question 12

Which implied terms are innominate?

Answer 12

S.13 to s.15 SGSA are described as a term and so treated as innominate.

Question 13

Broad ethos of damages

Answer 13

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]

Question 14

Narrower aim?

Answer 14

expectation loss (Robinson v Harman) or reliance loss (Anglia Television v Reed) [However you can sometimes claim both, Hydraulic Engineering v McHaffie]

Question 15

Robinson v Harman

Answer 15

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

Question 16

How to measure damages for expectation loss?

Answer 16

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)

Question 17

Ruxley Electronics v Forsyth: Facts

Answer 17

1. 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.

Question 18

Decision in Ruxley

Answer 18

award damages for loss of amenity, in this case £2500

Question 19

Chaplin v Hicks

Answer 19

loss of opportunity

Question 20

General rule on loss of pleasure?

Answer 20

Addis v Gramaphone: Normally cannot claim for loss of pleasure / emotional distress

Question 21

Exception to rule in Addis v Gramaphone?

Answer 21

Jarvis v Swan’s Tours: C can claim for loss of pleasure if the object of the contract was the C’s pleasure

Question 22

Farley v Skinner?

Answer 22

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]

Question 23

Alternative to expectation loss approach?

Answer 23

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)

Question 24

When might the court decide reliance loss over expectation loss?

Answer 24

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

Question 25

Omak Maritime v Mamola Challenger [2010]

Answer 25

MUST SHOW THAT SUFFERED LOSS DUE TO THE D’s BREACH

Question 26

Hadley v Baxendale: Facts

Answer 26

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

Question 27

Rule in Hadley v Baxendale

Answer 27

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

Question 28

Balfour Beatty v Scottish Power

Answer 28

Balfour Beatty could not be expected to know about the need for continuous pour of concrete]

Question 29

(1) Victoria Laundary v Newman

Answer 29

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

Question 30

(2) Parsons Livestock v Uttley Ingham

Answer 30

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

Question 31

(3) Brown v KMR Services

Answer 31

normal profit IS a different type of loss to high profits resulting from a specially lucrative contract

Question 32

Transfield Shipping v Mercastor

Answer 32

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

Question 33

Damages are awarded subject to remoteness and mitigation. What is the mitigation rule?

Answer 33

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.

Question 34

How can contributory negligence reduce the claimant’s damages for breach of contract?

Answer 34

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

Question 35

Time Assessment of Damages

Answer 35

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))

Question 36

What is a specified damages clause? And what is a penalty clause?

Answer 36

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

Question 37

What are the guidelines for deciding whether a clause is specified or penalty?

Answer 37

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.

1. 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.
2. If breach is not paying a sum of money, if the sum in the clause exceeds the amount that ought to be paid – Penalty
3. If a single sum is due on the happening of one of multiple events, varying in severity, there is a presumption of penalty
4. Clause CAN be SD clause even if it is difficult/impossible to

Question 38

Azimut-Benetti SpA (Benetti Division) v Healey [1993

Answer 38

5. 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)