Remedies for Breach of Contract
Most common means of seeking redress for breach of contract Common law remedy o Specific performance is an equitable remedy o Aim is to put claimant back in the position that he would have been had the contract been performed according to its terms Protection of ‘expectation interest’, or ‘performance interest’ o Calculation of damages tricky when non-pecuniary losses are considered Limits have to be placed on the liability of defendant, or defendant would be endlessly liable Remoteness of damage o Responsibility of claimant not to take unreasonable steps to o increase loss/reasonable steps to reduce the loss Exceptionally, damages awarded by reference to gain that tha t defendant has made from breach of contract Rare o Range of damages: Nominal o Compensatory o Most commonly awarded form of damages Restitutionary (or disgorgement) o Account of profits o Exemplary (punitive) o Does not often occur – English Law does not yet recognize an entitlement to recover exemplary damages for breach of contract Definition: Damages are a financial remedy that aims to compensate the injured party for the consequences of the breach of contract. This is generally guided by the principle that the th e injured party should be restored to the same position (if possible) as they would have been had the contract been carried out. Compensatory, not punitive – per Lord Atkinson in Addis in Addis v. o Gramophone Co. Ltd [1909] Ltd [1909]
Limitations on Availability of Damages 3 rules – Causation, Remoteness, Mitigation of Loss
1) Causation Claimant can only recover damages if the breach of contract caused his loss, and loss has to be in direct consequence of the breach of contract. First hurdle that claimant needs to cross. An intervening act that occurs between breach of contract and loss may break the chain of causation.
Important to mention causation in problem question on remedies
County Ltd v. Girozentrale Securities [1996] Claimant bank underwrote the issue of 26 million shares in an oil exploration company. Defendant was a firm of stockbrokers engaged by the claimant to find investors interested in the shares. Defendant set about finding investors but acted outside of the terms of their agreement with the claimant and as a result of this and other factors, many of the shares were unsold. Claimant brought action to recover loss, which was in the region of 7 million pounds. Court of appeal upheld claimant’s appeal as defendant had acted outside of their instructions, and this breach directly resulted in claimant’s loss. Immaterial that other factors such as claimant’s own conduct contributed to the loss – breach just has to be major operative factor, and not the sole cause of loss
2) Remoteness After establishing causation, it must be established that the loss was not too remote a possibility of the breach: flows naturally as a result of the breach, or if they are in contemplation by the parties at the time of entry into the contract
Hadley v. Baxendale (1854) Claimants owned a mill, and a crankshaft which was essential for its operation broke, requiring replacement using the original as a template. Claimants engaged the defendants, a firm of carriers (without specialized knowledge in the field of milling) to transport the part to and from engineers to get it replicated. Defendants failed to do so within timeframe agreed upon, delaying delivery of the new part and stalling operation of the mill, for which claimants sought to receive damages. Court accepted submission that losses were too remote for defendants to appreciate – different case if the defendants were made aware of the fact that this was the only crankshaft that the mill possessed Foreseeability test (per test (per Alderson B): Damages from breach of contract should stem from the usual course of things, which may reasonably have been supposed to be in contemplation of both parties at the time that they made the contract . Two limbs arise: o Common knowledge – loss arising naturally from breach, requiring no special or expert knowledge Actual knowledge – loss reasonably within contemplation of parties at the time when contract was formed, requiring special knowledge Points regarding Court’s decision: Relevant time is time of entry of contract o Courts examine contractual allocation of risk A defendant who knows at the time of entry into the contract that he is potentially exposed to a claim for
substantial damages will either insert a limitation clause or increase the price to reflect his increased risk Law encourages claimants to be frank at the time of entry into the contract regarding the losses that are likely to result from non-performance Is it enough simply for the defendant to have known that the mill was shut until he performed his duties, or does he have to implicitly accept responsibility for any losses that are likely to result? Trend seems to be that defendant has to have been supplied the information during pre-contractual phase for him to have “accepted” the liability for non -performance – not enough for him to chance upon the information after conclusion of the contract
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Hedley principle considered in two important cases: Victoria Laundry Ltd v. Newman Industries [1949] Claimants ran laundry business, and purchased boiler from defendants tha t was due for delivery in July. Boiler sustained some damage and had to be repaired, delaying delivery until November. Claimants had made defendants awa re that they needed the boiler to expand their business and that they wanted it for immediate use, and claimed damages to represent loss of ordinary profits that would have been made from the additional business, and for the loss of government contracts they intended to secure once the boiler arrived. Held that claimants could recover damages for the loss of additional profit, but not the loss of revenue from government contracts Defendants aware that claimants aimed to increase business with o boiler, thus making it a reasonably foreseeable consequence of breach, but nothing suggested awareness of government contracts Provides example of second limb of Hedley , and sets reasonable foreseeability standard
House of Lords disagreed below: The Heron II [1969] Claimant chartered ship to transport cargo of sugar on a journey that should have taken 20 days, but due to a deviation in a route by the defendant, took 29 days, during which the price of sugar fell significantly. Late arrival put defendant in breach of contract so the claimant sought damages to cover the difference in price he received for the sugar and the higher price he would have received had the boat arrived on time. Claimant had not told the defendant that he had intended to sell the sugar at the destination, but the defendant was aware both of the fact that his cargo was sugar, and that his port of call was a popular trading place for sugar. House of Lords ruled that it was sufficient that defendant knew that he was carrying sugar, and that he was headed for a place that was a popular trading place for sugar for it to make it so probable that it must have been within his contemplation at the time the contract was made.
“Reasonable foresight” mentioned in Victoria Laundry was criticized as being a term more used in tort per Lord Reid: Defendant, when making the contract, and in o breaching it, ought to have realized that the loss was not unlikely to result – not unlikely denotes degree of probability considerably less than an even chance, but nonetheless not unusual and easily foreseeable Threshold of test lowered o Case not the last word on remoteness of damage however
Parsons (Livestock) Ltd v. Uttley Ingham & Co Ltd (1978) Where parties contemplate the type of consequence which may follow a breach of contract, they will be liable for specific damage of that type, even where the specific damage was not foreseeable. The defendants sold a pig-food hopper to the plaintiffs. It was defective. The nuts in it went mouldy. 254 pigs died as a result of eating mouldy nuts. At the time of the contract it was found, as a fact, that the parties could not have foreseen serious illness arising as a result of the consumption of mouldy nuts. Held, dismissing D's appeal, that while P could not recover for his loss of profit on the pigs, it would have been in the contemplation of the parties that there was a real possibility of harm coming to the pigs if their food was made unfit by reason of the condition of the hopper. The fact that they could not foresee the extent of the harm was immaterial and P could recover the cost of his pigs. Per Denning: Same test as in tort should be applied, where ultimate liability rests within manufacturer – Regardless of whether the claimant decides to sue the retailer or the manufacturer, ultimate liability still rests with the manufacturer, thus the test should be identical Judges asked whether it was reasonably contemplated at the time of contracting as a serious possibility that supplying a hopper that was unfit for the purposes of storing food for pigs would make the pigs ill
Transfield Shipping Inc v. Mercator Shipping Inc (The Archilles) (2008) – LEADING MODERN DECISION REGARDING REMOTENESS OF DAMAGES A charterer of a vessel redelivered the vessel late and as a result the owners of the vessel had to agree to a reduced rate of hire for the follow-on time charter. They claimed that their loss amounted to 8000 a day for the duration of the charter (191 days), thus claiming all of that in damages. Charterers submitted that their liability was confined due to the difference between the market and charter rates of hire for the 9 days during which the owners were deprived of the use of the ship, resulting in a much lower figure for damages. It was found that the general understanding in the shipping market was that liability was restricted based on this analysis, and the House of Lords accepted this. No longer sufficient to show that the loss is a reasonably foreseeable consequence of the breach Expectation of the market would also be a factor to be considered Two important points to mold decisions:
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Where there is limited knowledge of the extent of the loss and the ability of the innocent party to control the loss is limited, it is more difficult to establish that the loss is recoverable It is likely that the courts will pay careful attention to the expectations of the market in deciding whether or not the loss is recoverable Critical that the remedy granted was in line with shipping practice
Need to state legal principle established in Hedley and refer to examples of the rule in operation in cases such as Victoria Laundry and The Heron II in problem questions. Deeper knowledge required for essay questions though.
Mitigation of Loss Duty to mitigate: Principle of contract law whereby the innocent party who has suffered a breach of contract has a duty to take reasonable steps to minimize the extent of their loss arising from the breach. Claimant not under a legal duty of mitigation – simply a principle that he can only claim losses that he did not exacerbate Must not unreasonably increase the loss (Banco de Portugal v. Waterlow & Sons Ltd (1932)) Claimant must take reasonable steps to minimize loss Reasonable steps does not imply onerous demands (Pilkington) o Observed by Tomlinson J – Contract law adopts “tender approach o to those who have been placed in a predicament by breach of contract” (Britvic Soft Drinks Ltd v. Messer UK Ltd (2002)) Question of fact o Stuff claimant ought to do: Obtain substitute performance if reasonably possible – cannot sit back and wait If he does so he can claim damages for the difference o Claimant to consider if not accept offer of alternative performance by party in breach o Payzu Ltd v. Saunders (1919) – Defendants entered into contract with plaintiffs under which they agreed to sell to plaintiffs a quantity of silk to be delivered in instalments. Contract provided that payment was to be made within one month following delivery of each instalment, but plaintiffs failed to pay first instalment on time. This led defendants to erroneous conclusion that plaintiffs were unable to pay at all (cause of delay simply that director did not sign one of the cheques). Fearing insolvency by plaintiffs, defendants decreed that they would only accept cash on delivery, which plaintiffs refused to accept, bringing action for damages and sought to recover difference between purchase price and market price.
Held that plaintiffs not entitled to damages as their rejection of defendant’s offer constituted failure to mitigate loss Scrutton LJ: In commercial cases it is generally reasonable to expect a party to consider and accept a reasonable offer made by the party in breach. Sotiros Shipping Inc v. Sameiet Solholt (The Solholt) (1983) – Buyers of ship lawfully terminated contract on ground that sellers were late in tendering delivery. Contract price was 5 million, and the price had risen to 5.5 million at the time of delivery. Buyer’s claim of damages assessed from the difference between contract price and market price, being 500,000. No evidence that sellers had offered to sell the ship to the buyers for 5 million after the termination of the contract. Held that buyers had failed to mitigate because they should have offered to buy the vessel for 5 million rather than claim for damages. Criticism: Renders buyer’s right to reject the vessel illusory – no point in exercising a right to reject if the buyer is required to make an offer to purchase the rejected goods at the contract price Entitled the sellers to retain profits attributable to rise in market price of vessel – sellers could sell the ship for 5.8 million, and were enriched due to breach Loss had already occurred at time of breach – question was which party was to take advantage of rise in market price
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Brace v. Calder [1895] Claimant was offered employment for a period of two years. After 5 months, company was dissolved due to the retirement of two of its owners, cutting short the claimant’s employment. Two of the owners continued business in their own right, and offered the claimant employment which he refused. Claim for damages to cover loss of earnings for the remainder of the 2 year period was refused on the basis that he had failed to take advantage of the opportunity to reduce his losses by accepting the offer of employment. It is only required that the claimant take reasonable steps to reduce his losses – measures that are too onerous are excluded
Pilkington v. Wood [1953] Claimant bought a house but there was a defect in the title meaning he was unable to take possession of the property until the situation was rectified. Claimant’s solicitor was in breach of contract for his failure to take appropriate steps to spot the defect, and claimant thus brought an action to recover damages relating to costs of the hotel bills, etc, related to the delay. Solicitor argued that defendant could have pursued action against owner of property instead as that was a reasonable measure to mitigate losses from the solicitor’s breach of contract.
Defendant’s argument rejected. Claim against vendor would have required the claimant to pursue complicated litigation which may not have been successful while a breach of contract claim against the solicitor was straightforward. Not reasonable to expect the claimant to take the risk of pursing the vendor, and thus no duty to do so in order to mitigate his losses.
Final point on mitigation: Part of broader principle that claimant must act reasonably
Contributory Negligence Where it is possible to the defendant to pay less as claimant’s carelessness contributed to loss suffered. Classified into 3 different types of claim: Defendant’s liability arises from a breach of a co ntractual provision which does not depend on a failure to take reasonable care – the breach of a strict contractual duty Contributory negligence not available as defense for such a claim o Liability arises from an express contractual obligation to take care which does not correspond to any duty which would exist independently of the contract Again, no defense o Liability of a breach of contract is the same as and coextensive with a liability in tort independently of the existence of a contract JACKPOT o
C’s negligence which does not break causal chain but exacerbates her loss does not reduce damages (Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370 (QB)) Barclays Bank plc v. Fairclough Building Ltd (1995) In 1989 BB, the occupants of two industrial warehouses, contracted F to carry out maintenance works on the units. F subcontracted the cleaning of the corrugated asbestos roofs to C, who in turn subcontracted it to T. Neither C nor T was experienced in the cleaning of asbestos roofs such as to be aware of the special health risks associated with such work. T carried out the cleaning by using a high-pressure hose, which caused an asbestos- contaminated slurry to enter the buildings and dry out, leaving dangerous levels of asbestos dust and fibres. A prohibition notice was served on the work by an environmental health officer and remedial works at an estimated cost of GBP 4,000,000 were required. BB obtained judgment against F. C compromised the third party proceedings against it by paying F GBP 1,250,000. In C's action against T the judge found for the latter on the basis that although T had impliedly warranted that in cleaning the asbestos roofs it had and would use the skill reasonably expected of a competent contractor carrying out such work, it did not hold itself out as having expertise in relation to the health hazards potentially created by working on asbestos.
Held, allowing the appeal and giving judgment for C, that (1) having regard to the weight of the expert evidence in relation to the publication, by the Health and Safety Commission, trade journals and elsewhere, of the risks associated in working with asbestos, neither C nor T could avoid a finding that in carrying out their respective obligations in the contractual chain they had failed to exercise reasonable care and skill. Any person undertaking to clean asbestos with a high pressured hose undertakes to carry out the work with the care and skill necessary to perform the tasks safely and without causing extensive contamination of the surrounding area, and (2) T's liability to C would be reduced by 50 per cent to reflect the extent of C's contributory negligence. This was a case in which such an apportionment was possible since, by virtue of the close relationship between them, T owed C a concurrent duty in tort to avoid causing economic loss by failing to exercise due skill and care. Odd that for defendant to reduce liability, it had also to be liable by tort as well Here they are accepting liability and pleading liability under tort so o as to use the defense Reasons to expand doctrine of contributory negligence Give claimants an incentive not to act negligently o Allow Courts to reach fairer results – contributory negligence o normally a partial defense so it can be tailored to fit the case anyway (mitigation, etc, are all or nothing)
Account of Profits Can claimant take an account of profit where defendant makes profit as a result of breach? Attorney-General v. Blake (2001) B, a former member of the British Security Services and a Soviet spy, appealed the grant of an injunction preventing him from receiving any further payments from his publishers following the publication of his autobiography. The Attorney General cross appealed, contending that B's breach of contract in disclosing official secrets should carry with it an entitlement on the part of the Crown to seek recovery of any resultant profits by way of restitution. The court held that in an exceptional case, such as this, there was no bar to the grant of an order for an account of profits where that was the most appropriate remedy following a breach of contract. Exceptional remedy Remedy of an account of profits only available where other o remedies are inadequate Claimant must have a legitimate interest in preventing the o defendant making or retaining his profit Court must have regard to all circumstances of the case o Recognized that this case is exceptional as it concerned national security Strong public policy concerns supporting its decision o
Punitive Damages Cannot be recovered for breach of contract – Addis v. Gramophone Co Ltd (1909) Profit made by a wrongdoer can be extracted from him without the need to rely on exemplary damages – dicta from Rookes v. Barnard (1964) Law may only develop in this direction if defendant commits a breach that is outrageous enough and in enough disregard for the claimant’s rights that something more is required on the part of the law Such cases likely to be few and far between o
Agreed Damages Clauses Parties may negotiate amounts that each has to pay upon breach of contract Courts reserve the power to regulate such clauses If the term is held to be a penalty clause, it will be held o unenforceable and innocent party will be confined to a claim for damages assessed on the basis of the principles applied by the Courts above If term is liquidated damages term, then it will be enforced regardless of the nature of the breach and loss suffered
Dunlop Pneumatic Tyre Ltd v. New Garage and Motor Co Ltd (1915) Dunlop sued its tyre retailer, New Garage, for breaching an agreement to not resell Dunlop tyres at a price lower than that listed in the contract. The agreement then said if that did happen, New Garage would pay £5 per tyre ‘by way of liquidated damages and not as a penalty’. The judge held the £5 sum was liquidated damages and enforceable. The Court of Appeal held the clause was a penalty and Dunlop could only get nominal damages. Dunlop appealed. The House of Lords held the clause was not a penalty, and merely a genuine preestimate of Dunlop’s potent ial loss, and so Dunlop could enforce the agreement. Lord Dundein set out the following principles. Definition of penalty or liquidated damages is question of fact, dependent on case Penalty if sum stipulated is extravagant and unconscionable in o comparison with the greatest loss that could conceivably be proved from the breach Not conclusive, and can be overridden by Courts Penalty if the breach consists of paying of a sum greater than that o which ought to be paid Does not have to be right to be reasonable – not a very high treshold Presumption of penalty when a single lump sum is to be payable, o regardless of situation No obstacle to classification as liquidated damages if it is o impossible to ascertain value of potential losses and the sum is a legitimate estimate
Deposit or Part Payment Possible to require deposit that will not be returned unless requested performance is carried out No need to initiate legislation first as the party that intends to reclaim the money will have to take the steps to sue Entitlement of party to recover money depends on the nature of the payment: Deposits are less likely to be recoverable o Part-payment is part of the price and generally recoverable by o party in breach in the event of contract termination
Right of payee to retain deposit not completely unqualified: Workers Trust and Merchant Bank v. Dojap Investments Ltd (1993) A purchaser at auction in Jamaica agreed to buy a property, and to pay the nonreturnable deposit of 25 per cent. of the purchase price. On his non-completion of the contract, the vendor forfeited the deposit and the purchaser brought an action to have it returned, on the ground that it was an unlawful penalty, the normal deposit in such circumstances being only 10 per cent. of the price. The Court of Appeal of Jamaica allowed the appeal, and granted him relief from forfeiture of the excess 15 per cent. The vendor appealed and the purchaser cross-appealed. Held, dismissing the appeal and allowing the cross-appeal, that the payment of a reasonable amount which would be forfeited on non-completion of the contract was not unlawful, but where the standard deposit required was only 10 per cent. and the vendor had failed to establish any special reasons why the 25 per cent. requirement was justified it was to be regarded as a penalty and the court would grant relief by ordering its repayment
Calculation of Damages Two methods used to calculate: Loss of bargain – placing innocent party in position they would have been in if the contract had been performed Reliance loss – Places the innocent party in the position they would have been in had the contract never been made Defendant who has not spent/lost money cannot reclaim damages as the point of damages is to restore him to his previous position Lossless breach of contract will only result in nominal damages
Loss of a Bargain Main category of damages awarded for breach of contract, sometimes known as expectation loss. Two possible scenarios:
Non-performance by one of the parties to the contract – e.g. one of the parties who was bound to supply goods fails to do so, or if the one receiving them refuses to accept them Damages represent cost to the innocent party of obtaining the o goods or services that should have been supplied This may be the actual value of the contract if a substitute can be o found at that price, or at the market value of the goods/services which may be higher than the price agreed in the contract Substitute at actual value: Charter v. Sullivan [1957] Claimant accepted that there was a good market for the car, thus it would not be difficult to obtain the same price from another purchaser. As claimant suffered no loss, only nominal damages were awarded. Substitute at market value: WL Thompson Ltd v. Robinson Gunmakers Ltd [1955] Less demand for the car, and it was likely that it would be sold for a lower price than that agreed with the defendant, thus claimant entitled to damages representative of loss of profit. (In both of the above cases, defendant agreed to purchase a car but subsequently refused to complete the transaction, leading to breach of contract) Performance Interest: Performance is carried out, but it proves to be defective or of an inferior quality to that stipulated by the contract. Here damages cover cost of restoring goods to the expected quality (cost of cure) or represent the gap in price between goods expected (undamaged) and those received (inferior). Courts seem to be adopting ‘less than whole hearted’ approach to o performance interest (dafuq?) Protection assessed in either putting claimant back in position he would have been if performance had been carried out, or on a cost of cure basis Generally the disparity is little, thus litigation is rarely pursued o Ruxley Electronics and Construction Ltd . Forsyth [1995] Claimant engaged services of defendant to construct a swimming pool at a cost of 70,000 pounds. When it was completed, the depth of the pool was several inches less than that stipulated in the contract, and the cost of rectifying this would have been over 20,000 pounds (cost of cure), which would have imposed an unacceptable hardship on the defendant, given that the pool was otherwise perfectly functional. Difference in depth made no difference to value of the pool, thus claimant awarded only nominal damages House of Lords emphasized that aim of damages was to put the innocent party in the position they would have been in if the contract had been performed
Does not necessarily mean that the innocent party would be entitled to monetary equivalent of specific performance Per Lord Lloyd: If he has suffered no loss, he can claim no damages, as the point of damages is to compensate the claimant, and not to punish the defendant Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd (1912): Plaintiff not necessarily to be placed in the same situation physically as he would be if the contract was performed, but as close as possible as far as money can do it – damage has to be measured and recompensed financially Took loss of amenity line of reasoning, reminiscent of “holiday” cases, while Lord Mustill adopted “consumer surplus” model where contracts are entered into for more than monetary reasons – value of performance is more important sometimes Existence of “Entire contracts” rule – claimant is only entitled to payment if he has completed his obligations Cutter v. Powell (1795) May lead to harsh results: Sumpter v. Hedges (1898) Exceptions include doctrine of substantial performance – able to recover contract price less value of difference in performance Decision in Ruxley contested a bit by consumer groups as it gives contractors a license to anyhow perform obligations and then offer a ‘trifling’ sum as compensation Courts may be slow to conclude that cost of cure damages are unreasonable as seen in McLaren Murdoch & Hamilton Ltd v. The Abercomby Motor Group Ltd (2003) Claimant should be entitled to cost of cure unless benefit is disproportionate to cost Defendant should not place unreasonable barriers in the way of the claimant as claimant is still a victim of defendant’s breach of contract Decision point of argument that English law does not fully seek to protect performance interest as claimant never got the pool they contracted for, instead only being offered a sum of damages to reflect the disappointment Emphasis on financial equivalent of performance, rather than actual value of performance
Alfred McAlpine Construction Ltd v. Panatown Ltd (2001) Panatown entered into construction contract with A for construction of a new building in Cambridge. The building was to be constructed on land owned by UIPL (member of the same corporate group as Panatown), and for tax reasons
the contract with A was made with Panatown instead of UIPL. Further transactions conducted between A and P, including Duty of Care Deed, where A warrented that it would exercise all skill and reasonable precaution in the execution of their duties, owed P a duty of care ,that UIPL could rely on A for certain matters, and A would use reasonable measures to maintain in force professional indemnity insurance. UIPL also had the power to assign the benefit of the deed to successors with A’s approval. Project was disaster, with substantial defects, and estimated costs of repairs placed at 40 million pounds. P sought damages on two grounds: Claimed that it was entitled to recover damages in respect of loss suffered by a third party (UIPL being owner of the land) Suffered a loss which entitled it to recover substantial damages, not withstanding the fact that it was not worse off financially as a result of the breach Judgment: House of Lords dismissed appeal on both counts (bare 3-2 majority): P not entitled to recover substantial damages on either of their two grounds advanced. Cannot recover damages on UIPL’s behalf because UIPL had their own course of action against A under duty of care deed. P could not receive any substantial damages on its own right either as they had not incurred any significant expenditure in making good the defects in the construction works, and considering UIPL’s possible course of action, they had suffered no loss. No need to confer upon P an additional right to damages as that o would overcomplicate legislation and open up issues such as double liability Further proof of lack of protection of “protection interest” in o English Law Support for Lord Millet’s views: Principle: An enforceable promise confers on the promisee an o entitlement to the promised performance, and not simply the economic value of that performance Reflected in remedy of specific performance, and should be reflected in law relating to assessment of damages A loss-centric analysis does not apply to all cases as not all o contracts are entered into for the purpose of financial gain: a consumer who contracts with a company to fit a new kitchen, but who gets something else instead of greater financial value Analysis of judges hamstrung by duty of care deed signed between o UIPL and McAlpine – they did not need to come to a conclusion on the position of the law as the DCD in itself was fatal to their claim Proposition that damages cannot be recovered unless the claimant has suffered a diminution in his overall financial position cannot stand in the light of cases such as Ruxley No losses sustained, but mutual agreement that he was o entitled to damages – disagreement simply as to calculation of damages o Ruxley can be viewed as a case of “defeated expectation”
Goal of damages as “substitute performance” – put claimant in the same place as he would have been if the contract had been performed Damages usually awarded in respect of a loss that was suffered by claimant, and it is for claimant to figure out how to use the money Case suggests that it is pertinent for the court to be concerned with o what the claimant intends to do with the damages awarded o
Reliance Interest In practice generally quite similar to performance interest. Most widely used conception: enables claimant to recover his out-of-pocket expenditure incurred in the court of performance of the contract
Reliance Loss In situations where it is difficult or impossible to calculate the damages on the basis of the position that the defendant would have been in if the contract had been performed, reliance loss is used. Aims to place the innocent party in the same position as he would have been if contract had not been made. Courts generally strive to overcome valuation difficulties and relegate a claimant to reliance loss damages only in the case where there is no objective basis for the award of damages designed to protect his performance interest Anglia Television Ltd v. Reed [1972] Claimant television company entered into contract with actor Robert Reed to star in a film, but Reed changed his mind to take part in an American film instead, refusing to go ahead with the claimant’s production. Film was therefore abandoned, and the claimant sought to recover expenditure both before and after the contract was signed on the basis that this money was spent in reliance on the contract with the defendant. Easy find that expenditure after formation of the contract was recoverable as it was reasonable to expect the film company to spend money preparing for filming, but less clear that damages were recoverable for expenditure prior to the formation of the contract – how to have reliance if the contract wasn’t formed, and therefore nothing to rely on? Held however that those costs could be recovered so long as they weren’t too remote. As defendant was aware that all costs associated with making the film would be wasted if the contract did not go ahead, the claimant was able to claim damages for money spent prior to the formation of the contract. Claimant has a choice between claiming performance interest and reliance interest – Cullinane v. British ‘Rema’ Manufacturing Co Ltd (1954) Ability to reclaim pre-contractual expenditure is not recognized in American jurisdiction: such expenditure was expended only in the hope of securing defendant’s agreement, and therefore there is no real causal connection
Claimant may also seek to claim reliance damages to escape from a bad bargain, but Courts are generally unwilling to allow this: C & P Haulage v. Middleton (1983) Where the terms of a licence provide that fixtures are not to be removed at the end of the licence, and the licensee expends money on fixtures, he is not entitled to claim the cost of these as damages where the licensor ejects him in breach of contract. P, a self-employed engineer, was granted a contractual licence to occupy premises on a renewable six-monthly basis. He expended money in making the premises suitable for his work even though it was expressly provided that fixtures put in by him were not to be removed at the expiry of the licence. Ten weeks before the end of a six-month term he was unlawfully ejected by D. As a temporary measure, P obtained permission from the local authority to use his own home for his work, which he did until well after the six-month term would have expired. P claimed against D for the cost of the improvements effected by him in the premises. The judge held that although D was in breach of contract by ejecting P; P had suffered no loss since he had been able to move to his home rent free and the expenditure on improvements to the premises would still have been lost even had the licence been validly terminated at the end of six months. P appealed contending that he was entitled to recover his expenditure by way of damages for breach of contract. Held, dismissing his appeal, save that judgment would be entered for nominal damages, in that assessing damages for breach of contract, the court had to endeavour to put a plaintiff in the position he would have been had the contract been performed. He had not suffered any loss since he was no worse off than if the contract had been performed. He was not entitled to claim the expenses incurred as a result of making the contract since that would compensate him at D's expense for the bad bargain he had made and would leave him better off than he would have been had the contract been wholly performed. (Bowlay Logging v Domtar [1978] 4 W.W.R. 105considered; Lloyd v Stanbury [1971] 1 W.L.R. 535 distinguished; and Anglia Television Ltd v Reed [1972] 1 Q.B. 60 distinguished). Per Berger LJ in Albert & Son v. Armstrong Rubber Co (1949): If the law allowed the plaintiff to claim for loss of profits stemming from the breach as a result of a bad bargain, then the burden of risk would shift to the defendant, who would then It is for party in breach to prove the losing bargain of plaintiff
Restitution Interest Only has a role to play where the contract has been set aside – otherwise the contract governs the rights and responsibilities of the parties Where claimant accepts defendant’s repudiatory breach, claimant may have claim to recover the value of any benefit conferred upon defendant in the course of performance prior to the termination of the contract Right only available in narrow confines
Where claim is to recover money paid to defendant, it is only available where there has been total failure of consideration – claimant has received no part of the performance for which he contract (Giles v. Edwards (1797)) Where he has received part of the contractual promise, he is o limited to a claim for contractual damages (performance or reliance interest) E.g. bad bargain: claimant pays 500 for goods worth 300. If o defendant fails to deliver, then he can claim back 500 vs performance interest which is only worth 300 Where innocent party is the one supplying goods or services to the party in breach, there is no total failure requirement: Total failure only applies to claims to recover money paid to the defendant Claimant who wishes to recover the reasonable value of goods or o services prior to termination can either pursue a contractual claim or bring a restitutionary claim (quantum meruit)
Non-Pecuniary Losses An award of a sum of money to put the innocent party in the same position as he would have been prior to the formation of the contract, for feelings, mental distress and loss of amenity. Only available if the claimant has no other recourse available to him. Previously Watts v. Morrow (1991) was leading case on the proposition that nonpecuniary losses could only be recovered when: 1. Very object of contract was to provide pleasure, relaxation, peace of mind or freedom from molestation 2. Claim for damages for physical inconvenience caused by the breach and mental suffering directly related to that inconvenience and discomfort Above has been replaced by House of Lords decision below: Farley v. Skinner (2001) F appealed against the decision of the Court of Appeal (73 Con. L.R. 70) allowing the appeal of S, a surveyor, against the award of GBP 10,000 made to F by way of damages for the interference with the enjoyment of his property caused by aircraft noise. S, who had been instructed by F to survey the property prior to his purchase of it, and to specifically investigate the likelihood of aircraft noise from a nearby major airport, had negligently concluded that the house was unlikely to be affected. Held, allowing the appeal, that S's obligation to investigate aircraft noise had been an important part of the contract, and S's failure to properly investigate that aspect had prevented F from making an informed choice as to whether or not to buy the property. That had, in turn, led to mental distress and disappointment for which damages had been sought. The guidance in Watts v Morrow [1991] 1 W.L.R. 1421 was still valuable in the context of determining whether damages were available for breach of contract, but there was no reason in principle and policy why the scope of recovery in the exceptional category should be dependent on the object of the contract as ascertained from all its constituent parts. It was enough that an important
object of the contract had been to give "pleasure, relaxation or peace of mind" and that it had been breached, Watts considered, Knott v Bolton 45 Con. L.R. 127 overruled. F had not forfeited his right to damages by remaining at the property, given that he had acted reasonably in making the best of the situation, and that his decision not to move had prevented a larger claim against S. Critical that it was stressed that aircraft noise was an important part of the surveyor’s role, and thus the contract o Ordinary surveyor’s contract would not fall in this category, as determined by House of Lords Scope of claim contained by remoteness rules – plaintiff’s specific stipulation of the purpose behind the surveying Loss within contemplation of both parties at the time of entering o into the contract More than one way to frame claim for damages: Loss of promised contractual performance, or compensation for inconvenience caused as a result of lost performance o Hobbs v. London and South Western Rly Co. (1875) – claimants had to walk home 4-5 miles in the rain as a result of disruption in service Courts generally more likely to award damages in cases of physical distress than for mental distress as a result of breach of contract
Jarvis v. Swans Tours [1973] Claimant booked a two week holiday that specified certain features, such as a welcome party, afternoon tea and yodeling sessions. These features were either absent or unsatisfactory, and the holiday company was clearly in breach for failing to provide these features. Legal issue was the extent that claimant could recover damages for these things as they amounted to loss of enjoyment rather than financial loss. Claimant successful in receiving damages for loss of enjoyment on appeal. Rationale being that the purpose of a holiday is enjoyment, thus damages should be available if the enjoyment promise is broken Case where enjoyment was a key consequence of the contract
May apply also to mental distress associated with failure of contract, where the essence of the contract is to provide pleasure. Not applicable in purely commercial contracts. Cases include: Sum awarded to represent disappointment caused by non-appearance of wedding photographer: Diesen v. Sampson (1971) Damages for mental distress arising from solicitor’s negligent failure to obtain an injunction to protect the claimant from molestation: Heywood v. Wellers (1976) Damages may also be awarded for loss of chance caused by breach: Blackpool and Fylde Aero Club v. Blackpool Borough Council (1990) Failing to consider tender o Chaplin v. Hicks (1911)
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Claimant received damages to represent lost chance of success in a beauty contest even though her success was only a possibility and not a certainty
Date of Assessment General rule being that damages to be assessed as at the date of the breach of contract – Johnson v. Agnew (1980) Innocent party is presumed to be able to go out into the market at the date of the breach and obtain substitute performance, and the cost of this will fix the measure of damages to which it is entitled However in Johnson it was accepted that this was not a cover for injustice: where claimant could not have been aware of the breach at the time at which it occurred, damages would be assessed at a date where it was reasonable for the claimant to have been aware of the breach General rule and exceptions tested by House of Lords:
Golden Strait Corporation v. Nippon Yusen Kubishika Kaisha (2007) Parties entered into charter party with duration of 7 years, but 3 years later this was repudiated by charterers. Owners accepted the repudiation 3 days later, but the earliest date for contractual redelivery of the vessel was 4 years later. Accordingly, claimants sought to recover damages for the 4 year period. However, Second Gulf War broke out during that period, and in clause 33 of the contract, the defendants had a right to terminate the contract as a result of an outbreak of hostilities, and thus should not be liable in damages past that date. House of Lords accepted defendant’s submission, and majority affirmed principle that the general rule of damage assessment is not inflexible. Aim of an award of damages is to put the claimant in the financial o position which it would have been in had the contract been performed according to its terms (or the contractual benefit which it had been deprived) – this is not always possible to achieve a fair result Criticism by dissenting judgments recognize the fact that it encourages drawn out legal proceedings as that allows the defendants more time to take into account later events – if the damages had been promptly awarded, they would have settled it before the Gulf War had started
Action for an Agreed Sum If price to be paid for a contract has been specified but payment is not forthcoming, innocent party may bring an action for an agreed sum. Not technically damages, having more in common with specific performance as the defendant is being compelled to pay that which he already owes. Where price is not specified, damages are calculated on a quantum meruit basis, where a fair price is awarded for the work already performed.
Specific Performance Equitable remedy that compels the party in breach to perform his part of the contract, and is generally a positive act by nature: compels the party in breach to actually DO something, vs an injunction which is prohibitory in nature. Not the most common remedy for breach of contract – Damages are a right once breach of contract has been established, but specific performance relies on: If damages are not adequate remedy Corollary being that it will not be awarded if damages are o adequate Equitable remedy, thus available at discretion of the judge Only available for certain types of contract
Bars to Specific Performance According to Treitel (these are general presumptions but should be pretty strong) Personal Service Contracts Governed by s236 of Trade Union and Labour Relations o (Consolidation Act) 1992 Employment shouldn’t be slavery o Contracts requiring constant supervision Contracts which are too vague Building contracts Contracts sought to be enforced in part only A contract which the defendant is entitled to terminate in any event or which is subject to a condition precedent not within the control of the party seeking specific performance Promises made without consideration
Factors to be considered by Courts in exercising their discretion: Order would cause ‘severe hardship’ on the defendant Contract has been procured by unfair means, though not nearly unfair enough to have the contract invalidated Conduct of the claimant – if the claimant has himself acted unfairly then this may affect claim: claimant needs to come to the Court ‘with clean hands’ Impossible for the defendant to comply with terms of the order
Damages not adequate remedy For the claimant to establish Where no substitute is available: Damages awarded so that the claimant may purchase what he otherwise sought to have. For special goods, damages does not aid the owner acquire the property.
Cohen v. Roche (1927) Claimant purchased 8 Hepplewhite chairs at an auction, but defendant refused to honor purchase. Court held that sale was valid, but awarded damages rather than specific performance. Chairs were ‘unremarkable’ and possessed no special feature render ing them unique and irreplaceable Easy for claimant to obtain substitute chairs from another source
Phillips v. Lamdin (1949) Claimant agreed to purchase a house from defendant which included a rare, ornate door made by Adam. Defendant delayed the sale of the house and removed the door prior to completion of the sale. Specific performance ordered due to the rareness of the door Money not have allowed claimant to buy a replacement
Land is generally seen as unique by Courts, regardless of characterisitcs. It is unresolved whether the rule applies to goods that are commercially unique such as where a certain good is not in itself unique, but holds particular import to the claimant: Behnke v. Bede Shipping Co Ltd (1927) Claimant sought order for specific performance on the purchase of a ship called “City ”. The ship was the only vessel of that class in the market that could be immediately place on the German ship register, and thus the claimant sought it. In this case, specific performance was granted. Courts are always more willing to use damages as a remedy: where it is possible for claimant to seek a remedy from elsewhere and claim damages for the losses suffered while waiting, the Courts will choose that remedy if the defendant can afford it – Societe des Industries Metallurgiques SA v. The Bronx Engineering Co Ltd (1975) Award of damages would be unfair to claimant Award of damages cannot cause unfairness to claimant by leaving him inadequate recompense – low financial value of loss = nominal damages only. Beswick v. Beswick (1968) – Generally cited as example of “damages not enough” rule Claimant was widow of coal merchant who before he died had sold the goodwill in his business to defendant on the agreement that defendant would pay an annuity to the coal merchant during his lifetime and to his widow after his death. The defendant made only one payment to the coal merchant and none to his widow. Claimant, not being a party to the contract, could not sue for unpaid annuity, thus she brought an action on behalf of her deceased husband’s estate. Unfair to claimant to award damages as remedy as estate suffered no loss as a result of breach of contract, leading to nominal award
Specific performance issued so that defendant forced to pay owed amounts and to continue to do so in future
Issues with specific performance Claimant as innocent party should be entitled to choose the remedy that is most appropriate in their case, rather than having his choice restrained by unnecessary restriction Claimant runs inevitable risk in arguing that damages to which he is otherwise entitled are inadequate Claimant shouldn’t be put in the position of having to make the o potentially damaging concession that damages are inadequate in order to substantiate his claim to a completely different remedy (specific performance): If the Court decides not to award the specific performance remedy, he will then be left with a measure of damages that is by his own admission “inadequate” As the law of damages is being developed to become ever more wide reaching, it becomes increasingly difficult for specific performance to be awarded as damages more and more becomes an “adequate” remedy
Sale of Goods Act 1979, s52 In any action for breach of contract to deliver specific or ascertained goods, the court may (with discretion) on the claimant’s application direct that the contract be performed specifically without giving defendant option of retaining goods on payment of damages. Aka: Give the goods or else, cannot keep and pay damages Specific performance is available at court’s discretion, but courts in practice apply the common law “availability of substitute” rule to determine whether specific performance should be awarded
Discretion of the Court Specific performance only ordered in accordance with rules of equity Stick v. Keeble (1915) – Equity will only grant specific performance if, under all the circumstances, it is just and equitable to do so. Claimant who delays in bringing action may be denied specific performance: Milward v. Earl of Thanet (1801) – Delay defeats equity Specific performance is not available to a claimant who has behave dishonestly or improperly: Walters v. Morgan (1861) – He who comes to equity must come with clean hands A defendant may resist specific performance on the basis that it would cause extreme hardship to him: Patel v. Ali (1984) Specific performance will be refused if it is not possible for the defendant to perform what has been agreed, ie the property does not belong to the defendant A claimant will not be granted specific performance where he has provided no consideration (equity will not assist a volunteer) Specific performance will only be granted if the claimant is also willing to make good on his bargain
Specific performance will not be ordered if the contract requires performance over a period of time so that constant supervision is required as this would be impractical: Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd (1997) – Equity does nothing in vain
Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd (1997) Defendants operated a supermarket in a large unit that they leased in the claimant’s retail center. Lease had a cove nant that required the supermarket to be open during normal business hours, but it became unprofitable for the defendants who subsequently ceased trading. Claimants feared that this would have an adverse effect on the level of trade in the retail center, so they sought an order of specific performance to compel the defendants to reopen the supermarket and resume trading. House of Lords overturned Court of Appeal ruling, holding that it was impractical for courts to force the defendants to carry out their business as it would need constant supervision by the courts to ensure compliance Given that trading was ceased for economic reasons, specific performance would compel them to continue unprofitable business, or pay damages for non-compliance
Type of Contract Specific performance generally not awarded in relation to contracts for personal services, eg employment contracts. S236 of Trade Union and Labour Relations (Consolidation) Act 1992 states that it is unlawful to compel an employee to work by means of an order of specific performance or by granting an injunction. Reinstatement of employment can be ordered, but this is rare – if one party has no faith in the honest of the other, then it is ridiculous to force him to work for the other – Chappell v. Times Newspapers Ltd (1975)
Undue Hardship What is the threshold for “undue hardship”? Not severe enough to entitle defendant to set aside the contract In such a case the defendant can attack the validity of the contract o to begin with
Patel v. Ali (1984) Defendant and A entered into a contract to sell defendant’s matrimonial home to the plaintiff (property was registered in A’s name). It was concluded in July 1979 with a completion date of 28 August, but it overran. Plaintiff issued a writ seeking specific performance of the contract on 11 August 1980, but did not apply for summary judgment until 4 July 1983. Delay appears to have been caused by the fact that defendant’s husband had been adjudicated bankrupt and his trustee in bankruptcy succeeded in obtaining an injunction restraining completion of the sale. Husband was not released from injunction until 1980. Plaintiff also had difficulty effecting service of proceedings on A as he had returned to Pakistan. Defendant also suffered much misfortune such as cancer
requiring amputation of her leg, her husband going to prison and giving birth to 3 chilren. Held that Court had jurisdiction to refuse specific performance on the grounds of severe hardship that execution would cause to the defendant Exceptional situation required in order to compel the Court not to o pass order of specific performance for land Here presence of injunction meant that she could not complete the o sale even if she had wanted to, meaning that it was unnecessarily drawn out
Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd ( 1998) – VERY IMPORTANT CASE When A, the tenant of retail premises comprising the main unit in a shopping centre, closed its supermarket in breach of a "keep open" covenant in the lease because it was operating at a loss, C, the landlord, sought specific performance of the covenant and/or damages. The judge made an order for damages, but refused to order specific performance on the grounds that it would be inappropriate and against settled practice. His decision was overturned by the Court of Appeal and A appealed. Held, allowing the appeal, that there was a settled practice that mandatory injunctions which required a defendant to carry on a business would not be granted, Braddon Towers Ltd v International Stores Ltd [1987] 1 E.G.L.R. 209 considered. There were several sound objections to an order for specific performance, including the difficulties of enforcement and supervision by the court, the possibility of oppression caused by the threat of contempt proceedings and the potential for injustice where a defendant's loss in having to continue trading might be greater than the loss caused to a plaintiff through breach of the covenant. Whilst the decision on whether to grant specific performance was always one for the judge's discretion, the settled practice should be departed from only in exceptional cases. In the instant case, the obligation in the lease was not sufficiently precise to allow certainty as to what would constitute compliance, and specific performance should not be ordered. As constant supervision by the Court would be required to compel specific performance, it would be impractical for such an order to be passed No way for a defendant to run a business if defendant were to be compelled to pursue a loss making venture Seriousness of finding of contempt for defendant means that any application for the enforcement of such an order would lead to costly and expensive litigation Damages present once-and-for-all remedy which is a lot more o economical for all involved Imprecision of language between orders to achieve a result (say compel single performance) or orders to carry on an activity Two separate measures used for things that are specific enough to o be in a contract and things that are precise enough to be specifically enforced, with a stricter construction for the latter
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Particulars of the work are so far definitely ascertained that the Court can sufficiently see what is the exact nature of the work of which it is asked to order the performance Greater imprecision is allowed if the Court only needs to compel a result Allows plaintiff to enrich self at defendant’s expense: Loss that defendant may make by carrying on at a loss making business indefinitely is far greater than what the plaintiff stands to lose if the contract is breached Such an order “yokes the parties together in continuous hostile relationship”
The Argument For:
Gives effect to performance interest to the parties That’s the whole point of a contract, to see promises made and o fulfilled Damages are generally not as compensatory as they are cut out to be
Against: Affront to individual liberty Compelling parties to do things that they do not wish to do o However technically the initial promise was voluntarily given, thus o there is no real compelling against wishes
