UCL FACULTY OF LAWS LAW OF CONTRACT 2009/10 DR PRINCE SAPRAI
REMEDIES FOR BREACH OF CONTRACT PART 2 LIMITING FACTORS General Reading: E McKendrick, Contract Law: Text, Cases and Materials (3rd (3rd edn OUP, Oxford 2008) 889-916 Essential Further Reading is * in the Handout Learning Outcomes: Understand the four major limits on claims for contract damages: duty to mitigate, causation, contributory negligence and remoteness y
Red = My lecture notes Black = Handout 1
Introduction
Fours limits on the protection of expectation interest: 1. Mitigation ± the circumstances must be unavoidable for the promisee to have a claim 2. Causation ± the promisor must have caused the clai m through his/her breach of contract 3. Contributory Negligence ± Is ± Is the promisee in some way responsible for the outcome? Therefore, can damage damagess be reduced? r educed? 4. Remoteness ± Did the promisor foresee the losses that came about? They must have been foreseeable for the promise to be able t o claim. 2
Mitigation
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General Principle
The claimant has a duty to reduce the losses that have been caused to them. If the promisee doesn¶t act reasonably in avoiding/limiting the damage caused to them then their damages will be reduced accordingly. Damages ca nnot be recovered that were reasonably reasonably avoidable.
C has a duty to avoid loss caused by D¶s breach. C cannot recover damages for losses that were reasonably avoidable. reasonably avoidable. British Westinghouse Electric & Manufacturing Co [1912] AC 673 (HL) µThe claimant does not have to take any step that t hat a reasonable and prudent man would would not ordinarily take in his course of business.¶ 2.2
Reasonableness
C does not have to µtake any step which a reasonable and prudent man would not ordinarily take in the course of his business¶ ( British Westinghouse Electric & Manufacturing Co [1912] AC 673 (HL) 689). Low standard, c not have to: y y
y
Take significant financial risks ( P ilkington ilkington v Wood (1953) Wood (1953) Ch 770 (Ch)) Risk reputation ( J ames ames Finlay & Co Ltd v Kwik Hoo Tong Handelsmaatschappij (1929) [1929] 1 KB 400 (KB)) Do something unaffordable ( Clippens Oil Co Ltd v Edinburgh & District Water Trustees [1907] AC 291 (HL))
Two limbs:
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1. Positive duty to act reasonably to avoid losses 2. Negative duty to avoid acting unreasonably to make loss worse 2.3
Positive Duty
Claimant must take positive steps to reduce losses. What required is fact specific, but examples include: y
Duty to make reasonable effort to get substitute ( Kaines (UK) v Osterreichische Warrenhandelsgesellschaft Austrowaren GmbH [1993] 2 Lloyd¶s Rep 1)
If the claimant fails to receive some good or serviced that had been contracted for t hen there is a duty to get that good or service from somewhere else. This is a duty to find a substitute if it all goes tits-up. y
Make reasonable effort to get alternative employment ( Y etton etton v Eastwoods Froy Ltd [1967] 1 WLR 104)
If an employee is wrongfully dismissed then they have to make a reasonable effort to get another job and therefore reduce their losses. y
Accept help to reduce losses ( Anderson ( Anderson v Hoen, The Flying Fish (1865) 3 Moo PCCNS 77), including medical help ( Selvanayagam v University of the West Indies [1983] 1 WLR 585)
Flying
fish: A claimant who suffers property damage as a result of a breach of contract has a duty to accept help to reduce the amount of property damage that he/she incurs. West Indies: When the claimant suffers a physical injury then he/she has a duty to accept a ccept medical care. c are. y
Renegotiate with contract breaker ( The Soholt [1983] Soholt [1983] 1 Lloyd¶s Rep 605)
Claimant
was trying tr ying to buy a ship. Lawfully terminated the contract to buy the ship when the ship was delivered late. They then tried to claim the difference in price between the contract value of the ship and its current market value. Claim denied because they failed to mitigate their losses by trying to buy the ship at a price that r eflected the delay and inconvenience that had been caused.
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Negative Duty
C must not take unreasonable steps that increase losses. Again, reasonableness fact specific, but examples of reasonable steps include: y y
Spending money on advertising ( Holden Ltd v Bostock & Co Ltd (1902) 18 TLR 317) Incurring hire charges ( Bacon v Cooper (Metals) Ltd [1982] Ltd [1982] 1 All ER 397)
Unreasonable steps: y
Taking out high interest loan ( Compania Financiera Soleada SA v Hamoor Tanker Corp Inc, The Borag Borag [1981] [1981] 1 WLR 274)
Taking out a high interest loan (once ship has been detained) to pay the defendant to release t he ship was deemed to t o be unreasonable. Therefore damages could not be c laimed.
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Causation
General Principle Must be causal link between breach and loss. loss. Claimant may not claim for losses that were not caused by the breach. May be broken by: y
Independent act of 3P, although see Stansbie v Troman [1948] 2 KB 48 (KB)
General
Rule e.g.: Man is sold a car, car then gets vandalised, man cannot claim damages because the seller was not r esponsib esponsible le for the damage. da mage. It was an independent act of a third party. The exception to this is when someone is contracted into protecting something against third parties. 2
3 Stansbie:
Man is employed to paint house. He leaves the fornt door open and many goods are stolen from the house. He is not directly responsible for the losses, but he has a duty to protect the house fro third parties so he can be claimed against. Acts of God (Monarch (Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196 (HL)) y
Ship
sold to claimant ± ship is unseaworthy. It was held that the t he defendant would be liable for any foreseeable problems that might occur. However, the claimant couldn¶t couldn¶t claim when a typhoon hit the ship because this was not foreseeable. y
Unreasonable act by C (Lambert ( Lambert v Lewis [1982] AC 225 (HL))
Lambert: defendant sold a defective trailer coupler. The claimant went ahead using the trailor coupler knowing that it was defective. He then suffered physically as a result. The claimant couldn¶t claim for his injury because he had acted unreasonably in using the broken coupler .
Contributory Negligence (least important )
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When the claimant purposefully makes his/her loss worse
Common law position: Only in cases where the defendant has a tortuous duty... didn¶t really get that C¶s negligence which does not break causal chain but exacerbates her loss does not reduce damages ( Quinn v Burch Bros (Builders) Ltd [1966] Ltd [1966] 2 QB 370 (QB)) Question is does Law Reform (Contributory Negligence) Act 1945 apply to contract as well as tort claims? Forsikringsaktieselskapet Vespa v Butcher [1988] 2 All ER 43 (HL) Barclays Bank v Bank v Fairclough Building Ltd and Others [1995] 1 All ER 289 (CA) Remoteness
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Losses caused by D cannot be recovered if they are too remote. Hadley v Hadley v Baxendale (1854) 9 Ex 341, 354 Test for remoteness is whether losses could have been reasonably contemplated as consequences of a breach at the time the contract was entered. Basically,
could the loss have been foreseen at t he beginning of the contract.
Reasonably (doesn¶t matter if the claimant themselves didn¶t foresee them, we go by the reasonable person) foreseeable losses losses are (defendant will be held liable liable for these) : 1. those µarising naturally, that is, according to the usual course of things, from such breach breach of contract itself¶ and, 2. µsuch losses as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract contract as the prob able result of the breach of it¶. I.e. Either Either specifically brought to the attention of the claimant or was it expec expected ted to arise naturally natura lly from the course of the contract.
Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686 (HL), 2 clarifications: C must forsee type of loss, not extent . Must forsee as a serious possibility (vs tort where a slight possibility slight possibility sufficient) Achilleus: Must not just be reasonably foreseeable, but also that one party will take responsibility for: µif it is unexpected and completely out of contemplation then this would be too harsh¶ y y y
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Loss is recoverable if the claimant di d know or reasonably to have contemplated t hat type of loss as a serious possibility at the time of contracting. This is a strict test in contract c ontract law, because the innocent party has a chance to protect themselves, whereas in tort law they do not.
Applying Hadley Hadley v Hadley v Baxendale (1854) 9 Ex 341 is a courier. A shaft needed to be taken to Greenwich so that a new one can be made. delivered the shaft to Greenwich late, which caused caus ed several days stoppage in the mill causing a loss of profits. Hadley claims loss of profits from Baxendale. Claim denied: Baxendale was a general courier and couldn¶t be expected to know how important the shaft was to the mill as he had not been informed of the fact. It wouls be reasonable for Baxendale to assume that the mill had a replacement shaft or that there were other defects in the mill that were causing it to fail. Therefore, Baxendale couldn¶t be expected to be aware of this shaft¶s importance and was not liable for the loss of profits to the mill. *
Baxendale Baxendale
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] Ltd [1949] 2 KB 528 (KB) (distinguish ordinary profits and exceptional profits, conflict with Koufos?) Koufos?)
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Victoria
Laundry had contracted to buy a boiler from Newman. Victoria needed the boiler immediately and Newman need this. t his. Newman deliver the boiler 5 months late. Victoria wishes to claim for loss of profits because of this delay. Court of Appeal held that Newman were liable for costs. The factor that differentiates this from the Baxendale case is that Newman had specific expertise in making boilers and therefore reasonably they should have known of its importance to Victoria. Victoria
had entered into int o lucrative contracts with the MoD to wash uniforms. These contracts were not fulfilled due to the boiler not being delivered on time. Are Newman liable for the losses of these supplimentay supplimen tay contracts aswell? Court held to the contrary because of the fact the Newman were not informed of these additional contracts. They were merely liable for the day-to-day profits of the laundry company. It is arguable that this is inc ompatible with the Koufos case, because that case states that only the type of loss needs to be foreseeable, not the extent. Where as in this case the additional loss is not accounted for despite it being of the same type of damage. This case is criticised because the precedent states that one party should be able to foresee the type of loss, but not necessarily the extent of the loss. Here the day-to-day profits ar e the same type of losses as the contract with the MoD, but to a greater extent
Brown v KMR Services Ltd [1995] Ltd [1995] 4 ALL ER 598 (CA) Check out the Achilleus case in detail ± interesting points raised
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