11. Damages for breach of contract Flashcards
(29 cards)
How is the general aim of damages provided in Ruxley Electronics and Construction Ltd v Forsyth [1995]?
With regards to the aim of damages in contract law:
“It is necessary to ascertain the loss the [claimant] has suffered by reason of the breach. If he suffered no loss…he can recover no more than nominal damages. For the object of damages is always to compensate the [claimant], not to punish the defendant”.
What are the two types of losses which can be claimed following breach of contract?
Pecuniary (financial loss) & non-pecuniary (non-financial loss).
Pecuniary = Loss of bargain (AKA expectation loss) and reliance loss.
Non-pecuniary = compensation where the contract was specifically for pleasure or relaxation AND compensation when the breach causes inconvenience or discomfort.
H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978]
In terms of remoteness of damage, only the type of consequence/loss needs to be within the parties’ reasonable contemplation, not the specific consequences of the extent of the type.
For example, in this case, the parties merely needed to contemplated that the pigs would become ill, rather than the specific type of illness. “The type or kind of damage was foreseeable, even though the extent of it was not”.
*Note that this is the case where Lord Denning did not want to become involved in a “sea of semantic exercises” between what a man “contemplates” and what he “foresees” and the other judges refused to adopt Lord Denning’s approach/interpretation of the rules.
Victoria Laundry Ltd v Newman Industries [1949]
Area: Remoteness for damages and applying the second limb test from Hadley v Baxendale [1854]
A laundry business sued for lost profits on its usual business, as well as the loss of a very lucrative government contract, as a result of a new boiler arriving late. The new boiler was ordered as the claimant wanted to expand its business.
The Court held that the claimant was entitled to recover the loss of profits from the usual business, as these were reasonably foreseeable to the defendant. However, the loss of profits from the government contract were not recoverable, because they were not reasonably foreseeable as there was nothing to suggest that the defendants were of the claimants’ plans concerning government contracts.
*Note the difference of the wording between this case and Hadley. Hadley = abnormal losses within the contemplation of the losses. Victoria Laundry = abnormal losses which were reasonably foreseeable by the defendant. This latter approach was rejected in The Heron II [1969]
Hadley v Baxendale [1854]
Area: Test for assessing whether damage resulting from a breach of contract is or is not too remote.
Damages may only be recovered for:
- losses arising naturally - losses which may fairly and reasonably be considered as arising naturally from the breach of contract. The court will take into consideration the type of trade or transaction in question.; OR
- potentially foreseeable losses - those which were in the reasonable contemplation of the parties at the time they entered into the contract.
The damages claimed in this case were deemed too remote, as the defendant was unaware that the claimant did not have a spare crankshaft and that therefore the mill would cease work due to the delay in receiving the replacement crankshaft.
Galoo Ltd and Others v Bright Grahame Murray [1995]
Damages will not be awarded to compensate for loss not caused by the breach.
Factual causation (“but for”) is not sufficient to establish causation for the purposes of damages. The test set out in the case as to whether a particular loss has been caused by the defendant’s breach is determined “by the application of the court’s common sense”.
Ideally, the breach will need to be either a “dominant” or “effective” cause.
Rhine Shipping DMCC v Vitol S.A [2023]
The Court reaffirmed how the The Achilleas [2008] principle (assumption of responsibility for losses) is to be applied.
“The starting point is that where a type of loss is within the reasonable contemplation of the parties, it is ordinarily recoverable. However, there may be cases where there are particular factors demonstrating that would not reflect the expectation or intention reasonably to be imputed to the parties, such that the implied assumption of responsibility is rendered inappropriate”.
John Grimes Partnership Ltd v Gubbins [2013]
The court reaffirmed the principle from The Achilleas [2008] and that it will only apply in certain circumstances.
“If there is no express term dealing with what types of losses a party is accepting potential liability for if he breaks the contract, then the law in effect implies a term to determine the answer. Normally, there is an implied term accepting responsibility for the type of losses which can reasonably be foreseen at the time of the contract to be not unlikely to result if the contract is broken.
But if there is evidence in a particular case that the nature of the contract and the commercial background, or indeed other relevant special circumstances, render that implied assumption of responsibility inappropriate for a type of loss, then the contract breaker escapes liability. Such was the case the Achilleas [2008]”.
How did Lord Scott describe the basic principles for damages of breach of contract, in Farley v Skinner [2001]?
“The basic principle of damages for beach of contract is that the injured party is entitled, so far as money can do, to be put in the position he would have been in if the contractual obligation had been properly performed. He is entitled, that is to say, to the benefit of his bargain”.
Supershield Ltd v Siemens Building Technologies FE Ltd [2010]
Area: How the additional principle from the Achilleas [2008] is to be applied in practiced.
The Achilleas [2008] introduced the principle that a defendant may be escape liability for contemplated losses, when the context or standard market practice suggests it would be unreasonable to assume the defendant has taken responsibility for these.
This case explained that Hadley v Baxendale [1854] “remains a standard rule on the basis that it reflects the expectation to be imputed to the parties in the ordinary case … However … Transfield Shipping [AKA the Achilleas] [is] authority that there may be cases where the court, on examining the contract and the commercial background, decides that the standard approach would not reflect the expectation or the intention reasonably to be imputed to the parties”.
Jackson v Royal Bank of Scotland [2005]
The House of Lords emphasised that the time at which the assessment of remoteness was to be made was at the point at which the contract was entered into. This was so even if the time between the formation and the breach was short.
What does “Chitty on Contracts (34th edition)” [2024] say about the application of the principle from the Achilleas [2008]?
“The approach adopted by the majority in the Achilleas will be applied by the courts only in exceptional circumstances, such as those emphasised by Lord Hoffman in that case; and this seems to be trend of the subsequent authorities”.
The Achilleas [2008]
Area: Remoteness of damage.
This case introduced a new principle of remoteness that even if a loss is within the parties’ reasonable contemplation (classic Hadley v Baxendale [1854]), there may be cases in which “the context, surrounding circumstances or general understanding in the relevant market shows that a party would not reasonably have been regarded as assuming responsibility for such losses”.
In this case, the ship owner (claimant) and the charterer (defendant) did not agree on the damages being claimed arising from the defendant returning the ship late. The charterers proposal of damages was in line with the generally accepted practice in the shipping industry. The Court found that the additional damages were too remote as the charters would not be reasonably regarded as having assumed responsibility for these additional losses, even if they were within the parties contemplation.
What is the general aim of contract damages?
The general purpose of contract damages is not to punish the contract-breaker, but to compensate the claimant for any loss. This approach can be traced back to Robinson v Harman [1848], but has been restated by the House of Lords in Farley v Skinner [2001].
Damages are generally intended to compensate the injured party for the loss of bargain caused by the breach of contract by the other party. The general principle is to place the injured party in the same position they would have been in had the contract been completed.
C&P Haulage Co Ltd v Middleton [1983]
Area: Limitations of reliance loss.
Claimants cannot claim for losses (not expenditure) that would have occurred anyway even if the contract had been properly performed. To allow this would be to put the claimant in a better position than he would have been if the contract was properly performed. Losses made as a result of a bad bargain would have happened regardless and come from the claimant agreeing the contract on unfavourable terms, not as a result of the defendant’s breach.
In this case, the defendant incurred losses by improving the property, eventhough the contract was clear in that fixtures were not to be removed at the end of the licence. Therefore, the claimant could not recover damages for the costs of the improvements he made, as the contractual position was already clear. it is the defendants fault for not reading the contract and would have incurred the costs, regardless of how the contract played out.
Pilkington v Wood [1953]
The claimant is not usually required to undertake risks/onerous measures in order to mitigate their own losses. Only reasonable steps are expected.
In this case, the claimant bought a house but there was a defect in the title which the claimant’s solicitor (the defendant) should have spotted. The claimant sued his solicitor for breach of contract and the defendant argued that the claimant should have mitigated his losses by suing the seller instead.
The court rejected this argument. A claim against the seller would have required the claimant to pursue complicated litigation which may not have been successful, whereas the breach of contract claim against the solicitor was straightforward. As such, it was not reasonable to expect the claimant to take the risk of pursuing the vendor, so there was no duty to do so in order to mitigate the losses arising from the solicitor’s breach of contract.
What is reliance loss?
Reliance loss = wasted costs incurred by preparing to perform the contract.
Reliance loss will be claimed when expectation loss is not suitable, because it may be too difficult or speculative to quantify the loss incurred.
As confirmed in Anglia Television Ltd v Reed [1972], it is for the claimant to decide whether they want to claim for expectation loss or reliance loss.
What are the 4 things a claimant must show when attempting to claim damages?
- That the contract was breached
- The breach caused the loss/damage claimed
- The loss/claimed damage is not too remote
- The claimant has tried to mitigate their loss.
Smith, Hogg & Co Ltd v Black Sea and Baltic General Insurance Co Ltd [1940]
Whilst a particular loss must have been caused by the defendant’s breach, this case confirmed that the breach does not necessarily have to be the sole cause of the loss.
Ruxley Electronics and Construction Ltd v Forsyth [1995]
In some cases, it can be difficult to quantify the loss of bargain/expectation loss and so in some instances, the court may allow recovery of the “cost of cure” for a defective contract, being the necessary expenses to remedy the breach. However, this may be refused by the court if the deem such costs to be unreasonable.
In this case, the claimant built a swimming pool for the defendant but got the depth measurement wrong by a few inches. The defendant refused to pay for the work and claimed breach of contract and sought damages of almost £22k, which was the “cost of cure” for digging up the old swimming pool. However, as the pool was still fir for its purpose and did not adversely affect the value of the property (compared to a swimming pool with the correct depth), the court only awarded compensation for loss of amenity (enjoyment). The cost of curing the problem was disproportionate and would have been an excessive award against the defendant.
What is the “cost of cure”?
When there is performance in the sense that goods or services are provided, but these are defective or of an inferior quality to that stipulated by the contract, damages will either cover the cost of restoring the goods to the expected quality (cost of cure) or represent the gap in the price between the goods expected (good quality/undamaged) and those received (inferior quality/defective) - the difference in value.
In relation to damages, what are the four rules concerning the claimant having to mitigate their losses?
- The claimant cannot recover for any losses which are due to their own failure to take reasonable steps to avoid them after the breach.
- The claimant is not usually required to undertake risks in order to mitigate their own losses.
- Benefits obtained as a result of mitigation must be taken into account when assessing the proper level of damages to be awarded.
- Whilst mitigation applies just as much to (accepted) anticipatory breaches as to actual breaches, the principle generally does not affect the option of affirmation in such cases.
What are the current principles for remoteness of damage, as summarised in the Privy Council matter of Attorney General of the Virgin Islands v Global Water Associates Ltd [2020]?
- The purpose of damages for breach of contract is to put the innocent party in the position they would have been in, had the contract been properly performed.
- The innocent party is only entitled to recover losses which, at the time the contract was made, were reasonably contemplated as liable to result from the breach.
- What was reasonably contemplated depends upon the knowledge possessed by the parties when the contract was made.
- The test is an objective one. One asks what the defendant must be taken to have had in their contemplation, rather than only what they actually contemplated. In other words, one assumes that the defendant had thought about the consequences of its breach, when making the contract.
- The criterion for deciding what the defendant must be taken to have had in their contemplation as a result of the breach, is a factual one.
The remedy of damages (compensation) is a common law remedy.
What is meant by “common law remedy”?
The simplest definition for common law is that it’s a “body of law” based on court decisions rather than codes or statutes
