Damages

Question 1

Object of damages

Answer 1

“The rule of the common law is, where a party sustains a loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed.”
- damages are aimed at putting the innocent party in the same position they would have been if the contract was performed.

Question 2

liquidated damages

Answer 2

damages in a specific sum of money which is agreed upon by the parties prior to entering into a contract, to be paid by the breaching party.
Must be a fair estimate of the actual damages that breach would cause.
Includes actual damages, notional damages for recognising there was a breach, and consequential damages from the consequence of the breach.

Question 3

Unliquidated damages

Answer 3

Damages not agreed in advance as compensation for a breach of contract, but determined by the court.

Question 4

Principles underlying an award of damages

Answer 4

1. damages may not be too remote
2. damages are only compensatory
3. damages must be mitigated
4. damages may be pre-agreed by the parties

Question 5

damages may not be too remote

Answer 5

It is neither just nor practicable to hold a defendant liable in damages for every consequence of a breach of contract no matter how unusual or unexpected these may be.

Question 6

Alderson B in Hadley v Baxendale

Answer 6

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of the breach should be as fair and reasonable, either arising naturally or supposedly.

Question 7

Two limbs of Hadley v Baxendale

Answer 7

first limb: losses that arise naturally from the breach or in the usual course of things (objective test)
second limb: losses that are reasonably contemplated by both parties (subjective test)
Damages are recoverable if they fall within either of these.

Question 8

Hadley v Baxendale

Answer 8

The crank shaft of the steam engine used by Plaintiffs brokw, meaning they could not use their mill. They contracted with defendant to deliver the brokwn shaft to a firm to model for a new one. Plaintiffs said they needed it immediately and defendant promise to deliver it the next day, unaware that they could not work without it. It took 7 days so the plaintiff sought for damages.
held: plaintiff never communicated the special circumstances. Loss of profits could not have been contemplated by both parties. Plaintiffs were not entitled to damages.

Question 9

Damages are only compensatory

Answer 9

the purpose of damages is to compensate a party or make up for losses they suffered. They are not intended to enrich a plaintiff.

Question 10

Chaplin v Hicks

Answer 10

Chaplin entered a beauty contest organised by Hicks. Top 50 were invited to an interview where 12 would be selected for employment. Chaplin did not receive the invitation for the interview until too late so brought action based on her loss of a chance to gain employment.
held: she was awarded $100 as she did not have to prove she would have been successful at the interview.

Question 11

Damages must be mitigated

Answer 11

a party who has suffered loss has to take reasonable steps to minimise the amount of loss suffered. Redpath Industries Ltd v Cisco: “the wrongdoer cannot be called upon to pay for avoidable damages”

Question 12

Damages may be pre-arranged

Answer 12

Pre agreed or liquidated damages are a pre-estimated value agreed on by the parties and is stipulated in the contract. They must be a fair estimate of the actual damages and reasonble contract term

Question 13

To distinguish between penalty and liquidated damages by Lord Dunedin

Answer 13

a. though the words “penalty” and “liquidated damages” may prima facie be suppose to mean what they say, the court must find out whether the payment stipulated is in truth either.
b. the essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.
c. the determination is to be decided upon the terms and circumstances of each contract and judged at the time of making the contract.

Question 14

tests of construction

Answer 14

a. will be a penalty if the sum is extravagant and unconscionable compared to the greatest loss that would be conceivable.
b. will be a penalty if the breach consists of not paying a sum, and the sim is greater than ought to be paid
c. there is a presumption that it is a penalty when a single lump sum is made payable on the occurrence of one or more or all several events
d. it is no obstacle to the sum stipulated being a pre-estimate of damage, that the consequences are to make precise pre-estimation almost impossible

Question 15

Onus of proof

Answer 15

The burden of showing it is a penalty, is on the party challenging the clause, not on the party who seeks to enforce it.

Question 16

marlborough district council v Altimarloch joint venture ltd

Answer 16

Altimarloch purchased property from the Moorhouses to establish a vineyard, relying on statements from the agents and Council which proved to be misstated. Only after he planted vines he became aware of the misrepresentations, so sued all the parties including the council under s35.
held: Moorhouses liable for a performance measure, determined to be the price of the cure, to obtain additional water and build a dam.

Question 17

reliance measures

Answer 17

intended to compensate the innocent party for expenses incurred and losses suffered in reliance on the contract. To put the innocent party in the same position it should have been.

Question 18

Restitution damages

Answer 18

seeks to restore to the innocent party, any benefit they have conferred. Reverse an unjust enrichment on the perpetrator of that breach.

Question 19

expectation measure

Answer 19

seeks to place the innocent party in the position they would have been.
- difference or diminution in value
- cost of cure or reinstatement
- loss of amenity

Question 20

diminution in value

Answer 20

The difference between the value of the performance as it was contractually promised, and actual performance.
diminution refers to a reduction in the value of goods or property due to the failure to supply exactly as specified.

Question 21

Stevenson precast systems ltd v Kelland

Answer 21

High court considered it was reasonable to require the contractor to meet the cost of replacing defective panels with new ones, when they could be repaired for less. Homeowner have specific needs and interests, so the court considered it was reasonable to replace them for the standard required.

Question 22

cost of cure or re-instatement

Answer 22

a monetary substitute for what the contract-breaker should have done under a contract. Courts should have regard to the reasonableness of the claim.

Question 23

loss of amenity

Answer 23

A plaintiff cannot always insist on being in the same situation.
In Ruxley Electronics and construction v Forsyth, a swimming pool was constructed to the wrong depth but was perfectly functional and caused no loss in value, the House of Lords rejected cost of cure.

Question 24

purpose of contract

Answer 24

The court will also consider the intention of the innocent party and whether it has a genuine interest in having the contract performed.