3. Remedies

Question 1

What are damages?

Answer 1

Compensation, so far as money can do it, for loss the claimant suffers as a result of breach of contract

Question 2

What is the difference between nominal and substantial damages?

Answer 2

Nominal damages (say, £10) is a recognition that the contract has been broken, but there aren’t any losses. Substantial damages are intended to compensate the claimant for loss suffered, and not just to acknowledge that the contract has been broken

Question 3

What is the normal rule to determine what someone’s loss is as a result of breach of contract?

Answer 3

Compare the claimant’s position after the breach, with where they would have been if the contract had been properly performed - this is called expectation loss or loss of bargain

Question 4

What is reliance loss?

Answer 4

When the claimant just claims for expenses incurred because of reliance on the contract being performed. This might occur where profits they hope will materialise from the contract are too speculative

Question 5

What case illustrates reliance loss?

Answer 5

Anglia Television v Reed [1972] 1 QB 60 (CA). Anglia engaged the defendant, an actor, to play the leading role in a play. The defendant later refused to carry on with the contract and Anglia was forced to abandon the play, as it could not get a substitute. Anglia claimed as damages all of the expenditure that they had wasted on production. The Court of Appeal awarded the wasted expenditure, which included expenditure that Anglia had incurred before entering into the contract with the defendant.

The reason Anglia TV did not claim damages on an expectation loss bases was because they did not know what profit they would have made if the defendant had carried out their contract

Question 6

What are pecuniary losses?

Answer 6

Losses that are very easy to translate into financial terms - e.g. amount of damage to property. They are the consequences of breach that can be ‘put right’ - remedied - by an award of damages

Question 7

What are non-pecuniary losses?

Answer 7

Losses that cannot be readily assessed in financial terms - like physical inconvenience, pain and suffering, etc.

Question 8

What are 2 examples of where disappointment caused by breach of contract can be claimed?

Answer 8

Holiday contracts and weddings. Normally, damages for disappointment or mental distress can be awarded for breach of contract only if one of the objects of the contract was to provide pleasure or peace of mind

Question 9

What case illustrates the awarding of non-pecuniary losses?

Answer 9

Jarvis v Swans Tours [1973] 1 QB 233 (CA). The defendants, travel agents, advertised a ‘houseparty’ holiday in Switzerland. Mr Jarvis paid £63.45 for 2 weeks holiday. However, there were only 13 guests the first week and none (apart from Mr Jarvis) the 2nd. The holiday failed to comply with the description in the brochure in numerous other respects as well, so Mr Jarvis brought an action for breach of enjoyment. The court of appeal held he was entitled to damages for his loss of enjoyment and awarded him £125

Question 10

What is ‘remoteness’ of loss?

Answer 10

Remoteness of loss hinges on whether a particular type of loss would have been in the reasonable contemplation of the parties at the time of the contract as being a likely consequence of the breach

E.g. if a camera is sold and the seller gave a 1 year guarantee. If it broke 1 month later during a wedding in which the buyer would earn £2000, the seller would reasonably expect to pay for a repair (not too remote) but the wedding contract would be too remote and the buyer would have to put up with that loss

Question 11

How is remoteness of loss decided upon?

Answer 11

If a certain loss would be an inevitable or natural consequence of breach then the parties will be deemed to have had it in their reasonable contemplation at the time of the contract. For any other type of loss it will depend on what the defendant actually knew at the time of the contract. Did he know of special circumstances that meant the particular loss would be a likely consequence of breach?

Question 12

What case illustrates when loss is not too remote for damages to be awarded?

Answer 12

Parsons (Livestock) Ltd v Uttley Ingham [1978] 1 QB 791. Claimants bought a hopper from the defendants for storage of pig food. The defendants erected the hopper but didn’t unseal the ventilator, so food went mouldy and resulted in pigs dying from a rare infection. The Court of Appeal held that because illness of the pigs would have been within the reasonable contemplation of the parties at the time of the contract as being a likely consequence of the breach, the death of the pigs was not too remote

Question 13

Is the claimant allowed to sit back and watch the costs from a breach of contract add up? What do they have to do?

Answer 13

No, they have to take reasonable steps to mitigate loss caused by the breach

Question 14

What 2 ways does the law ensure that mitigation of loss is not too harsh on the claimant?

Answer 14

1. The burden of showing that the claimant has failed to mitigate their loss is placed upon the defendant
2. A claimant who has acted reasonably can claim for their loss, even if their reasonable attempts to mitigate have failed to reduce their loss, or even increased it

Question 15

What is the ‘cost of cure’?

Answer 15

If work is defective, the normal measure of loss is the cost to put it right - the cost of reinstatement, or cost of cure

Question 16

What case illustrates the difficulty of ‘putting the claimant in the same position as they would have been in if the contract had been properly performed’?

Answer 16

Ruxley Electronics v Forsyth [1996] AC 344. Ruxley agreed to build a swimming pool for Mr. Forsyth. It was stipulated that the deep end be 7 ft 6, but it ended up being 6 ft 9. No difference in value, but it would cost £21,250 to fix. The question for the House of Lords was if Mr Forsyth should get nothing (no difference in value) or £21,250 (cost of cure), or somewhere in between. The original judge had awarded £2500.

Whilst cost of cure is the normal measure, the House of Lords did not consider it should be used where it was unreasonable in relation to the benefit to be obtained. So they reinstated the original trial judge’s award, representing the true loss - a loss of amenity and the consumer surplus.

The swimming pool is meant to provide pleasure and amenity, so the loss of amenity/consumer surplus could be viewed as his ‘true’ loss.

Question 17

How can parties avoid the costly action of bringing a claim for damages?

Answer 17

Put a clause in the contract stating the amount of compensation to be paid if there is a particular breach (common in commercial contracts)

Question 18

What happens if a party doesn’t want to abide by a damages clause?

Answer 18

The courts must decide if it is a specified (or liquidated) damages clause or a penalty clause

Question 19

What is a specified (liquidated) damages clause? What happens if a clause is specified?

Answer 19

Defined as a genuine attempt to pre-estimate the loss that is likely to be caused by the breach. It is binding and the sum specified is the amount that will be paid regardless of the actual loss suffered

Question 20

What is a penalty clause? What happens is a clause is a penalty?

Answer 20

Defined as an attempt to put pressure on a party to perform the contract because the sum stipulated is extravagant or disproportionately high. A penalty is unenforceable. In this case, the court is free to assess damages in the usual way and the usual principles of measure of damages, remoteness and mitigation will apply

Question 21

What case illustrates how the court decides whether a clause is specified or a penalty?

Answer 21

Cavendish Square Holding BV v Makdessi. The Supreme Court said that the penalty rule was concerned with 2 questions. The first was the circumstances in which the rule was engaged. A provision could not be a penalty unless it provided an exorbitant alternative to ordinary damages. The second question was concerned was penal and not whether it was a pre-estimate of loss. The fact that the clause was not a genuine pre-estimate did not necessarily mean it was penal. The real test turned on whether the means by which the contracting party’s conduct was to be influenced were unconscionable or extravagant. This was formulated as a test of whether the clause imposed a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the contract.

In ParkingEye Ltd v Beavis, Mr Beavis had paid for 3 hours in a car park (with prominent notices) that said there was a 2 hour maximum and a fee of £85 for overstaying. ParkingEye demanded the fee from Mr Beavis, who argued that it was unenforceable as a penalty. The Supreme Court dismissed the appeal. Although ParkingEye was not liable to suffer loss as a result of overstaying motorists, it had a legitimate interest that involved receiving income to meet the legitimate costs of running the car parking scheme. This in itself was a legitimate way for the landowner to regular the efficient use of the car park

Question 22

What are the limitations on awards of damages?

Answer 22

1. Type of loss
2. Remoteness
3. Mitigation
4. Specified damages

Question 23

What is the main remedy for breach of contract? What is another form of remedy?

Answer 23

Damages (and possible termination of the future performance of the contract); Other forms of remedy are those that make the defendant do what they agreed to

Question 24

What is an action for an agreed sum (or action in debt or action for the price)? What type of remedy is this?

Answer 24

Suing for a fixed sum of money that is owed - normally the price of goods or services supplied under a contract. Much more direct remedy than a claim for damages. Once a claimant can establish their right to the money, they can claim it (plus accrued interest). Issues such as proving loss and showing that it is not too remote become irrelevant.

It is a remedy that makes the defendant perform the contract

Question 25

What is specific performance? What type of remedy is this?

Answer 25

Here, the claimant is asking the court for an order requiring actual performance of the contract. Normally, this relates to doing things other than paying money. It is not an 'alternative' remedy to damages. Specific performance is generally only available if damages are not an adequate remedy (e.g. in relation to purchases of land) In the High Court, it may be granted in addition to or instead of damages. Unlike damages which are available as of right, specific performance is granted at the court’s discretion (i.e. it is an equitable remedy)

Question 26

Where is the remedy of specific performance not uncommon?

Answer 26

In contracts for the sale of land

Question 27

Why is specific performance, as a remedy, generally not suitable for sales of goods or contracts involving services such as an employment contract?

Answer 27

Sales of goods - if a seller refuses to supply particular goods it is more appropriate for the buyer to claim damages and use the compensation to buy goods elsewhere Employment contracts - depend on trust and confidence. If the relationship between the parties has broken down, it would be inappropriate for them to be forced to work together

Question 28

What is an injunction?

Answer 28

An equitable (not a 'right') remedy available at the discretion of the court and would only be awarded where damages would be inadequate. Whereas specific performance is used to make the defendant do what they have agreed to do, injunctions are more commonly used to restrain the defendant from doing what they have agreed not to do E.g. Reya agreed with the buyer of her hairdressing business that she would not set up another hairdresser's in the same village. The buyer might seek an injunction if she tried to set one up. The injunction would be making Reya perform the contract by enforcing her promise not to set up another hairdresser's in the same village

Question 29

When would an injunction no be granted?

Answer 29

If the effect would be to compel the defendant to do acts that he could not be ordered to do by specific performance. E.g. the courts will not order an injunction that would effectively force an employee to work for a particular employer

Question 30

What case illustrates the court not ordering an injunction to the defendants?

Answer 30

Page One Records v Britton [1968] WLR 157. The claimant was the manager of a pop group 'The Troggs'. In their contract they had agreed not to engage any other person, firm or corporation to act as managers or agents or to act themselves in such capacity. The group dismissed the claimant as their manager. The claimant applied for an injunction to prevent the group employing another person to act as manager. The court refused to grant it because if the group could not employ someone else, in practice this meant it would have to employ the claimant. The court said it would be wrong to put pressure on the defendants as the manager had duties of a personal and fiduciary nature to perform and the defendants had lost confidence in him

Question 31

What is restitution?

Answer 31

A remedy based upon the principle of unjust enrichment of a party at the expense of another. (compared to damages, which is the damage suffered by the claimants)

Question 32

Can restitution come into play with no contract at all?

Answer 32

Yes

Question 33

What 2 situations can result in restitution?

Answer 33

1. Where money has been paid by one party under the contract and there has been a total failure of consideration 2. Where one party has done work for the other, or supplied goods to the other, and wants to be compensated for the work done or goods delivered

Question 34

If one party (payer) has paid money to the other (payee) under a contract, what can the payer do if the payee is in breach and there has been a total failure of the consideration?

Answer 34

Bring an action in restitution to recover the money

Question 35

Bill has paid £800 in advance to get his house painted. The painter did not show up. What options do Bill have?

Answer 35

There is total failure of consideration, so Bill could bring a claim in restitution to recover it. If he then got his house painted by someone else for £800 or less, he will not need any other remedy. If Bill has to pay more than £800 then he will need to bring a damages action

Question 36

Can restitution apply in cases where there has not been a total failure of consideration?

Answer 36

No, there needs to be a total failure of consideration. If a job gets partly done, the remedy could be damages or a remedy to get the defendant to perform the contract

Question 37

What can the claimant do if they supply goods (or do work) and the other party breaches the contract?

Answer 37

I.e. the contract has been broken. They could bring a claim in restitution for a reasonable sum (quantum meruit) for the goods suppled or work done OR claim for damages

Question 38

Gavin agrees to build a garage for Ray. Gavin does some work and then Ray tells him to stop as he's changed his mind. He no longer wants the garage. What can Gavin do?

Answer 38

Ray is in breach of contract. Gavin can sue for damages or he can bring a claim in restitution (where he will receive quantum meruit)

Question 39

Can someone claim restitution for work done if a contract was never formed?

Answer 39

Yes, they would be entitled to a reasonable sum for the work done

Question 40

How is restitution calculated?

Answer 40

Restitution is often calculated by evaluating the gains of the defendant. The defendant is required to give up any gains they obtained illegally to the plaintiff.

Question 41

Which case illustrates restitution where a contract was never formed?

Answer 41

British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504. The defendants asked the claimants to produce a variety of steel nodes. They had not finalised the contract but they asked the claimants to start manufacturing straight away. The nodes were delivered to the defendants. The parties were unable to agree on some key terms of the contract. The court held that no contract had been formed however, the claimants were entitled to recover a reasonable sum for the work they had done

Question 42

What is the exceptional case that illustrates restitutionary damages?

Answer 42

Attorney General v Blake [2001] 1 AC 268. Blake was a traitor. He was employed in the secret service for 17 years from 1944. He had signed a declaration to disclose no information about his work. In 1951 he became an agent for the Soviet Union and disclosed valuable information. He was sentenced to 42 years in prison in 1961, but escaped in 1966 and fled to Moscow. Blake entered into a publishing contract after writing his autobiography. He would be paid £150,000 in advances. Had he not been an infamous spy who had escaped from prison, he would not have had these payments. The information the book contained was no longer confidential, so the money owed to Blake did not represent any loss to the Crown, just a benefit to Blake. The case was decided on the basis that, even though the Crown had suffered no financial loss, it should receive the benefit of the profits from the book's publication. An account of profits for misuse of confidential information would be a perfectly normal remedy for breach of fiduciary duty. However, Blake had long since ceased to work for the Crown and the material was no longer confidential. The argument that Blake still owed fiduciary duties was therefore rejected. Nevertheless, it was held that an account of the profits was appropriate in these exceptional circumstances where it was just a response to the breach of contract

Question 43

What are restitutionary damages?

Answer 43

Where ordinary remedies are inadequate, restitutionary damages may be awarded Damages that do not necessarily reflect the loss to the claimant. The benefit gained by the wrongdoer may exceed the detriment or loss to the person wronged. It is common in claims in tort for interference with property or trespass, but it is only awarded in exceptional circumstances for breach of contract.

Question 44

What restitutionary damages case shows that the claimant suffered no financial loss, other than the opportunity to negotiate a release fee?

Answer 44

Wrotham Park Estate v Parkside Homes [1974] 1 WLR 798. Parkside Homes had acquired a plot of land that was subject to a restrictive covenant (restricted further building without the consent of Wrotham park Estate. Parkside Homes built on the land and made a big profit. Wrotham Park Estate discovered the breach and sought a mandatory injunction ordering them to demolish the development (only ordered in exceptional circumstances). The development had caused no diminution in the value of the land owned by Wrotham Park Estate and thus caused no discernible financial loss. But, they had lost the chance to negotiate a fee for relaxing the restrictive covenant. Instead of the injunction, Wrotham Park Estate was awarded 5% of the developer's profit. So the damages in Wrotham Park were to compensate the claimant for the notional loss of the opportunity to bargain where that was the only loss.

Question 45

What did the Supreme Court call the restitutionary damages awarded in the Wrotham Park Estate v Parkside Homes case? What did they make clear about this type of damage?

Answer 45

Negotiating damages. They made it clear that they should not be awarded where the claimant had suffered clear financial loss as a result of the breach, even if that loss would be difficult to calculate. I.e. they should not be awarded as an alternative to conventional damages - only where the only loss is the opportunity to negotiate a release fee

Question 46

What are the 4 different equitable/other remedies?

Answer 46

1. Remedies that make the defendant perform the contract 2. Restitution 3. Guarantees 4. Indemnities

Question 47

What is a contract of guarantee?

Answer 47

A contract under which one person (the guarantor) guarantees that if another person (the debtor) does not pay back money owed then the guarantor will pay the money instead - i.e. it is a secondary obligation that needs to be evidenced in writing

Question 48

When would a contract of guarantee be void?

Answer 48

If not evidenced in writing, they will be void and completely ineffective. The contract itself need not be a written one, there must be some written evidence of the transaction. The evidence must have existed before the creditor seeks to enforce the contract and it must be signed by the guarantor. The note need not have been created for the specific purpose of enforcing the contract and may comprise a series of documents linked by reference

Question 49

What is an indemnity?

Answer 49

Where one party promises to reimburse pound-for-pound the other party in respect of a particular loss arising under the contract - It is a primary obligation that does not need to be evidenced in writing

Question 50

What is the purpose of indemnities?

Answer 50

We have looked at warranties in sale and purchase agreements of businesses. The purposes of such warranties is to allocate unknown risks to the seller. The purpose of indemnities is to allocate known liabilities/losses to the seller