Breach of Contract

Question 1

What are the main questions arising after a breach?

Answer 1

Can the innocent party withhold performance?

Can the innocent party terminate the contract?

Can a party in breach enforce the contract?

Question 2

What are the self-help remedies an innocent party can do?

Answer 2

aren’t court remedies, they are labels that the innocent party can do in real time that the law permits

Retention - withholding performance, or suspending performance (available under the principle of mutuality)

Rescission - termination of contract, ending performance (only available when material breach occurs)

Question 3

Re-statement authority for the principle mutuality in Scots Law?

Answer 3

Turnbull v. McLean & Co. (1873)

* “stipulations” on each side are counterparts of each other: monthly obligation to pay was concurrent with obligation to deliver coal monthly – therefore counterparts

* reciprocity: “all the conditions of a mutual contract are dependent on their counterparts, as a general rule”
 

* conditionality: failure to perform “material or substantial part of the contract” bars any action to enforce

Question 4

What is the authority for principle of mutuality?

Answer 4

No party in a mutual contract, where the obligations of the parties are causes of one another, can demand performance from the other, if he himself either cannot or will not perform the counterpart, for the mutual obligations are considered as conditional.

Erskine, Institute of the Law of Scotland 3.3.86

Question 5

What is the authority for the party in breach of a mutual contract being unable to enforce?

Answer 5

Graham & Co v United Turkey Red Co - if a party is in material or substantial breach of counterpart obligation, they cannot enforce the contract

Question 6

Authority for misperformance in response to breach ? One time breach ?

Answer 6

McNeill v Aberdeen City Council 2014 SC 335 -

Establishes the principle of retention cannot generally be invoked in respect of a breach of contract that has occurred in the past and is unlikely to be repeated

Also establishes that mutuality does not justify misperformance. When someone is in breach of a counterpart obligation (substantive provisions of the contract), the innocent party must still perform the other parts of the contract. If they don’t, they will breach the contract.

The other parts of the contract which are not counterpart obligations are not protected by the principle of mutuality, they are still in force.

Question 7

What authority emphasises the need for the obligations to be counterparts?

Answer 7

Macari v Celtic Football Club

Question 8

Authority for when obligations are set out in separate contractual documents, and a helpful test for counterparts? Most important authority

Answer 8

Inveresk v Tullis Russell

1. Defining the transaction-

Establishes that counterpart obligations must be part of the same ‘transaction’. This means that even when there is operate contracts, if they create counterpart obligations for an overall transaction, then the mutuality principle will apply. If the party intends for the contracts to be part of the same transaction, the separate contracts will be considered counterparty obligations.

There can be no mutuality in 2 or 3 transactions, each with a life of their own.

2. Identifying counterparts -

Establishes that all the obligations that the transaction embraces are to be considered counterparts, unless their is a clear indication to the contrary

3. Establishes that there must be a degree of contemporaneousness, which means all the obligations where designed to serve the same end, close in time and relate to each other,

Question 9

Authority for when a degree of contemporaneousness is not achieved?

Answer 9

Bank of East Asia v Scottish Enterprise

Establishes that when a contract is to be performed in stages, there is no degree of contemporaneousness, and therefore no mutuality, therefore no retention.

Therefore, if there is a breach in the first stage, there can be no retention on the second stage of the contract, as the two stages do not meet the same end. They are not interdependent

Question 10

Summary of retention?

Answer 10

When performance is withheld under the principle of mutuality

Turnbull v. McLean & Co. (1873) 1 R 730 -

Establishes that reciprocal stipulations on each party are counterpart obligations. When the obligations are concurrent and dependant on each other, the principle of mutuality applies, and any failure to perform any substantial or material part of the obligation, will bar any action to enforce the contract ( Graham & Co v United Turkey Red Co). Conversely, a breach of counterpart obligation allows the innocent party to withhold performance

Macari v Celtic Football - emphasises the requirement for the obligations to be counterparts

McNeil v Aberdeen City Council - establishes that the principle of mutuality does not justify the misperformance of other obligations in the contract. The innocent party can only withhold the counterpart obligation to the one in breach, if they misperform/withhold other obligations in the contract, the mutuality principle does not protect them, and they will be in breach.

Inveresk v Tullis Russel - useful case on determining counterpart obligations:

1. The courts must identify the transaction. Establishes that counterparts must be part of the same transaction, they need not be part of the same contractual document. When the parties intend to put their obligations in separate contracts, the obligations are still counterparts.
2. Courts must identify the counterparts. The case establishes that all the obligations the transaction embraces will be counterparts of each other, unless there is a clear indication to the contrary.
3. There must be a degree of contemporaneousness, which means the obligations must serve the same end.

Bank of East Asia v Scottish Enterprise - contracts that are too be performed in separate stages are not contemporaneous, and therefore not part of the same transaction, so the mutuality principle does not apply. Only applies individually to the separate stages.

Question 11

What is rescission?

Answer 11

the exercise by the innocent party of a right to terminate further performance of the contract

Question 12

What is repudiation?

Answer 12

a wrongful advance declaration by one party that it will refuse to perform its future contractual obligations

Question 13

When is rescission available ?

Answer 13

On material breach

On repudiation

Question 14

Authority for material breach?

Answer 14

Wade v Waldon

Establishes that a material breach is breach of a stipulation that goes to the root of the contract

Subsequent caselaw (Apcoa Parking) has acknowledge the flexible and perhaps vague test, however reaffirms that it is not a low threshold to achieve, as well as highlighting the importance of considering the stipulation in the context of the parties’ overall agreement

Question 15

Authority for repudiation?

Answer 15

Blyth v. Scottish Liberal Club 1982 SC 140; Wyman Gordon Ltd

Establishes that repudiation are words or deeds that demonstrate that they will no longer be bound by the contract. It has no effect in itself, the consequences depend on the response on the innocent party.

Repudiation allows the innocent party to rescind the contract, or affirm the contract

Question 16

Authority for affirming the contract?

Answer 16

White and Carter (Councils) Ltd. V. McGregor

Establishes that the innocent party can simply ignore he repudiation, continue performance and demand payment. This is affirming the contract, which uphold the idea of the enforceability of a contract

Question 17

What happens to accrued rights after rescission following material breach?

Answer 17

Graham & Co. v. United Turkey Red Co. Ltd. 1922 SC 533

Establishes that accrued rights prior to the breach are still enforceable, despite the rescission

Question 18

What is Lloyd Bank v Bamberger authority for ?

Answer 18

Lloyds Bank v. Bamberger 1993 SC 570

Contract may still have effect after rescission

“The innocent party may still bring an action for damages” and sue on the contract

“either party may still enforce … clauses in the contract which were plainly intended … to survive rescission” e.g. arbitration clauses (where a neutral third party decides the outcome instead of a court), clauses prorogating jurisdiction or specifying the proper law of the contract

also “may be clauses in the contract affecting damages due for breach of contract” e.g. exclusion clauses, clauses limiting liability and clauses for liquidated damages

Question 19

Is there a right to cure the breach?

Answer 19

Lindley Catering Investments Ltd v Hibs FC 1975 SLT - suggests that when a breach can be remedied, their is a right to be given a chance to do so

However, there is an unclear authority on this point, since never endorsed beyond Outer House. Analysis in a problem question would be that is it unlikely, hard argument.

Furthermore, Salaried Staff London Loan Company Ltd v Swears and Wells Ltd - IH decision - contracted parties not in breach, are under no obligation to act reasonable in regard to their contractual rights (recission e.g.).

Question 20

What makes a breach a breach?

Answer 20

A breach of contract requires a term to be violated

Question 21

Is there a loss of right to rescind through delay ?

Answer 21

Cumming v Brown 1994 SLT (SH CT) 11

Suggests that is a timely intimation of recession necessary. If there is a delay, that right might be lost, especially when the other party is performing

Question 22

What are the judicial remedies relating to contract?

Answer 22

General civil remedies, were interested how they relate to contract

(i) Action for Debt (enforcing monetary payment) (no need to look at)

(ii) Specific Implement (court order, enforcing non-payment obligations) (if other party is not performing, you can go to court to get a decree of specific implement, enforcing the other party to perform their obligation)

(iii) Interdict (prohibiting actions constituting breach) (apart from damages, most common. Scots law version of an injunction, an order to stop someone from doing something, less significant in contract law)

(iv) Remedies agreed in the contract which may require judicial enforcement: e.g. liquidated damages clauses

(v) Damages (compensation for loss caused by breach) (subject of the next two lectures, most significant in contract law)

Question 23

What is specific implement ?

Answer 23

a form of decree ad factum praestandum (a decree to enforce someone to do something)

the ordinary means of enforcing contractual rights to performance

results in a judicial order requiring contracting party to perform specified obligation under the contract

failure to comply constitutes contempt of court

NOT for enforcing debt, which has its own distinct remedy, with judicial interest charged for late payment, and attaching of assets under law of diligence available if decree not obeyed

Question 24

Authority and test for specific implement

Answer 24

Highland & Universal Properties Ltd v Safeway Properties Ltd 2000 SC 297

Main point is that specific implement is not a extreme or exceptional remedy

Establishes that:

enforcement by decree of specific implement a ‘matter of right’ subject to a residual discretion in the court to refuse

must be framed with sufficient precision by the court - (this is because of the contempt of court aspect)

will only be refused in exceptional circumstances

Question 25

What are the exceptional circumstances that a specific implement will be refused?

Answer 25

Highland & Universal Properties Ltd v Safeway Properties must be a ‘very cogent reason for depriving litigants of the ordinary means of enforcing their legal rights’ must be ‘inconvenient and unjust’ to grant remedy e.g. where enforcement “would be an undue restraint on personal liberty” (Gloag p. 657) for the defender to satisfy the court that such grounds exist (onus on the defender to show it is unjust)

Question 26

Authority and definition for interdict

Answer 26

a preventative remedy to stop a breach ‘prohibits action which is threatened or continuing, and it looks to the future not to the past’ (Church Commissioners for England v Abbey National 1994 SC 651 per Lord President Hope at 657)

Question 27

Definition of Remedies agreed in the contract

Answer 27

● remedy in a contract term defining consequences of breach: e.g. agreed damages (“liquidated damages”) ● on breach of a specified “primary” obligation under the contract a “secondary” obligation arises on the part of the party in breach to pay to the other party a sum of money ● but must not be a penalty: to be enforceable must satisfy common law test of validity so as to not be ‘unconscionable and extravagant’ (this phrase is important, key concept, key test for remedies agreed in the contract) Penalties are things we associate with criminal sentencing/punishments, private law does not concern itself with this. ● if valid, barred from judicial remedy of damages for the same loss

Question 28

Modern authority and test for penalties in lest straight forward cases?

Answer 28

Cavendish Square Holding BV v Makdessi, Parking Eye Ltd v Beavis the correct test for a penalty is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract. Also reaffirms that remedies agreed in the contract does not only have to be money (other examples include transfer of assets, withhold payments already due, or to lose a deposit already paid)

Question 29

Authoritative test for penalties in straight forward cases?

Answer 29

Dunlop Pneumatic Tyre Co v New Garage & Motor Co For simple cases of agreed damages clause - liquidated damages Lord Dunedin criteria - * a clause will be unenforceable if amount is extravagant and unconscionable in comparison with the greatest loss that could have been anticipated (in bold is not in Cavendish) * unenforceable if breach is constituted by non-payment of a sum and the clause requires a higher sum to be paid upon the breach * presumed to be a penalty if payable on occurrence of a number of events of varying gravity where some cause trivial loss and others serious loss * not a penalty simply because it's factually impossible to pre-estimate true loss

Question 30

Purpose of damages ?

Answer 30

Robinson v Harman (1848) 1 Exch. 850: “The rule of the common law is, that where a party sustains a loss by reason of a 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.” (English common law case, however received in Scots Law)

Question 31

What principles limit damages?

Answer 31

causation remoteness mitigation of loss

Question 32

How do you assess damages questions?

Answer 32

1. Identify breach 2. Identify Loss and chose a measure of loss to quantify damages 3. Are there any limits?

Question 33

What are the two different types of loss?

Answer 33

PECUNIARY LOSS (the normal case) - monetary loss NON-PECUNIARY LOSS (in exceptional cases) - no recovery for hurt feelings or mental distress generally, however can be recovered in exceptional cases for : loss of amenity, pleasure/enjoyment if purpose of contract was to provide personal, subjective and non-monetary benefit mental distress when consequent on physical inconvenience

Question 34

Authority for pecuniary loss?

Answer 34

Balfour Beatty Construction v Scottish Power 1994 SC (HL) 20: “as a result of the stage 1 pour of the Union canal aqueduct not being completed on 28 October 1985 the pursuers had no reasonable alternative but to demolish and reconstruct stage 1 and the costs of doing so and of investigating the breakdown of the power supply … [i.e. the LOSS] amounted to £229,102.53 sterling.” The standard loss claim.

Question 35

Authority and test for non-pecuniary loss (loss of pleasure)

Answer 35

Diesen v Samson 1971 SLT (Sh Ct) 49 - couple getting married, wedding photographer turned up extremely late, so no wedding photos, couple very upset, sued. Establishes that non-pecuniary loss of pleasure may arise exceptionally, particularly when the pursuer is a consumer Only if the breached contract was exclusively concerned with the pursuer's personal, social, and family interests and with her feelings.

Question 36

Authority and test for non-pecuniary loss (loss of amenity)

Answer 36

Amenity meaning - a desirable or useful or attractive feature or facility of a building or place Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 - swimming built, in contract it was meant to be 7.5 feet. The builder built it 6.9 feet. Establishes that - When a contract is for the provision of pleasurable amenity (such as a swimming pool, features of building etc) And that amenity is not delivered, leaving the buyer with disappointed expectations (even though no financial loss) Then the loss of amenity is present and damages are available

Question 37

First exception to loss having to be proved ?

Answer 37

Nominal Damages: compensation for mere trouble and inconvenience Wilkie v Brown 2003 SC 573 - establishes that when the pursuer has been put to trouble or inconvenience, loss is automatically proved, and nominal damages are appropriate

Question 38

Second exception to loss having to be proved ?

Answer 38

Exception 2: damages measured by gain not loss? Generally NO: contractual damages defined as compensation of loss caused to the innocent party by the breach (Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20) - therefore gains of the contract breaker from the breach are normally irrelevant to damages BUT in Attorney General v Blake 2001 AC 268 (exceptional case about secret services) the House of Lords recognised a narrow exception that instead of loss, exceptionally the profits of a contract breaker could be awarded to the innocent party as a remedy

Question 39

Damages measured on gain not loss authority and test?

Answer 39

Attorney General v Blake ● the case is exceptional ● normal remedies are inadequate ● there is a legitimate interest in preventing the profit-making activity ● circumstances of the case support such a remedy BUT also unclear if would be applied in Scots law (never been applied in Scots Law), because contradicts established rule in Teacher v Calder (1899) 1 F (HL) 39

Question 40

How to calculate damages ?

Answer 40

● identifying the loss (could be multiple): in what ways has the innocent party not been put in the position to which it is entitled under the contract? ● choosing a measure of loss to quantify damages A question of fact: how is the position which the innocent party should have been put in (by performance) ascertained and quantified? ● more than one measure may exist generally no one measure of loss is conclusive ● presumptions exist about the appropriate measure in some established categories of contract e.g. building contracts; sale of goods; negligent surveyor property valuations

Question 41

What are the measures of loss?

Answer 41

Typical measures of loss include: cost of completion or reinstatement of defective performance (‘cost of cure’) diminution of market value loss of amenity (when non-pecuniary loss recoverable)

Question 42

Requirements for damages ?

Answer 42

Breach of contract Loss

Question 43

Limits on recoverable loss?

Answer 43

Remoteness of loss Mitigation of loss Causation

Question 44

Authority for causation and basic facts ?

Answer 44

Wilson v Carmichael & Sons (1894) 21 R 732 Sold wrong type of cabbage, meaning he sold to disappointed cutsomers who sued, and lost customers. His losses were wasted use of land, being sued by disappointed customers and losing future business of customers. However, he was negligent in not realising the wrong crop. Establishes the breach has to be the proximate cause of the loss. The loss must be the natural consequence of the breach. Held - because of his negligence, could only recover wasted use of land, NOT the sued customers or future loss of customers.

Question 45

Authority and test for remoteness of loss limit ?

Answer 45

Hadley v. Baxendale Alderson B: Damages following breach ‘should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.’

Question 46

What is regard as 'within contemplation' in the remoteness test?

Answer 46

Hadley v. Baxendale Has to be special circumstance communicated form the pursuer to the defender, both parties need to know

Question 47

Mitigation of loss authority?

Answer 47

British Westinghouse v Underground Electric railway Co: Establishes that the pursuer has a duty to take reasonable steps to mitigate the loss of the breach. If the pursuer fails to take such reasonable steps, damages will be limited, or barred. Only an obligation to take reasonable steps.

Question 48

How has subsequent caselaw applied the second branch of the remoteness test ?

Answer 48

Subsequent caselaw such as The Achilleas case has establishes how demanding the second branch is, suggesting that the defender must take responsibility of the 'special circumstance' prior to the breach, to be liable for damages. However, this decision has been applied narrowly, and is an unclear authority.