Breach of Contract

Question 1

What are the two different types of remedies for a breach of contract?

Answer 1

Self-help remedies - retention, remission

Judicial Remedies - Damages, Specific Implement

Question 2

What is retention for self-help remedies?

Answer 2

retention = withholding performance, or suspending performance

(i.e. innocent party gets the wrong product, they then suspend their contractual performance (by not paying) because of a breach of the other party)

    (available under principle of mutuality)

Question 3

What is recession under self-help remedies?

Answer 3

termination of contract, ending performance.

Can rescind a contract for breach when the breach is only serious, the level of seriousness is defined as ‘material breach’.
(available when material breach occurs)

Question 4

What is the principle of mutuality?

Answer 4

mutuality applies when contractual obligations are ‘causes’ of each other (i.e. counterparts) , i.e. one person provides a product, the other pays for it.

such mutual ‘counterpart’ obligations are conditional on each other, so performance cannot be demanded unless given in return

Erskine.

Question 5

How is the mutuality principle shown in Turnbull Co v. McLean?

Answer 5

• “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

• McLean’s non-delivery therefore a lawful suspension of performance in response to a breach by Turnbull.
• Basic example of how the mutuality principle protects the innocent party

Question 6

Is there any enforcement of counterparts by the party in breach of the contract?

Answer 6

No.

Graham & Co v United Turkey Red Co

Held he could not recover his commission. This was because one was the direct counterpart for the other.

Having ceased to perform the stipulated services in terms of their contract they forfeited the right to call for commissions – the reward stipulated in the contract for those services – the one being the direct counterpart of the other.”

Question 7

Does mutuality justify misperformance of other obligations in the contract once breached?

Answer 7

No. McNeill v Aberdeen City Council 2014 SC 335

“even in a case where the employee is in material breach of contract, the employer would not be justified in committing a breach of his implied obligation to maintain a relationship of trust and confidence between employer and employee”

Coined “obligation of trust and confidence”

Question 8

When is retention available in a breach of contract?

Answer 8

● obligations must be counterparts (Macari v Celtic FC)

● obligations presumed to be counterparts unless clear indication to contrary (Inveresk v Tullis Russell - in this case, it established there may be exception, where not all obligations in a contract are counterparts, there may be clear evidence for the contrary)

● obligations need not be in same contractual document if part of a single transaction (Inveresk v Tullis Russell - performance may be staged into different periods/documents. They may be rendered in two separate parallel contracts)

● obligations must also be contemporaneous
(Bank of East Asia v Scottish Enterprise)

Question 9

What principle is derived from Macari v Celtic Football Club?

Answer 9

Dismissal for breach of contract of football manager (Macari) with no notice

● Macari sues for wrongful dismissal and damages for breach of employment contract, alleging Club also in breach

● Did mutuality principle prevent Club from dismissing Macari while it was itself in breach?

NO – the obligations in issue not counterparts

Held that the obligation on the club was not a counterpart to the obligation Macari had that he was breaching. In the contract, Macari had to live in Glasgow, he breached this, by living in England. Court held he was not protected by the clubs breach, as they are not counterparts

Question 10

What does Inveresk v Tullis Russell say about Defining the Transaction where there are two contracts?

Answer 10

● where more than one contractual document, counterparts may exist where parties intend the obligations in the contracts in question to be part of a single transaction.

Held the parties intended the two contracts to be part of one single transaction, if that was their intention, then all the obligations in the transaction were counterparts

Question 11

What does Inveresk v Tullis Russell say about defining counterparts and the degree of contemporaneousness?

Answer 11

(ii) Identifying counterparts:

●“all the obligations that [the transaction] embraces are to be regarded as counterparts of each other unless there is a clear indication to the contrary”

(iii) Degree of contemporaneousness:

● in terms of distinct stages of the transaction which structure performance obligations, may be “unrealistic” to treat transaction as “divisible into a series of separate and unrelated compartments. The obligations undertaken by Inveresk were all designed to serve the same end.”

This means it would be unrealistic two separate the two contracts, all the obligations were designed to serve the same end.

Question 12

What happens if a contract is breached and needs to be performed in stages?

Answer 12

Bank of East Asia v Scottish Enterprise

* Retention “has no relevance to obligations duly performed” (Lord Jauncey, Bank of East Asia)

Question 13

Why could in Bank of East Asia v Scottish Enterprise retention not be applied?

Answer 13

● Bank of East Asia entitled to sums due to builder under first stage of construction contract, even though builder in breach of second stage

● i.e. ‘An instalment due under a building contract on May 15 could not be withheld because of a damages claim arising after that date’ (McBryde)

● Why? Because obligations in question were not ‘contemporaneous’ and therefore not counterparts

Question 14

What is repudiation?

Answer 14

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

Question 15

When is recission available?

Answer 15

(1) on material breach (Wade v Waldon)
(2) on repudiation
i.e. advance notification of non-performance of contractual obligations

Wyman Gordon Ltd v Proclad International Ltd

Question 16

What is a material breach of contract under Wade v Waldon to accept recession of the contract?

Answer 16

It is familiar law and quite well settled by decision that in any contract which contains multifarious stipulations there are some which go so to the ROOT of the contract that a breach of those stipulations entitles the party pleading the breach to declare that the contract is at an end” (per LP Dunedin)

the ROOT OF THE CONTRACT.

Question 17

What does Apcoa Parking Ltd v Crosslands Properties Ltd say about the root of the contract?

Answer 17

It may also be important to consider the term concerned and its inter-relationship to other terms in the overall context of the parties’ agreement

* What is clear is that breach of a term going to the root of the contract is a high threshold.

Question 18

What does repudiation do in the context of Wyman Gordon v Proclad Int’l

Answer 18

Repudiation: “an objectively clear indication that, for whatever reason, material contractual obligations are not going to be performed at the due date”

Effect? No effect in itself, but consequences depend on response of innocent party

Question 19

Wha

t can parties do when repudiation happens?

Answer 19

● the innocent party may either rescind or affirm the contract

● affirming the contract: insist on continuing performance: White & Carter (Councils) Ltd. v. McGregor 1962 SC (HL) 1

● rescinding the contract:

● future performance obligations come to an end, but not accrued rights: Graham v. United Turkey Red Co. Ltd. 1922 SC 533

Question 20

What does White & Carter v McGregor state on affirming the contract after repudiation?

Answer 20

McGregor repudiated a contract, but White & Carter chose to affirm it, continuing to perform and demand payment. The House of Lords upheld this approach, reinforcing the enforceability of contracts even after repudiation.

Question 21

What is the Effect of Rescission on Accrued Rights?

Answer 21

Graham & Co. v. United Turkey Red Co. Ltd. 1922 SC 533
* Rescission does not affect rights accrued before the breach. The agent’s commission for prior orders was still enforceable even after the contract was rescinded.

Question 22

What does Cumming v Brown 1994 SLT (Sh Ct) 11 suggest about a loss of right to rescind through delay?

Answer 22

‘I am unable to hold that a party who has not yet exercised that right [to rescind] can ignore a tender of performance by the other party and then purport to exercise the right thereafter’

Suggests timely intimation of rescission necessary or right may be lost.

Question 23

What are the five different judicial remedies available when a contract is breached?

Answer 23

(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 24

What is specific implement?

Answer 24

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

Question 25

What is the specific implement test?

Answer 25

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

Question 26

What are the exceptional circumstances justifying refusal of specific implement?

Answer 26

* must be ‘inconvenient and unjust’ to grant remedy e.g. where enforcement “would be an undue restraint on personal liberty” (Gloag p. 657) Highland & Universal properties ltd v. Safeway. must be a very cogent reason.

Question 27

What does Sapphire 16 S.A.R.L. v Marks and Spencer Plc explore regarding specific implement?

Answer 27

* made “an interim order that the defender re-open the whole of the premises” * but M & S ran it instead as outlet store instead of maintaining normal operational levels of stock and staff * held the order had been breached: breach of an order designed to force the defender to re-open to prevent irreparable damage to the pursuer.

Question 28

What is an interdict?

Answer 28

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) ● typically enforces a negative obligation (e.g. restrictive covenants, to be covered later under “illegality”) ● basis of remedy is equitable and discretionary

Question 29

What are remedies agreed in the contract?

Answer 29

remedy in a contract term defining consequences of breach: e.g. agreed damages (“liquidated damages”) but must not be a penalty: to be enforceable must satisfy common law test of validity so as to not be ‘unconscionable and extravagant. It is not a penalty.

Question 30

What case is the current law on penalties?

Answer 30

Cavendish Square Holding BV v Makdessi [2015] UKSC 67: defines an agreed remedy clause as an unenforceable penalty if “unconscionable and extravagant” extends penalties rule from liquidated damages to cover other non-payment obligations triggered by breach, e.g. to transfer assets no longer about proportionality, it is if it is not extravagant and conscionable. * penalties rule only engaged in relation to contractual provisions which are triggered by a breach of contract

Question 31

What is the purpose of Damages?

Answer 31

* The primary purpose is compensation, not punishment. * It seeks to place the innocent party in the position they would have been in had the contract been properly performed. 🧑‍⚖️ Robinson v Harman (1848) 1 Exch. 850 “Innocent party is to be placed, so far as money can do it, in the position as if the contract had been performed.”

Question 32

what are the four questions to ask for establishing damages?

Answer 32

1. Is there a loss? 2. Was the loss caused by the breach? (Causation) 3. Is the loss too remote? (Remoteness) 4. Could it have been avoided? (Mitigation)

Question 33

What are the two types of loss?

Answer 33

Pecuniary (monetary) Balfour Beatty Construction Non-pecuniary (exceptional)

Question 34

What is Non-Pecuniary Loss?

Answer 34

Generally not recoverable unless: * The contract was for pleasure/amenity * Mental distress resulted from physical inconvenience

Question 35

What is the loss of amenity/pleasure caselaw relevant?

Answer 35

🧑‍⚖️ Diesen v Samson 1971 SLT (Sh Ct) 49 Failure to photograph wedding. Court awarded damages due to personal and sentimental nature of the contract. 🧑‍⚖️ Ruxley Electronics Ltd v Forsyth [1996] AC 344 Swimming pool too shallow. No cost of cure or market diminution, but £2,500 awarded for loss of amenity.

Question 36

Mental distress and physical inconvenience non-pecuniary losses authority?

Answer 36

🧑‍⚖️ Watts v Morrow [1991] 1 WLR 1421 🧑‍⚖️ Farley v Skinner [2002] 2 AC 732 Damages allowed where distress followed physical inconvenience.

Question 37

What are Nominal Damages?

Answer 37

Awarded when breach occurred but no significant harm is shown. 🧑‍⚖️ Wilkie v Brown 2003 SC 573 Nominal damages allowed where breach caused trouble and inconvenience, even without quantifiable harm.

Question 38

What are gain based damages?

Answer 38

General rule: Damages are not based on the breaching party's gain. 🧑‍⚖️ Morris-Garner v One Step (Support) Ltd [2018] UKSC 20 Confirmed that gain-based “negotiating damages” are still compensatory, not punitive. 🧑‍⚖️ Attorney General v Blake [2001] AC 268 Exceptionally, account of profits awarded for breach where: * The case is exceptional * Normal remedies are inadequate * Claimant has a legitimate interest in preventing profit * Circumstances support this remedy Contradicts Teacher v Calder and so hasn't been applied in Scots law.

Question 39

How do you calculate damages?

Answer 39

● identifying the loss: in what ways has the innocent party not been put in the position to which it is entitled under the contract? - each way which constitutes a loss. ● 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 40

How do you choose the measure of loss to estimate the money value?

Answer 40

Duke of Portland v Wood’s Trs 1926 SC 640 The defective or non-performance causes you harm and the harm translates into a right to damages but then you need to work out how to value the harm. It is the harm you are valuing but the measures are what translates them into renumeration. Typical measures include cost of completion or reinstatement of defective performance - like a building contract that goes wrong amenity (Ruxley case) diminution of market value

Question 41

What must a claimant establish to claim damages?

Answer 41

1. Breach of contract 2. Loss resulting from that breach

Question 42

What are the limits on recoverable loss?

Answer 42

1. Causation 2. Remoteness of loss 3. Mitigation of loss

Question 43

Causation of loss authority?

Answer 43

Wilson v Carmichael & Sons (1894) 21 R 732 * Legal Principle: The loss must be proximately caused by the breach, not by the claimant’s failure to detect the problem.

Question 44

Remoteness of loss theoretical basis?

Answer 44

Damages must be reasonably foreseeable at the time the contract was made. This promotes: * Fairness: No liability for unforeseeable losses * Efficiency: Encourages disclosure of unusual risks and allocation via contract

Question 45

What does Hadley v. Baxendale prove about remoteness of loss?

Answer 45

* Facts: A miller sent a broken shaft to be replaced. The carrier delayed delivery, causing mill shutdown and lost profits. * Held: Loss was too remote—defendants didn’t know delay would shut down the entire mill. * Principle: Two-branch test: 1. Ordinary course of events (objective foreseeability) 2. Special knowledge shared at contract formation (subjective contemplation) * If special circumstances are not communicated, resulting losses may be too remote.

Question 46

How does Balfour Beatty Construction v Scottish Power explore remoteness of loss as a restriction on recovery?

Answer 46

* Facts: Electricity outage interrupted a continuous concrete pour, leading to reconstruction costs. * Held: Loss too remote—defenders weren’t aware of the technical need for uninterrupted pour. * Principle: Foreseeability is judged based on the knowledge of the parties at the time of contracting. Technical knowledge not disclosed cannot be imputed.

Question 47

How does mitigation of loss and British Westinghouse v Underground Electric Railway Co connect?

Answer 47

* Facts: Defendants supplied defective turbines. Claimants bought better replacements, which saved costs long-term. * Held: Claimants could not recover for costs that had been mitigated by their own conduct. * Principle: A claimant must take reasonable steps to reduce their loss. They cannot claim for losses they could have avoided. “The law imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach...”