DAMAGES II Flashcards
(22 cards)
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, Court of Appeal
In considering the authorities on remoteness of damage the following general propositions emerge: (1) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed. This purpose, if relentlessly pursued, would provide him with a complete indemnity for all losses de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognised as too harsh a rule; (2) in cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach; (3) what was at that time reasonably foreseeable depends on the knowledge then possessed by the parties, or, at all events, by the party who later commits the breach; (4) for this purpose, knowledge “possessed” is of two kinds - one imputed, the other actual. Everyone, as a reasonable person, is taken to know the “ordinary course of things” and, consequently, what loss is liable to result from a breach of that ordinary course. This is the subject-matter of the “first rule” in, Hadley v Baxendale 156 E.R. 145 , but to this knowledge, which a contract-breaker is assumed to possess, whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses of special circumstances outside the “ordinary course of things” of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the “second rule” so as to make additional loss also recoverable; (5) in order to make the contract-breaker liable under either rule, it is not necessary that he should actually have asked himself what loss is liable to result from a breach. It suffices that, if he had considered the question, he would, as a reasonable man, have concluded that the loss in question was liable to result, and (6) nor, finally, to make a particular loss recoverable, need it be proved that on a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough if he could foresee it was likely to result. It is enough - to borrow from the language of Lord du Parcq in Monarch Steamship Co v A/B Karlshamns Oljefabriker [1947-51] C.L.Y. 2562 if the loss (or some factor without which it would not have occurred) is a “serious possibility” or a “real danger”. (Perhaps the colloquialism “on the cards” indicates the shade of meaning with greater accuracy than “likely” to result.) Applying these general principles to a case where the plaintiffs, a laundry company, claimed
Hadley v Baxendale [1854] 9 Exch 341, Court of Exchequer
Abstract: The appellant carriers (B) appealed against a decision awarding damages in negligence to the respondent mill owners (H). The crank shaft of the steam engine used by H in their mills had broken, rendering the mill unworkable. H contracted with B for B to deliver the broken shaft to an engineering firm to be used as the model for a new one. H told B that the shaft had to be sent immediately and B promised to deliver it the next day. B was unaware that the mill was unworkable without a new shaft. B delivered the shaft seven days after receiving it. H claimed B’s negligence caused the mill to be inoperable for an additional five days and sought damages covering the resulting loss of profits and payment of wages. B argued that the damages sought were too remote. H was awarded damages by the jury in excess of the amount paid into court. H contended that they were entitled to the damages awarded as they were not only the natural consequence of B’s negligence but were the losses actually sustained.
Appeal allowed. Damages recoverable for a breach of contract should be such as might fairly and reasonably be considered as arising naturally from the breach or might reasonably be supposed to have been in the contemplation of the parties at the time the contract was made. If there were special circumstances which had been communicated by one party to the other, the damages resulting from the breach would be the amount as might have been reasonably contemplated as flowing from such a breach in those circumstances. If those circumstances were unknown to the party alleged to have breached the contract, that party could only be supposed to have contemplated the amount of damages arising generally from such a breach. In the instant case, the jury ought to have been directed that they were not entitled to award damages for profits lost to H through the mill being inoperable and a new trial would be ordered.
Koufos v C Czarnikow Ltd, The Heron II [1969] 1 AC 350, House of Lords
Where a party is in breach of a contract for the carriage of commodities, the price of which commodities is liable to fluctuate, he ought to have foreseen such fluctuation; accordingly if the price falls this is reflected in the measure of damages. The appellant shipowner entered into a charterparty with the respondents, who were merchants. Under the terms of the charterparty the ship was to be loaded with sugar at Constanza on or after October 27, 1960, and was to proceed therefrom with all convenient speed to Basrah. In fact the ship called at several ports en route to Basrah thus taking some nine days longer to arrive than it would have done had it sailed directly to Basrah. The price of sugar at Basrah fell during those nine days, and in the result the respondents’ sugar was sold for GBP 4,183 16s. 8d. less than it would have been had it arrived promptly. Disputes having arisen an umpire found as facts, inter alia, (a) that sugar was regularly bought and sold at Basrah, which fact was known to the appellant; (b) that the price of sugar there fluctuated from time to time; (c) that shipowners generally knew that there was some urgency in carrying sugar, a perishable commodity, to its destination; and (d) that the appellant did not know that the respondents intended to sell the sugar promptly on arrival. The appellant admitted that the delay was in breach of the charterparty. As to the measure of damages, held (1) that on the facts the appellant ought to have foreseen that delay would involve a serious possibility of a real danger that the price of sugar would decline; and (2) that the proper damages were therefore GBP 4,183 16s. 8d., the difference between the price which the sugar ought to have fetched if it had arrived on time and the price which it in fact fetched. (The “serious possibility of real danger,” per Lords Upjohn and Pearce, was expressed in differing terms by Lords Reid, Morris of Borth-y-Gest, and Hodson.) ( Parana, The (1877) 2 P.D. 118 not followed and Notting Hill, The (1884) 9 P.D. 105 not followed; Hadley v Baxendale 156 E.R. 145 applied, Victoria Laundry (Windsor) v Newman Industries [1947-51] C.L.Y. 2565 applied and Dunn v Bucknall Bros [1902] 2 K.B. 614 applied).
Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791, Court of Appeal
Summary: Remoteness; foreseeability; pig food unfit for consumption
Abstract: Where parties contemplate the type of consequence which may follow a breach of contract, they will be liable for specific damage of that type, even where the specific damage was not foreseeable. The defendants sold a pig-food hopper to the plaintiffs. It was defective. The nuts in it went mouldy. 254 pigs died as a result of eating mouldy nuts. At the time of the contract it was found, as a fact, that the parties could not have foreseen serious illness arising as a result of the consumption of mouldy nuts.
Held, dismissing D’s appeal, that it would have been in the contemplation of the parties that there was a real possibility of harm coming to the pigs if their food was made unfit by reason of the condition of the hopper. The fact that they could not foresee the extent of the harm was immaterial and P could recover the cost of his pigs.
Brown v KMR Services Ltd [1995] 4 All ER 598, Court of Appeal
Abstract: B was a Lloyd’s Name who had suffered substantial losses as a direct result of becoming involved in excess of loss syndicates chosen by himself. B claimed that K, who was the members’ agent acting for him, had acted negligently and in breach of contract in failing to warn him of the dangers of such syndicates. At no time did K warn him of the risks involved in excess loss syndicates despite his requests in 1988 and 1989 for a review of his premium allocations and advice on the balance of his portfolio. B was generally aware of the high risk nature of excess loss syndicates by 1990 but continued to invest, although at a reduced level of exposure. The judge held that a Lloyd’s Name was entitled to expect a warning of the inherent dangers. However even if such a warning had been received, B probably would have allocated about 30 per cent of his premium income limit to excess of loss syndicates and the damages should therefore be reduced pro rata. K appealed and B cross-appealed on the question of allocation.
Held, dismissing the appeal and allowing the cross-appeal, that (1) a members’ agent owed a duty to a Lloyd’s Name, when recommending a percentage of his premium income limit to high risk excess of loss syndicates, to provide proper information and advice about the character and extra risk of the business underwritten by such syndicates; (2) where a members’ agent was in breach of its duty to provide appropriate information and advice to a Lloyd’s Name, the question of causation was to be approached by identifying first what specific advice the Name ought to have received and then what the name could prove on the balance of probabilities, would have been the consequence of his receipt of such information and advice; (3) although the scale of the loss was unprecedented that fact did not preclude B from recovering damages in respect of it since the loss was of a type or kind that was foreseeable and therefore not too remote. The balance of probabilities was that B would have allocated the market average of 22 per cent of his premium to excess of loss syndicates if he had been properly advised, dictum of Bingham, M.R. in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] Q.B. 375 applied and (4) on the issue of set-off, it was clear that B had a separate cause of action in respect of each of the three loss making years and that each cause gave rise to a contractual right. The judge was not therefore entitled to set-off underwriting profits for 1986 and 1987 against those losses incurred in subsequent years, Bartlett v Barclays Bank Trust Co Ltd (No.1) [1980] 2 W.L.R. 430 considered.
Jackson v Royal Bank of Scotland plc [2005] UKHL 3, [2005] 1 WLR 377, House of Lords
Abstract: The appellants (J) appealed against the decision of the Court of Appeal ([2000] C.L.C. 1457, [C.L.Y.1507]) limiting an award of damages granted at first instance as against the respondent bank of both parties (R) for loss of the opportunity to earn profits from their trading relationship with a company (E). J were partners in a business importing goods. They supplied E with dog chews manufactured in Thailand. The business between J and E was conducted by means of transferable letters of credit issued by R to E. E knew the identity of J’s supplier in Thailand but was unaware of the mark up taken by J on each transaction. R, in error, sent E documents which indicated that J was making a 19 per cent mark up on each transaction. E terminated their relationship with J and J brought proceedings against R for the loss of the opportunity to earn further profits from their relationship with E. At first instance damages were awarded to J on the basis that the trading relationship with E would have continued for four more years on a decreasing scale, after which J’s chances of repeat business were so speculative as not to sound in damages. The Court of Appeal held that the award of damages should be limited to one year from the date of breach, all other loss being regarded as too remote. J argued that to limit the award to a period of one year was based on an error of principle and that R’s liability was actually open ended as it had not limited its liability by the contract to any particular period. R, by its cross appeal, submitted that there was no foreseeable loss at all as it had not been within its reasonable contemplation that the disclosure of the profit that J were making would lead to the termination of the trading relationship.
Held, allowing the appeal and dismissing the cross appeal, that (1) there was no evidence contemplated by the parties at the time of the contract that knowledge of the Thai supplier’s identity and its contact details would lead inevitably to knowledge of the prices being charged by it. The fact that E had means of obtaining the information if it chose to was beside the point. The effect of the contract that R entered into was that it was obliged not to pass this information on, and J had an obvious and legitimate commercial interest in maintaining its confidentiality. There was no reason at all to suppose that, if they had been asked at the time of the contract, J would have agreed to the release of this information by R to E. The loss of repeat orders was not too remote. As soon as the confidential information was released there was no repeat business. J were entitled to an award of damages to put them in the same position as they would have been in if there had been no breach of contract. (2) If no cut off point was provided by the contract, there was no arbitrary limit that could be set to the amount of damages once the test of remoteness had been satisfied, Hadley v Baxendale 156 E.R. 145 applied. R had not included any provision in the letter of credit limiting its liability for loss of repeat business to any particular period. As the trial judge held, as time passed it was increasingly likely that E would have acquired the motive and means to squeeze J’s profit margins and would ultimately have ended their business relationship. The award which the judge at first instance made was as good an estimate as any and was therefore restored in the interests of avoiding the further costs and delay involved in remitting the matter for further consideration.
Transfield Shipping Inc v Mercator Shipping Inc, The Achilleas [2008] UKHL 48, [2009] 1 AC 61, House of Lords
The appellant charterer (T) appealed against a decision ([2007] EWCA Civ 901, [2008] 1 All E.R. (Comm) 685) upholding an arbitrators’ ruling on the damages to which the respondent shipowner (M) was entitled following the late return of the ship which T had chartered from it. M had let out its ship to T for a period of five to seven months, to end no later than midnight on May 2, 2004. T notified M that the ship would be back no later than then. M therefore contracted to let the ship to new charterers for a period of about four to six months, promising that they could have the ship no later than May 8, 2004. The agreed price of hire was $39,500 a day. The ship was delayed on its last voyage and M did not get it back until May 11, 2004. The new charterers agreed to take the ship, but by then the market had fallen sharply and they would only take it at a reduced price of $31,500 a day. The issue before the arbitrators was whether T was liable to pay only for the use of the ship for the number of days that it was late at the market rate then prevailing or whether, as M had argued, T was liable to pay the difference between what M would have got from the new charter had the ship been returned in time and what it in fact got. The arbitrators, by a majority, adopted the latter approach. They concluded that the loss on the new fixture fell within the first rule in Hadley v Baxendale 156 E.R. 145 as arising “naturally, i.e. according to the usual course of things, from such breach of contract itself”. It fell within that rule because it was damage “of a kind which the [charterer], when he made the contract, ought to have realised was not unlikely to result from a breach of contract [by delay in redelivery]”. The dissenting arbitrator did not deny that T would have known that M would be very likely to enter into a following fixture during the course of the charter and that late delivery might cause that fixture to be lost. However, he concluded that a reasonable man in T’s position would not have understood that he was assuming liability for the risk of the type of loss in question. He stated that the general understanding in the shipping market was that liability was restricted to the difference between the market rate and the charter rate for the overrun period and that “any departure from this rule [is] likely to give rise to a real risk of serious commercial uncertainty which the industry as a whole would regard as undesirable”.
Appeal allowed. In accepting M’s submission that what mattered was that the type of loss claimed was foreseeable, the majority arbitrators had applied too crude a test, and it was an error of law to adopt it. The common basis on which the parties had contracted was essential to the rule in Hadley v Baxendale as a whole. In Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 A.C. 350 their Lordships had had well in mind that it was not simply a question of probability but also of what the contracting parties had to be taken to have had in mind, having regard to the nature and object of their business transaction. What mattered was whether the common intention of reasonable parties to a charterparty of this sort would have been that, in the event of a relatively short delay in redelivery, an extraordinary loss, measured over the whole term of the renewed fixture, was, in the words of Lord Reid in The Heron II , “sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within [the defaulting party’s] contemplation”. That would not have been the common intention of reasonable contracting parties. It was contrary to the principle stated in Victoria Laundry (Windsor) v Newman Industries [1949] 2 K.B. 528, and reaffirmed in The Heron II , to suppose that the parties were contracting on the basis that T would be liable for any loss, however large, occasioned by a delay in redelivery in circumstances where it had no knowledge of, or control over, the new fixture entered into by M, Hadley v Baxendale , The Heron II and Victoria Laundry applied.
Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370, Court of Appeal
P was employed as an independent building contractor by D and it was an implied term of their contract that D should supply P’s equipment. When D failed to supply a step-ladder, P used a trestle, which was dangerous unless “footed” by someone else, negligently failed to get it footed, fell and was injured. In an action by P against D for damages for breach of the implied term, held that even if D could have foreseen this result, his breach of contract did not cause the accident but merely gave P the opportunity to injure himself and the claim failed. (Decision of Paull, J. affirmed).
Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360, Court of Appeal
Abstract: After Hillsdown Holdings (H) had acquired the entire share capital of Galoo (G) and the majority of the shares in its parent Gamine (GE), substantial inaccuracies were found in the accounts prepared by BGM. The plaintiffs appealed against a decision striking out claims against BGM for negligence and breach of duty. BGM cross-appealed that the remaining part of the claim by H should be struck out. A head of damage claimed by G and GE was that they incurred trading losses as a result of relying on negligent auditing when they would otherwise have ceased to trade. The question, whether in contract or in tort, was the nature of the causation required to establish liability for breach of duty. BGM submitted that the plaintiff’s case depended upon the “but for” test which was not a proper test in English contract law.
Held, dismissing the appeals and cross-appeal, that, following Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] A.C. 196, a breach of contract must be the effective or dominant cause of loss to sustain a damages claim. Following Quinn v Burch Bros (Builders) Ltd [1966] 2 Q.B. 370, it was necessary to distinguish between a breach of contract which caused loss and one which merely provided the opportunity to sustain loss. Following two Australian cases which represented the law of England, Alexander v Cambridge Credit Corp (1987) 9 N.S.W.L.R. 310 and March v E&MH Stramare Pty 171 C.L.R. 506, whether a breach of duty arose in contract or an analogous situation in tort, it was for the court to exercise common sense in assessing whether such breach was the cause or merely the occasion of loss. Accordingly, the “but for” test was insufficient.
British Westinghouse Electric v Underground Electric Railways Co of London Ltd [1912] AC 673, House of Lords
The claimants in breach of contract supplied to the defendants turbines which were defective. The defendants subsequently replaced them with other turbines. The replacement turbines turned out to be more efficient and profitable than the old turbines would have been even if non-defective. In the claimaints’ action for sums owing under contract, the defendants counterclaimed for damages for breach of contract. The question was whether the greater efficiency of the replacement turbines should be taken into account in reducing the defendants’ damages for the claimants’ breach of contract. In allowing the claimants’ appeal, the House of Lords held that the greater efficiency of the replacements should be taken into account as mitigating the defendants’ loss.
Law Reform (Contributory Negligence) Act 1945 Section 1(1) and (4)
1(1) APPORTIONMENT OF LIABILITY IN CASE OF CONTRIBUTORY NEGLIGENCE: Where any person suffers damage as the result partly on his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damae, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage….
(4) INTERPRETATION: ‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to liability in tort or would, apart from this Act, give rise to the defense of contributory negligence
Forsikringsaktieselskapet Vesta v Butcher [1988] 3 WLR 565, Court of Appeal
Abstract: A follow-settlements clause in back-to-back reinsurance overrides a claim control clause if the settled claim was valid and unanswerable under the law of the original policy. V, a Norwegian insurance company, insured a fish farm in Norway, and reinsured 90 per cent of its risk with Lloyd’s. Both contracts contained a clause requiring that a 24 hour watch be kept over the farm, which its owners were unable to comply with. Following damage by a severe gale, the farm claimed on V, which paid the claim on the basis that under Norwegian law it had no defence as the breach of the 24 hour watch provision had had nothing to do with the damage. Underwriters refused to pay under the reinsurance contract on the basis that there had been a breach of a warranty governed by English law, and that there had also been a breach of a claims control clause.
Held, that it had clearly been intended that the terms of insurance and reinsurance should be the same. The underwriters must have realised that their right to control negotiations was to be governed by Norwegian law. The clause providing for a 24 hour watch had to be given the same construction in the reinsurance contract as it had in the original insurance contract-nothing else made commercial sense ( Sayers v Harlow Urban DC [1958] 1 W.L.R. 623 applied; and Insurance Co of Africa v Scor (UK) Reinsurance Co Ltd [1983] 1 Lloyd’s Rep. 541 considered).
Barclays Bank Plc v Fairclough Building Ltd [1995] QB 214, Court of Appeal
Abstract: Contributory negligence was not a defence to a claim for damages founded on a strict contractual obligation. B engaged F to carry out the cleaning of roofs made of corrugated asbestos sheets. F failed to take any precautions when carrying out the cleaning with the result that the premises became contaminated by asbestos and required extensive remedial works. B brought an action to recover the costs, alleging a breach of contractual terms. F contended that B had been contributorily negligent for failing properly to supervise the work through its architectural services department. B argued that its claim lay only in contract and so there was no scope for a defence of contributory negligence, but the judge held that F was in breach of contract by reason of a breach of an implied duty to take reasonable care, which was co-extensive with a duty in tort. Therefore, the judge held, a defence of contributory negligence could succeed. He found B to be 40 per cent at fault.
Held: Appeal allowed. Where the defendant was in breach of a strict contractual obligation, ie. an obligation other than to take reasonable care, damages were not to be reduced on the grounds of contributory negligence. The Law Commission’s recommendations in Law Com. 219 on contributory negligence as a defence in contract was considered, Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd (The Good Luck) [1990] 1 Q.B. 818 followed and Forsikringsaktieselskapet Vesta v Butcher [1988] 3 W.L.R. 565 applied.
Addis v Gramophone Co Ltd [1909] AC 488, House of Lords
The claimant was employed as a manager by the defendants at a salary of £15 per week plus commission. He could be dismissed by being given six months’ notice. The defendants gave him the requisite six months’ notice but, at the same time, appointed his replacement and took steps to prevent the claimant acting as manager. He therefore left after three months. In his action for wrongful dismissal, the jury awarded £600 damages plus £340 in respect of lost comission. The House of Lords held that the claimant was entitled to his lost salary during the six months (which was less than the £600) plus £340 lost commission but was not entitled to damages for, inter alia, mental distress.
Jarvis v Swan’s Tours Ltd [1973] QB 233, Court of Appeal
Damages may be recovered in a proper case for mental distress occasioned by breach of contract. J booked a fifteen-day winter sports holiday with ST on the faith of their brochure which described the holiday in very attractive terms. He paid their charges of GBP 63.45. The holiday was a great disappointment to him. For the first week it was to some extent inferior and for the second week much inferior to what he had been led to expect. The county court judge awarded him GBP 31.72 damages. On J’s appeal against the amount awarded, held, allowing the appeal, that he was entitled to be compensated for his disappointment and distress and the damages should be increased to GBP 125. (Dicta of Pollock C.B. in Hamlin v Great Northern Railway Co 156 E.R. 1261 and Mellor J. in Hobbs v London & South Western Railway Co (1874-75) L.R. 10 Q.B. 111 not followed).
Watts v Morrow [1991] 1 WLR 1421, Court of Appeal
Abstract: Where a surveyor’s report negligently fails to disclose defects in a property, the correct measure of damages is not the cost of repair, but the diminution in value of the property. Ps bought a house for GBP 177,500 in reliance upon a survey that stated that the house was sound, stable, and in good condition. After taking possession, Ps discovered substantial defects which cost them GBP 33,961 to put right. They brought an action claiming the cost of repairs. It was common ground that the true value of the house as it actually was at date of purchase was GBP 162,500. The judge awarded Ps the cost of carrying out the repairs.
Held, allowing the appeal, that the proper measure of damages was the diminution in value rather than the cost of repairs ( Perry v Sidney Phillips & Son [1982] 1 W.L.R. 1297 followed; Hipkins v Jack Cotton Partnership [1989] 45 E.G. 163 , Syrett (Pamela) v Carr and Neave 54 B.L.R. 121 disapproved).
Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732, House of Lords
Abstract: F appealed against the decision of the Court of Appeal (73 Con. L.R. 70) allowing the appeal of S, a surveyor, against the award of GBP 10,000 made to F by way of damages for the interference with the enjoyment of his property caused by aircraft noise. S, who had been instructed by F to survey the property prior to his purchase of it, and to specifically investigate the likelihood of aircraft noise from a nearby major airport, had negligently concluded that the house was unlikely to be affected.
Held, allowing the appeal, that S’s obligation to investigate aircraft noise had been an important part of the contract, and S’s failure to properly investigate that aspect had prevented F from making an informed choice as to whether or not to buy the property. That had, in turn, led to mental distress and disappointment for which damages had been sought. The guidance in Watts v Morrow [1991] 1 W.L.R. 1421 was still valuable in the context of determining whether damages were available for breach of contract, but there was no reason in principle and policy why the scope of recovery in the exceptional category should be dependent on the object of the contract as ascertained from all its constituent parts. It was enough that an important object of the contract had been to give “pleasure, relaxation or peace of mind” and that it had been breached, Watts considered, Knott v Bolton 45 Con. L.R. 127 overruled. F had not forfeited his right to damages by remaining at the property, given that he had acted reasonably in making the best of the situation, and that his decision not to move had prevented a larger claim against S.
Mahmud v Bank of Credit and Commerce International SA [1998] AC 20, House of Lords
Abstract: M and another, both former employees of BCCI, appealed against the dismissal of their appeal against a preliminary decision that they were not entitled to recover damages for injury to their reputation, and consequent difficulties in finding new employment, allegedly caused by BCCI conducting a dishonest or corrupt business. BCCI’s liquidators argued that injury to reputation was protected by defamation and a claim should not be allowed in contract that would not succeed in tort, and that, in any case, the claims for damages to the employees’ existing reputations were barred by Withers v General Theatre Co Ltd [1933] 2 K.B. 536.
Held, allowing the appeal, that BCCI was under an implied obligation not to conduct a corrupt and dishonest business, being one aspect of a general implied contractual obligation not to engage in conduct likely to undermine the relationship of confidence and trust between employer and employee. Where the loss suffered by an employee as a result of a breach of this implied term did not simply consist of premature termination losses, for example where the breach adversely affected future employment prospects, such continuing financial losses were, in principle, recoverable, subject to questions of foreseeability, remoteness and mitigation. To limit recovery to premature termination losses was an unacceptably narrow interpretation of the trust and confidence term and employers had a duty not do acts that would damage employees’ future employment prospects, Addis v Gramophone Co Ltd [1909] A.C. 488 distinguished. Further, the fact that the loss might be recoverable in defamation did not preclude it being recovered as damages for breach of contract. The ruling in Marbe v George Edwardes (Daly’s Theatre) Ltd [1928] 1 K.B. 269, that damages for loss to existing reputation could be recovered, was to be preferred to the judgment in Withers.
Attorney General v Blake [2001] 1 AC 268, House of Lords
Summary: B, a former member of the British Security Services and a Soviet spy, appealed the grant of an injunction preventing him from receiving any further payments from his publishers following the publication of his autobiography. The Attorney General cross appealed, contending that B’s breach of contract in disclosing official secrets should carry with it an entitlement on the part of the Crown to seek recovery of any resultant profits by way of restitution. The court held that in an exceptional case, such as this, there was no bar to the grant of an order for an account of profits where that was the most appropriate remedy following a breach of contract.
Abstract: B, a former member of the Secret Intelligence Services, SIS, who later became a Soviet agent, appealed against a decision ([1998] Ch. 439), that all profits derived from a book about the British secret service, including those to which he was entitled but had not yet received, be paid over to the Crown. B was employed by the SIS in 1944, and, in his contract of employment, signed an Official Secrets Act declaration not to disclose any information, in any form, about his work in the secret service. This contractual undertaking also applied after employment had ceased. B subsequently became a Soviet agent, for which he was imprisoned, but he later escaped to the Soviet Union. In 1989, B wrote the book concerned and entered into an agreement with an UK publisher. The book contained information that was no longer confidential. He received some advance payments and was entitled to more. The Crown claimed whatever amount was owing to B, who appealed the grant of an injunction preventing him from receiving any further payments from his publishers. The Attorney-General cross appealed, arguing that B had committed a breach of contract and that the restitutionary principle should apply to enable the Crown to recover any profits to which B was entitled.
Held, dismissing the appeal and allowing the cross appeal, that in exceptional cases, where normal remedies were inadequate to compensate for breach of contract, it was open to the court to order that the defendant account for all profits either received or to which he is entitled. This was an exceptional case in that the work of the secret service depends on the confidentiality of information. B had been responsible for harming the public interest by breaches of his undertaking not to divulge information. Publication of the book was a further breach of that undertaking, even though the information contained in it was no longer secret. However, it was noted that the disclosure of non-confidential information was also a criminal offence under the Official Secrets Act 1911 . An absolute rule against disclosure was necessary in order to ensure that members of the secret services are able to deal with each other in complete confidence. B was able to capitalise on his notoriety as a Soviet agent and would not have been able to command such high royalties. The Crown therefore had a legitimate interest in ensuring that B did not benefit from revealing state information in breach of contract. However, as normal contractual remedies of damages, specific performance and injunction would not meet that objective, the publishers should be ordered to pay over to the Crown any amount still owing to B.
Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323, [2003] 1 ALL ER (Comm) 830, Court of Appeal
Summary: Where there had been a deliberate breach of contractual obligations in circumstances where the injured party would have difficulty in establishing financial loss resulting therefrom, it was appropriate to take the exceptional course of assessing damages for breach of contract by reference to the profits made by the wrongdoer as a result of the breach.
Abstract: E appealed against the refusal of the High Court ([2002] EWHC 1353, Daily Telegraph, July 18, 2002) to grant (1) as to one part of the claim an account of profits or significant damages, and (2) as to the other part of the claim an order requiring the defendant, P, to account. Prior to his death in 1970 H had made a number of records under contract with P. Following his death litigation between his executor, the predecessor to the present claimant E, and P was settled on terms. The effect of the settlement was that P was prohibited from exploiting some records but was entitled to exploit others for a limited period and thereafter only with consent. All records were exploited in breach of the settlement. E acknowledged that it would not have exploited the prohibited records itself, but claimed either an account of profits or more than nominal damages for the breach of settlement. In respect of the admitted breaches for the other group of records, which E would have exploited, E claimed an order for an account as distinct from P’s original undertaking.
Held, allowing the appeal, that (1) although the court could order an account of profits for breach of contract where the claimant could not prove that it had suffered any financial loss, this would only be done in exceptional circumstances such as national security, exceptional profits and fiduciary breaches, Attorney General v Blake [2001] 1 A.C. 268 considered. Damages could be awarded for a breach of a restriction which had been imposed to protect the claimant’s property where an injunction was refused because the court was only concerned with past profits, Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 W.L.R. 798 considered. Although this was not an exceptional case which justified an account of profits, P should make a reasonable and substantial payment for its unauthorised use of the master records, and (2) the undertaking had not been sufficient given that the defendant was based abroad. Accordingly an order, which might lead to an account by the court and which could be enforced abroad, was more appropriate.
Dunlop Pneumatic Tyre Ltd v New Garage and Motor Co Ltd [1915] AC 79, House of Lords
The claimaints (Dunlop) were manufactures of tyres. In a contract with the defendant dealer, agreeging that it would not sell the tyres for a price which was lower than in breach of the agreement the dealer would pay Dunlop £5 ‘by way of liquidated damages and not as a penalty’. On discovering a breach by the defendant in selling at below list price of tyre supplied by the claimants, the claimants brought an action for but the Court of Appeal reversed this and held that the clause imposed a penalty so that the claimants were entitled to nominal damages only. In overturning the Court of Appeal’s decision, the House of Lords held that the clause did not impose a penalty because it was a genuine pre-estimate of loss.
Philips Hong Kong Ltd v Attorney General Hong Kong [1993] 61 BLR 41, Privy Council
Abstract: By a contract dated November 24, 1986 the Hong Kong Government employed P in connection with the construction of a highway. Disputes arose concerning the interpretation of the liquidated damages provision in cl.29 of that contract. P commenced proceedings to obtain a ruling on the correct interpretation of cl.29 prior to arbitration, in particular as to whether or not the provision was a penalty clause.
Held, dismissing the appeal, that the correct test in determining whether a liquidated damages provision is a penalty clause was whether the sum specified was a genuine pre-estimate of what the loss was likely to be. The correct test is not to consider whether there were possible circumstances where a lesser loss could be suffered. The fact that the government might obtain liquidated damages for failure to meet key dates and also liquidated damages for failure to achieve completion on time did not render the clause unreasonable or a penalty clause. The only event giving rise to liability to pay liquidated damages was delay. The presence of a minimum payment provision did not of itself make the provision a penalty unless there were cases where the actual loss would be considerably less than the minimum. While the provisions could have been drafted with greater clarity, there was not sufficient uncertainty so as to render them unenforceable (Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79, Robophone Facilities Ltd v Blank [1966] 1 W.L.R. 1428 considered).
