Remedies

Question 1

What requirements must a valid liquidated damages clause meet?

Answer 1

Incorporation, construction, statutory controls.

Question 2

Define and effect of liquidated damages clause.

Answer 2

A clause stipulating a fixed amount of damages payable upon the breach of a contractual term
Effect: the clause will be valid and the claimant will be entitled to the amount of damages the clause stipulates.

Question 3

Definition and effect of penalty clause.

Answer 3

A clause which sets a fixed amount of damage to be paid on breach, which is excessive when compared to the likely losses and aims to punish the party in breach
Effect: the clause will be void and the court may substitute a measure of unliquidated damages

Question 4

How do you determine whether a clause is a LDC or a PC?

Answer 4

Guidelines in Cavendish Square v El Makdessi; The Makdessi Test

1. Is the clause a primary or secondary obligation? If primary it will not engage the penalty rule.
   - A clause will be primary if it is part of the primary obligations in the commercial context of the contract ie furthers the commercial objective of the contract (eg you must pay rent)
   - A clause will be secondary if it is triggered by breach of contract to compensate.
2. If secondary, the clause will not be a penalty if it
   - clearly protects a legitimate business interest (in the particular commercial context) and/or
   - imposes a detriment proportionate to protect the legitimate interest (ie is not extravagant, exorbitant or unconscionable in comparison to the interest being protected). (if not paying rent, owe a tenner a day)

Question 5

How much need the estimate be? acceleration of payment clause? deposits?

Answer 5

The estimate need to coincide with the actual loss to be a liquidated damages clause (McAlpine Capital Projects v Tilebox)
An acceleration of payment clause, if you miss a payment on a loan and then have to pay it all at once, can be a liquidated damages clause (The Angelic Star)
Deposits are generally non-recoverable. If they are higher than the industry standard they will be a penalty clause rather than a deposit (Workers Trust v Dojap Investments)

Question 6

Where do unliquidated damages occur, and what are their 3 measures?

Answer 6

Where either:
No liquidated damages clause in the contract, or
Liquidated damages clause struck out as a penalty clause

3 measures of unliquidated damages:
Expectation interest
Reliance interest
Restitution interest

Question 7

Rules of no liquidated damages?

Answer 7

No liquidated damages: There is no stipulated amount payable on breach in the contract (a liquidated damages clause). The court will, therefore, assess the amount of unliquidated damages to be paid to put wronged party in same situation as prior to the breach. Unliquidated damages are assessed on the grounds of compensation, not punishment (Robinson v Harman)

Question 8

UDC - is the remedy compensation or enrichment?

Answer 8

Compensation - the Golden Victory

Question 9

UDC - Do you choose reliance, expectation interest or both?

Answer 9

Unfettered choice between claiming reliance or expectation interest, but must choose and cannot claim both (Anglia Television v Reed per Denning LJ)
Where it’s difficult to calculate loss, claiming reliance interest is more appropriate

Question 10

What is the expectation interest?

Answer 10

Aims to put the claimant in the position he would be in if the contract had been properly performed (Robinson v Harman per Parke B)

Calculate the position the claimant would have been in minus the position he is actually in

Question 11

What are 3 alternatives if unable to calculate simple EI?

Answer 11

Cost of cure, diminution in value, loss of amenity

Question 12

What is cost of cure?

Answer 12

Calculation: cost of required remedial or substitute work to properly perform the contract
Commonly used for defective works (Birse Construction v Eastern Telegraph)

Question 13

What is diminution in value?

Answer 13

Calculation: the difference between the actual performance and the performance promised in the contract
Used when the cost of cure is disproportionate to the value of remedying the defect

Question 14

What is loss of amenity?

Answer 14

Breach of performance results in loss of satisfaction or personal preference or pleasurable amenity (Ruxley)
Used where (Ruxley):
Cost of cure would be disproportionate
Diminution of value is inapplicable
The loss is not financial but still matters to the customer
In a commercial setting ‘unusual, if not impossible’ for damages to be awarded for loss of amenity (Regus (UK) Ltd v Epcot Solutions)
Claimant must have acted reasonably in order to claim loss of amenity (McGlinn v Waltham)

Question 15

Explain the case of Ruxley Electronics v Forsyth

Answer 15

Swimming pool cost £20,000. £21,560 to fix. Difference in value nothing
Granted £2,500 for loss of amenity
Looked at intention of claimant – unlikely to carry out the remedial works relevant to extent of loss
Where no diminution in value don’t necessary go to cost of cure

Question 16

EI Can one get damages for mental distress? Exception?

Answer 16

No (Addis v Gramophone Company), especially in relation to distress from dismissal (Johnson v Unisys Ltd)
Never damages for mental distress in a purely commercial contract (Hayes v Dodd)

Question 17

Exception to not being able to get damages for mental distress

Answer 17

Where the purpose of the contract is pleasure, relaxation and peace of mind (Jarvis v Swan Tours)
Pleasure, relaxation and peace of mind need only be a major or important object of the contract, not its whole purpose (Farley v Skinner (No. 2))

Question 18

EI - can one get damages for loss of chance? Exception

Answer 18

No.
Exception: where lost chance is (Chaplin v Hicks):
- Quantifiable in monetary terms, and
- There is a real and substantial chance that the opportunity may have been realised

Question 19

EI - can one get damages for loss of reputation?Exception

Answer 19

No.
Exception: situations where the loss of rep stems from the breach of an implied term of trust and confidence (Malik v BCCI)
Employment contracts contain an implied term that the employer will carry out its work in an honest way
Generally need a big reputation to lose

Question 20

Reliance interest definition and use

Answer 20

Courts will award restitution where the expectation interest is difficult to prove or too speculative (McRae v Commonwealth Disposals)

Definition: aims to compensate expenses incurred by the claimant in reliance on the contract, placing him in the position he would have been in if the contract had never been entered into (Anglia Television v Reed)
Appropriate for losses incurred before the breach, including pre-contractual expenses

Question 21

Reliance interest - can one claim expenses before the contract has been entered into?

Answer 21

Yes, depending on knowledge of D (Anglia Television v Reed)

Question 22

Reliance interest - can one use it to esape a bad bargain?

Answer 22

No – only available where claimant would have been able to claim his expenses had the contract been properly performed (C&P Haulage v Middleton)

Question 23

Reliance interest - who is the burden of proof on?

Answer 23

On D to prove C would not have recovered his loss if the contract had been properly performed (The Mamola Challenger)

Question 24

Restitution interest - definition and test

Answer 24

Discuss if there is an efficient breach (deliberate breach to make more money elsewhere) but conclude there is no restitution
Definition: aims to deprive D of any profits resulting from his breach of contract (AG v Blake)

Test: (AG v Blake per Lord Nicholls) claimant must show that:

• It is in his legitimate interest to deprive D of his profits (not in The Sine Nomine)
• Other remedies are inadequate (not in The Sine Nomine as damages were adequate), and
• Exceptional Circumstances exist (not in Experience Hendrix v PPX; WWF v WWF)

Efficient breach is not exceptional circumstances
Read Esso v Niad case (successful)

Question 25

Other remedies - quantum meruit

Answer 25

(Sumpter v Hedges) The innocent party can voluntarily accept part performance. In this case the party in default will be entitled to a quantum meruit (as much as he deserves) To voluntarily accept the innocent party must have the option of whether or not to take the benefit of the work done Sumpter – work done on innocent party’s land, thus no choice but to complete

Question 26

Other remedies - damages on behalf of another

Answer 26

St Martin’s Property Corp Ltd v Sir Robert McAlpine & Sons Ltd Non-owner of a property is able to recover damages for breach of contract in relation to that property Panatown v Alfred McAlpine Construction A duty of care deed in the contract operates to oust the principle in Linden Gardens, because the injured party should sue on the basis of the deed, rather than have another party sue on their behalf See Williams v Roffrey Bros chapter

Question 27

Limiting factors: causation test

Answer 27

To recover damages must show a causal link between D’s breach and C’s loss Test: must show the breach was an effective cause of the loss (Galoo v Bright). The court will take a common sense approach in doing this Novus Actus Interveniens If the novus actus was ‘likely to happen’ it won’t breach the chain of causation (Monarch Steamship). It has to be something that wouldn’t necessarily be foreseen to break the chain of causation (Lambert v Lewis)

Question 28

Limiting factors: remoteness test

Answer 28

C can claim loss if they can prove one of the limbs of the Hadley v Baxendale test: 1. Did the loss arise naturally from the breach, according to the usual course of things? The court will impute knowledge to both parties, this is objective The Heron II further defines what constitutes a loss arising naturally from the breach as one that was ‘not unlikely’ to occur 2. Was the loss in the reasonable contemplation of both parties at the time of contracting? The court will look at the actual (subjective) knowledge of the parties The parties must have contemplated the loss as being ‘not unlikely’ (i.e. having a very substantial degree of probability’ of occurring (Hadley v Baxendale per Lord Reid)) What was in the contemplation of the parties to be judged at time of contracting, not time of breach (Jackson v Royal Bank) Natural loss for profits that would ordinarily have been made Unless D has actual knowledge of the particular and specific circumstances, special or unusual contracts are too remote (Victoria Laundry v Newman Industries) Knowledge of the technical details of a construction process too remote to be in contemplation (Balfour Beatty v Scottish Power) Test of remoteness different from tort but may the same where physical damage is involved (Parsons v Uttley Ingham, per Lord Denning)

Question 29

Limiting factor: Mitigation - what this entails

Answer 29

claimant has no duty to mitigate, but he will not be able to claim losses arising from his failure to mitigate C need only take reasonable steps to mitigate (British Westinghouse v Underground Electric) Reasonable steps: May involve accepting performance offered by D under a new contract, even when the performance amounts to a breach of the original contract, if cost effective (Payzu v Saunders) A mitigating party’s steps to mitigate ought not to be ‘weighed in nice scales’ (Banco de Portugal v Waterlow). The court recognises the C is the innocent party and his conduct will be judged as such. His obligation is to take reasonable steps, not the best ones A mitigating party is not expected to embark on litigation (Pilkington v Wood)

Question 30

Can one mitigate AND perform their side of the contract?

Answer 30

The duty to mitigate does not prevent a party, when suing on a debt, from going to the expense of performing his side of the contract after the other party has wrongfully repudiated (White & Carter v McGregor) Subject to limitations that the party performing must have a legitimate interest in doing so (Clea Shipping Corporation v Bulk Oil International, The Alaskan Trader) and must be able to perform without the co-operation of the other contracting party (Hounslow Lond Borough Council v Twickenham Garden Developments)

Question 31

Limiting factors: Contributory negligence

Answer 31

D may raise defence of contributory negligence under the Law Reform (Contributory Negligence) Act 1945, where there is (Vesta v Butcher, per Hobhouse J): A breach of contractual duty, and the breach is also a tort Breaching s 13 SGSGA 82 is a breach of contract and negligence “The very imposition of a strict liability on the defendant is to my mind inconsistent with an apportionment of the loss” Lord Simon (Barclay’s Bank v Fairclough)

Question 32

What are the miscellaneous remedies?

Answer 32

recovery of reasonable price for goods, deposits, part payment, specific performance, injunction, rescission, rectification (amending of contract)

Question 33

Miscellaneous remedies - recovery of reasonable price of goods

Answer 33

Under a contract of sale the buyer wrongfully refuses to pay for goods according to the terms, the seller may maintain an action for the price of goods (s 49 Sale of Goods Act 1979). If the price is ascertainable in a manner provided in s 8 the claim will be a liquidated one. Where it can’t be ascertained the buyer must pay a reasonable price. This will be ascertained on the facts (s 8) and is a claim for an unliquidated sum

Question 34

Miscellaneous remedies - deposits

Answer 34

Deposit not normally recoverable even if the payee has not suffered any loss as a result of the breach Limit on the general rule: the courts will regulate contracts specifying unreasonable deposits Workers Trust and Merchant Bank v Dojap Investments Held deposit should be repaid subject to a set-off for any loss sustained

Question 35

Miscellaneous remedies - part payment

Answer 35

General rule: part payment may be recovered by a party in breach Dies v British and International Mining and Finance Co Claimant made part payment but refused to accept delivery Held: it was able to recover the part payment but this was subject to the D’s right to recover damages for breach of contract Hyundai Shipbuilding and Heavy Industries v Papadopulos If the other party has incurred expenditure the party in breach may not be able to recover part payment

Question 36

Miscellaneous remedies - specific performance

Answer 36

Only available where the item is unique (land) and it’s a one off It’s discretionary Damages must be inadequate and no liquidated damages clause (Adderley v Dixon) Clean hands required (Coatsworth v Johnson) Undue delay defeats (Eads v Williams) No SP where it would cause undue hardship (Patel v Ali) No SP for a contract of personal services, i.e. contracts of employment (De Francesco v Barnum) Courts won’t supervise and continuing, on-going obligation (Cooperative insurance society v Argyll Stores) Mutuality required Good faith required, court must look at all the circumstances (Sang Lee Investments v Wing Kwai Investment Co)

Question 37

Miscellaneous remedies - injunction

Answer 37

Won’t enforce a positive injunction but will enforce a negative, even if the positive part of the contract is not specifically enforceable Evening Standard v Henderson – court would enforce gardening leave Point of the injunction to give a claimant reasonable protection and no more (William Robinson & Co v Heuer)