SQE2 Contract: Effects of Breach

Question 1

What to consider for breach?

Answer 1

1. Type of term breached
2. has breach happened
   - if anticipatory can either terminate or wait and see
3. Causation of Damages
4. Calculating Damages at Date of Breach
   - expectation damages
   - would reliance interest be used
5. Did party lose right to terminate
   - did they affirm
6. Are equitable remedies available
   - are damages not adequate
   - is it unique good
   - is there delay or no clean hands
7. Defences available
   - failure to mitigate
   - contributory negligence (only if also tort claim)
8. Is there valid liquidated damages clause

Question 2

Effect of breach of different types of terms?

Answer 2

Condition
- terminate contract (rights, obligations before breach remain but in future not); and
- damages

Warranty
- Damages only

Question 3

What is the aim of damages in contract?

Answer 3

Damages are compensatory and seek to should be calculated to put innocent party back in the position they would have been in had the contract been performed properly

Question 4

What types of damages may be awarded (general)?

Answer 4

Expectation Damages
- to put party in place as if contract had been performed

Reliance Interest
- if expectation damages are too speculative to measure
- puts parties in place had contract never been entered

Non-Monetary losses
- for physical injury
- MAYBE loss of amenity or reputation

Nominal Damages
- if not actual loss proven

Question 5

Can damages for loss of amenity ever be claimed?

Answer 5

• Loss of amenity is exception if the sole purpose of contract was enjoyment and injured party is consumer

Question 6

What should you do if there is a breach?

Answer 6

1. Has happened
   - do not affirm
   - refuse to pay / reject goods etc.
   - notify other party
2. Anticipatory breach
   - can affirm and wait until performance is due
   - can terminate and notify other party

Question 7

When are damages recoverable?

Answer 7

Remoteness
- fairly, reasonably arises naturally from breach, or
- in reasonable contemplation of both parties as probable result of breach at time contract was entered.

Causation (effective cause)
- broken by intervening event that could not reasonably have been expected,
- two effective causes of loss, breaching party still liable

Question 8

What are liquidated damages and penalty clauses? When are they enforceable?

Answer 8

Liquidated damages clause
- if set amount
- valid if genuine pre-estimate of loss
- enforceable without proof

Penalty clause
- penal in nature and normally struck out by court
- if viewed as extravegant, unconcionable or exorbitant
- Party trying to rely on it must prove that clause protects a legitimate business interest and that the charge is proportionate to protect that interest (must be compensatory)

Question 9

If there is a guarantee, is it effective?

Answer 9

1. Must be in writing
2. Not if obligations have been varied or discharged

Question 10

What rights do consumers have in relation to defective products?

Answer 10

• Right to reject defective goods within 30 days after they were supplied, for full refund
• If consumer does not reject goods in period, right to require trader to repair or replace them at their expense
• If repair or replacement is not successful, too expensive or cannot be carried out within a reasonable time and without causing the consumer significant inconvenience, a right to require the trader to reduce the price or to reject the goods in return for a refund (subject to deduction for any use that the consumer has made of them)

Question 11

What is the effect of terminating a contract?

Answer 11

Condition
- terminates