W9 Damages and Remedies Flashcards
(34 cards)
What are liquidated damages?
Any contractual clause prescribing financial consequences
When does Makdessi apply?
Test to establish enforceability of penalty clauses.
Applies if triggered by a breach of contractual obligation
e.g. If you fail to do X, then £Y penalty.
Not a penalty if it’s not triggered by a breach of obligation
What is the Makdessi test?
1) Is it a penalty clause? i.e. is paying out a secondary obligation in response to a failure?
2) Is the clause proportionate to the legitimate interest being protected?
Note: not concerned with amount of penalty vs amount of actual loss sustained
The Makdessi Case
Facts: Breach of a non-compete clause with a penalty - lost the right of future payment under that contract. SC established that if the detriment of the contract maker is proportional to the legitimate interest of the other party, then valid. Holistic view. Even if penalty is greater than greatest possible loss, then allowed as long as there’s a legitimate interest to be protected.
Significance: Enforceability of liquidated damage/penalty clauses
What are the types of unliquidated damages?
Expectation - what benefit did you expect to get?
Reliance - what costs have you already incurred?
Restitution - if you suffered no loss, but someone unjustly received a win
Examples of expectation loss?
Difference in value
Loss of profit or bargain
Loss of chance - Chaplin v Hicks
Loss of reputation - Malik v BCCI
Loss of amenity - Ruxley v Forsythe
Cost of cure
Examples of reliance loss?
Cost of cure (depends)
Wasted expenditure, including pre-contracted expenses - Anglia TV vs Reed
Ruxley v Forsythe
Facts: Forsythe had a house and land, wanted a swimming pool. Contracted a company to build a pool. Agreed specs, including depth - 7’ 6”. Price was £20k. Swimming pool was built 6’ 9” deep. Cost of cure was £21.5k. Difference in value was £0. Court was reluctant to award the £21.5k as they didn’t think he’d actually spend it on rectification. Court also felt the benefit of fixing the problem was disproportionate to the cost of realizing the benefit - the extra few inches weren’t worth £21.5k. Court awarded £2.5k to reflect the fact that he’d suffered a breach of contract - similar to an expectation cost.
Significance: Example of loss of amenity in lieu of cost of cure.
What are expectation-based damages?
They put you in the position you would be in if the contract had been performed correctly
What are reliance-based damages?
They put you in the position you would be in had you never contracted at all
Rules on reliance vs expectation damages?
Unfettered choice between reliance and expectation
Can’t claim damages for just a bad deal - C&P Haulage v Middleton
Cannot claim expectation damages if expectation was too speculative - McRae v Commonwealth Disposals
C&P Haulage v Middleton
Facts: Garage being rented as an office. Contract said if any work was done on garage, then whatever was done gets left behind with no compensation. Claimant had installed power, walls, etc, but then were wrongfully evicted. No expectation loss, so had to sue for reliance loss. Court ruled they were in no worse position, it was just a bad deal.
Significance: Damages - can’t use them to get out of a bad deal
Anglia TV v Reed
Facts: Reed was an actor who pulled out at the last minute. Studio wasn’t able to get a replacement in time, had to cancel the production. Successfully claimed for wasted expenditure - including amount on engaging the actor, but also production costs like costumes, scriptwriting, etc
Significance: Damages - wasted expenditure can include pre-contracted expenses
McRae v Commonwealth Disposals
Facts: Salvage ops. Couldn’t recover full expectation of contract as uncertain how much oil was salvageable.
Significance: Damages - expectation loss - can’t be too speculative
Esso v Niad
Facts: Esso were running a price watch scheme to ensure local garages could maintain low, competitive prices. Niad were creative in how they reported this to Esso to get an additional profit. Claim for restitution succeeded due to broader public interest point on ensuring just, fair competition.
Significance: Example of restitution
Chaplin v Hicks
Facts: Beauty contest, winner was sleeping with judge.
Significance: Damages - example of loss of chance. Only valid when loss is calculable.
Malik v BCCI
Facts: Very unethical bank, eventually collapsed. The ethical employees sued what was left of the bank for loss of reputation - Malik couldn’t get a job because he had worked for BCCI. Court ruled employment contracts have an implied term of trust and confidence which was in breach.
Signficance: Example of loss of reputation
What are the limiting factors for damages?
Causation - lack of link between cause and loss/novus actus interveniens - Lambert v Lewis
Remoteness - unforeseeable risk
Mitigation - no obligation, but failure to do so is considered
What are the non-financial remedies?
Specific performance
Injunction
Rescission
Rectification - correcting the contract
Lambert v Lewis
Facts: Sale of a tractor part. Part was faulty, trailer detached and caused an accident. Normally the manufacturer would be liable, however the farmer knew the part was defective and chose to use it anyways, which broke the chain of causation.
Significance: Example of novus actus breaking chain of causation - no damages
What is the remoteness test?
1) You can show loss was one that would arise in the normal course of things (objective);
2) If not the normal course of things, you need to show the loss was in reasonable contemplation of the parties at the time of contracting (subjective).
Technically alternatives but good practice to deal with both.
Authority: Hadley v Baxendale
Hadley v Baxendale
Facts: Claimant owned a flour mill. Main mill shaft broke and needed replacing. Old mill shaft had to be used as a template for the new one. Contracted with Pickford delivery company to take the old mill shaft to the person building the new one. Courier company was late - breach of contract. Mill couldn’t operate for a longer period of time, sued for loss of profits. Courier company agreed causation, but argued too remote as they expected there to be a spare mill shaft. Dicter of the case was that remoteness required claimant to show the loss was not too remote in one of two ways: 1) You can show loss was one that would arise in the normal course of things; 2) If not the normal course of things, you need to show the loss was in reasonable contemplation of the parties at the time of contracting.
Significance: Source of remoteness test
Victoria Laundry v Newman Industries
Facts: Newman installing boilers for the expanding laundry. There was a delay in installation, laundry suffered a loss and couldn’t expand - loss an army contract as a result. Hadn’t told the boiler company about the army contract, so wasn’t contemplated at the time of contracting, so couldn’t claim for the value of the contract
Significance: Remoteness - example of only contemplated by one party at time of contracting
Facts: Breach of a non-compete clause with a penalty - lost the right of future payment under that contract. SC established that if the detriment of the contract maker is proportional to the legitimate interest of the other party, then valid. Holistic view. Even if penalty is greater than greatest possible loss, then allowed as long as there’s a legitimate interest to be protected.
Significance: Enforceability of liquidated damage/penalty clauses
The Makdessi Case
