REMEDIES PT 2
Law of Contract
DL2
Learning outcomes
■ Upon completion of the topic, the student will be able to:
1. State the various remedies covered in this chapter – damages,
specific performance and injunctions.
2. State the purpose and measure of damages.
3. Discuss non-compensatory damages, limitations on recovery.
4. Discuss specific performance and injunctions.
5. Apply knowledge to factual scenarios.
DAMAGES
Introduction
■ In general terms every breach of contract entitles the
injured party to claim damages for the loss caused by the
breach.
■ Purpose of damages: to put the injured party in the position,
as far as money can, they would have been in but for the
breach of contract. But how do the courts measure this
loss? Two measures used –
1. The measure that protects expectation interests; or
2. The measure that protects reliance interests.
■ However, note that not all losses are recoverable, and two
devices limit an award of damages –
1. Remoteness – there can be no recovery of losses that are
too remote, i.e. losses which are not foreseeable;
2. Mitigation – a party cannot recover damages for a loss that
he could have reasonably avoided.
■ Also note that a generally speaking a party cannot recover
for losses that are non-financial e.g. injured feelings,
distress as a result of breach of contract).
The purpose of an award of damages.
■ The purpose of damages is to compensate the injured party and not to
punish the party in breach (Robinson v Harman (1848; also see Lord
Scott in Farley v Skinner [2001]*). Punitive damages are not available
in English law for a breach of contract even where the defendant
deliberately breached the contract.
■ Lord Scott: “The basic principle of damages for breach of contract is
that the injured party is entitled, so far as money can do it, to be put in
the position he would have been in if the contractual obligation had
been properly performed. He is entitled, that is to say, to the benefit of
his bargain.”
■ Time of assessment: damages are normally assessed at the
time of breach (Johnson v Agnew (1980) although this is not
an inflexible rule; see the Golden Strait Corporation v
Nippon Ysen Kubishika Kaisha, The Golden Victory (2007) –
in exceptional cases damages will be reduced where it was
proven that, between the date of the breach and the time of
trial, certain events occurred which would have inevitably
reduced the damages that the claimant could have
recovered in respect of its loss.
Two
measures of
damages
■ How is the claimant’s loss to
be measured? There are two
possible bases for assessing
damages:
1. The expectation loss, and
2. The reliance loss.
■ This is the basic measure, sometimes called the ‘contractual measure
of damages’ (Nykredit plc v Edward Erdman (1997)). This loss is
summarised in Robinson v Harman (1848): “the rule of common law
is, that where a party sustains loss by reason of a breach of contract,
he is, so far as money can do it, to be placed in the same situation,
with respect to damages, as if the contract had been performed.’
■ An award based on the claimant’s expectation interest is
compensation for the loss of a bargain. The claimant may thereby
obtain the profits he would have received had the contract been
performed.
(i) Expectation loss
■ One issue in deciding expectation is whether the expectation should give you the
‘cost of cure’ or the difference in value. In situations where the defendant does not
perform the contract, or performs it badly, the claimant is generally entitled to the
cost of cure – this is the amount required to pay a third party to perform what was
stipulated in the contract.
■ However, where the cost of the cure is wholly disproportionate to any benefit which
would be received (where there is little difference in value between the value of the
thing contracted for and the thing received), the courts will not award the cost of
cure. In this situation, the courts may award the difference in value, but very often
there is no difference in value. See Ruxley Electronics v Forsyth (1995) for a case
where the cost of cure far exceeded the original contract price.
Issue: ‘Cost of cure’
■ Loss of a chance can also form the basis of a claim for loss
of expectation; Chaplin v Hicks (1911). The calculation of
such damages will often be speculative.
Issue: ‘loss of a chance’.
(ii) Reliance loss
■ Sometimes it may not be appropriate to measure the
claimant’s loss on the basis of his expectations (Anglia
Television v Reed (1972)). Thus, there is an alternative
basis i.e. reliance loss or the loss of expenditure. This
basis is used when the claimant is unable to prove that a
financial benefit would accrue to it had the contract been
performed; see Anglia’s case.
■ Note: the claimant is the party who decides whether to
seek his reliance loss or his expectation loss (CCC Films v
Impact Films (1984)). But note that the claimant cannot
seek to recover his reliance losses where this would have
the effect of allowing him to escape the consequences of a
bad bargain (C & P Haulage Co Ltd v Middleton (1983);
Omak Maritime Ltd v Mamola Challenger Shipping (2010)).
Non-pecuniary loss
■ These are non-financial losses – loss caused by anxiety, mental
distress and hurt feelings. The law in this area is changing.
■ Starting point: Addis v Gramaphone Co Ltd (1909).
■ Note that the courts have adopted a more relaxed approach to Addis
by creating numerous exceptions to Addis (see next slide).
■ Where the provision of a non-pecuniary gain, such as pleasure, is an
important, but not necessarily the only, object of the contract
(contracts for the provision of holidays; Jarvis v Swan Tours (1973));
■ Where the avoidance of non-pecuniary loss, such as mental distress,
is an important, but not necessarily the only, object of the contract;
e.g. Farley v Skinner (2001), Hamilton Jones v David Snape (A Firm)
(2003);
■ Where a claimant suffers ‘physical inconvenience’ e.g. Hobbs v
London and South Western Rly Co (1875);
■ Where the distress or discomfort was directly consequential on
physical discomfort; Watts v Morrow (1991);
■ For loss of ‘amenity’ (see Ruxley’s case).
REMOTENESS OF
DAMAGE
Remoteness
■ Even if the claimant establishes that his loss was caused by the defendant’s
breach, damages cannot be recovered for this loss where the loss is held to
be too remote.
■ Hadley v Baxendale (1854). It is sometimes stated that there are two limbs
to the test of remoteness in Hadley.
❖ The first limb (that is to say the first way in which damages will be
foreseeable) is those damages which may reasonably be considered as
arising naturally – those damages which arise in the ‘usual course of things’
as a probably result of the breach of contract.
❖ The second limb deals with the situation where there are exceptional
circumstances, i,e. if the contract is breached, then the consequences of the
breach will be particularly severe because, for example, an especially
lucrative opportunity will be lost.
What is within the ‘reasonable
contemplation’ of the parties?
■ The courts have struggled to define what is within the
reasonable contemplation of the parties.
■ Victoria Laundry (Windsor) v Newman Industries (1949), The
Heron II (1969), H Parsons (Livestock) v Uttley Ingham
(1978).
■ A significant problem in the application of the two-limbed test in
Hadley v Baxendale is the determination of when a particular loss is
within the contemplation of the parties. The uncertainty which
surrounds the resolution of this problem has in some respects been
increased by the decision of the HL in Transfield Shipping Inc v
Mercator Shipping Inc (The Achilleas) (2008).
■ How can we resolve the (apparent) conflict between the approaches of
Hadley and The Achilleas? A composite position where the traditional
Hadley approach will apply generally but the new Achilleas approach
will be used in novel or difficult cases (Supershield Ltd v Siemens
Building Technologies FE Ltd (2010)).
MITIGATION OF
DAMAGE
■ Mitigation is another factor which can limit the damages of a claimant. There
is a duty to mitigate on the claimant’s part.
■ Two elements to the duty –
a) To avoid increasing loss; and
b) To act reasonably to reduce loss.
■ The basic duty is stated by Viscount Haldane in British Westinghouse Electric
Co Ltd v Underground Electric Railways Company of London Ltd (1912): “The
fundamental basis is thus compensation for pecuniary loss naturally flowing
from the breach; but this first principle is qualified by a second, which
imposes on a plaintiff the duty of taking all reasonable steps to mitigate the
loss consequent on the breach, and debars him from claiming any part of
the damage which is due to his neglect to take such steps.”
■ Note: the claimant only needs to act reasonably (Wroth v
Tyler [1974], Lagden v O’Connor [2003].
END.