Objective Notes: W300 – Agreements, rights & responsibilities
UNIT 23 - MANUAL THREE
DAMAGES FOR BREACH
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How damages for breach are awarded
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Aim = compensate A, not punish B & losses embrace harm to A’s person/
property & injury to economic position so may claim where suffers PI,
goods damaged & loss of profit plus consequential losses;
Claims normally on expectation basis - as far as money can so do, A to be
placed in same situation, by damages being awarded, would have been in if
contract had been performed (Robinson v Harman (1848)), being either (i)
difference in value between what A actually received & what should have
received or (ii) cost of putting A in position should have been in (cost of
cure) but courts also deal with situations where value of B’s promise to A >
A’s financial enhancement if contract had been properly perf – e.g. loss of
amenity/ consumer surplus despite valuation difficulties (Ruxley Electronics
& Construction Ltd v Forsyth [1996]);
Alternatively reliance basis – damages awarded to place A in position would
have been had contract never been made to cover wasted expenditure
including necessarily incurred pre-contract (Anglia Television Ltd v Reed
[1972]) &, whilst normally selected when not possible to prove what profit
would have been had B perf, court may decide reliance correct (McRae v
Commonwealth Disposal Commsn [1951]) but courts can reject where bad
bargain meant expenditure already wasted (C & P Haulage v Middleton
[1983]);
Despite assessment difficulties courts may award damages for lost
opportunity even where uncertain A would have won (Chaplin v Hicks
[1911]);
Traditionally, recovery for mental distress not recoverable (Addis v
Gramophone Co Ltd [1909]) but courts may award for injury to reputation
(Malik v Bank of Credit & Commerce International SA [1997]), mental
distress/ disappointment where contract provides holiday/ entertainment/
enjoyment (Jarvis v Swan’s Tours [1973]), where breach causes physical
inconvenience/ discomfort & directly related mental suffering (Watts v
Morrow [1981]) & where disappointment results from losing pleasurable
amenity important to buyer’s pleasure/ relaxation/ peace of mind (Farley v
Skinner [2002]);
Remoteness –
o By Hadley v Baxendale (1854), losses must be either Limb 1: arising
naturally which are inevitably within both parties reasonable
contemplation or Limb 2: unusual which only within contemplation if
special circumstances giving rise in contemplation when contract made
- def must have been told when contract made as such knowledge may
affect terms so where acquired, post-contract formation, claimants
cannot rely on it;
o Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] held
may recover losses reasonably foreseeable at time contract made (NB:
use of reasonable foreseeability equates contract rule with tort) & def’s
knowledge either imputed (that which reasonable persons are assumed
to have) or actual - under Limb 1, such knowledge imputed (i.e. def
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Objective Notes: W300 – Agreements, rights & responsibilities
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taken to know of it) but under Limb 2 too remote unless def has actual
knowledge of special circumstances;
o But in The Heron 11 [1969], use of reasonable foresight disapproved –
contract test is stricter contemplation basis since A aware who B is &
has opportunity to point out special circumstances so can ensure
recovery in unusual situations by bringing them to B’s attention before
making contract;
o Where def contemplates loss type being serious possibility, all such
losses recoverable even if extent not foreseeable (Parsons (Livestock)
Ltd v Uttley Ingham Ltd [1978]).
There is duty to mitigate – to ensure losses are kept to minimum & where A
could have avoided losses by taking reasonable steps but fails so to do,
cannot recover damages for these & where B makes reasonable performance
offer, A fails to mitigate if refuses to accept so general rule = (i) reasonable
offers from B should be accepted, subject to specific facts involved but
where personal service an element, unreasonable to expect A to consider
offers from B who has grossly injured him; & (ii) where alleged that A failed
to mitigate burden of proof of establishing this on B (Payzu Ltd v Saunders
[1919];
Where reasonable mitigation steps increase A’s loss, can recover cost of
measures & claim not fail just because def suggests others less burdensome
to him could have been taken (Banco de Portugal v Waterlow & Sons Ltd
[1932]);
Damages assessed as at time of breach & where supervening events cause
damage greater than original breach, claimant cannot recover losses would
have suffered if event had not occurred so tort principles apply – where there
is intervening event which breaks causation chain, no direct link between
original breach & actual loss so def not then liab (Beoco Ltd v Alfa Laval
Co Ltd [1994]);
Damages reduced by contrib. neg where contractual duty to take care is
breached, provided breach also = tort – i.e. concurrent liab (Henderson v
Merrett Syndicates) - e.g. where def breaches s.13 SOGSA implied skill/ care
AND liab in tort for Neg but where contractual liab strict, claimant’s contrib.
neg not reduce & no deductions made to reflect his contrib. towards losses
(Barclays Bank Plc v Fairclough Building Ltd [1995].
Liquidated clauses/ penalty clauses
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Parties free to specify amount of compensation payable if contract broken helps provide certainty since shows what payable/ receivable on breach &
where both parties content to abide by such clauses, litigation costs avoided;
Where genuine attempt to pre-estimate loss likely caused by breach =
binding specified damage/ liquidated damages clauses & sum specified paid,
irrespective of actual loss, so remoteness, measure of damages or mitigation
rules not apply & innocent party may receive more or less than actually lost
but sum specified crucial so where clauses are not genuine pre-estimate loss
attempts = penalty clauses normally designed to put pressure on parties to
perform & are void/ unenforceable – courts free to assess damages, as if
clause not there, applying normal rules;
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Objective Notes: W300 – Agreements, rights & responsibilities
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Whilst prima facie parties mean what say, wording used not conclusive,
clause may still be specified damages clause even where impossible to
precisely pre-estimate losses & as guideline, clauses presumed penal where
(i) sum specified > greatest possible loss; (ii) larger sum payable after nonpayment of smaller sum; or (iii) single lump sum payable on occurrence of
one or more of several events of which some may cause serious harm but
others only minor (Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor
Co Ltd [1915]);
Where hypothetical situations showed sums payable might be out of
proportion to actual losses, normally insufficient evidence that clause penal,
& should be determined by looking at what was parties’ intentions at time
contract was made but also important to look at what had actually happened
since produces valuable evidence of what could be reasonably be expected to
be losses pre-supposed at time contract made- what actually happened was
better guide than hypothetical examples (Philips Hong Kong Ltd v A-G
Hong Kong [1993]);
Where clauses provide payments for events not constitute breach, cannot be
held void as penalty clauses (Alder v Moore [1967]);
Deposits not penal & are irrecoverable unless court decides sums paid not
true deposits &, if so, entire sum (less any damages caused by breach) to be
repaid since court will not re-write contract – will not insert reasonable sum
which def may retain (Workers Trust & Merchant Bank Ltd v Dojap
Investments Ltd [1993]);
Where pre-payment deemed part payment, general rule = party in breach
may recover (Dies v British International Mining & Finance Co [1939])
unless def incurred expenditure in which case, breaching party may not be
able to recover (Hyundai Shipbuilding & Heavy Industries Ltd v
Papadopulos [1980]).
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