13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
135
DAMAGES FOR BREACH OF CONTRACT
FOR SALE OF GOODS
Introduction
In this article, the writer seeks to examine some common issues in the
assessment of damages where there is a breach of a contract for the sale
of goods.
Together with the general law on the sale of goods, the law relating to
damages in such contracts has been codified in the Sale of Goods Act1 .
Sections 50, 51, 53 and 54 which contain the relevant law form the starting
point in considering damages for various types of breach, but since the
statute consists of a codification of the common law, the bulk of the
material remains case law. However, in so far as the guidance offered by
precedents is concerned, the following observations by Warren LH Khoo
J, in delivering the judgment of the Singapore Court of Appeal in Hong
Fok Realty Pte Ltd v Bima Investment Pte Ltd 2 should be noted:
“It must be borne in mind ... that the ascertainment of damages is
an exercise to establish a question of fact, that is, what loss and
damage have been suffered by the plaintiff in the particular case
before the court, and to award him damages ascertained according
to these principles. Decided cases are useful more for the principles
they enunciate, than for the result of the application of the
principles.”
Remoteness of Damages and Measure of Damages
As Andrew Phang said in his book3:
“In the ultimate analysis a claim for damages raises two distinct
questions. ... These emerge from the fundamental principle that the
remoteness of the damage for which compensation is claimed must
be distinguished from the monetary assessment of that compensation.
The first is: for what kind of damages is the plaintiff entitled to
recover compensation? ...
To this end Hadley v Baxendale4 defined the kind of damage that is
the appropriate subject of compensation, and excluded all other kinds
as being too remote. The decision was concerned solely with what
1
2
3
4
Cap. 393, 1994 Ed (which is in pari materia with the U.K. Sale of Goods Act 1979).
[1993] 1 SLR 73, at 80.
Entitled Cheshire, Fifoot and Furmston’s Law of Contract, Singapore & Malaysian
Edition, Butterworths, 1994 at 848, 849.
(1854) 9 Ex 341.
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is correctly called remoteness of damage, and it will conduce to
clarity if this expression is reserved for cases where the defendant
denies liability for certain of the consequences that have flowed from
his breach.
The second question, which must be kept quite distinct from the
first, concerns the principles upon which damage must be evaluated
or quantified in terms of money. This may appropriately be called
the question of the measure of damages. The principle adopted by
the courts in many cases dating back to at least 1848 is that of
restitutio in integrum. If the plaintiff has suffered damage that is
not too remote, he must be restored to the position he would have
been in had that particular damage not occurred.”
Alderson B stated the rule that governs remoteness of damage as follows
in delivering the judgment of the Court of Exchequer in Hadley v
Baxendale5:
“Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in
respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, that is, according
to the usual course of things, from such breach of contract itself, or
such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract,
as the probable result of the breach of it.”
In this case, the plaintiffs were the millers of a mill and had entered into
a contract of carriage with the defendant, a common carrier. The
defendant was to deliver the plaintiffs’ broken crank shaft to the makers
as a pattern for a new one. The plaintiffs claimed damages for loss of
profit caused by a delay by the defendant.
Alderson B demonstrated that, in accordance with the principle he had
just expressed, there were only two possible grounds upon which the
plaintiffs could sustain their claim. Firstly, that in the usual cause of things
the work of the mill would cease altogether for the want of the shaft.
This, he said, would not be the normal occurrence, for, to take only one
reasonable possibility, the plaintiffs might well have had a spare shaft in
reserve. Secondly, that the special circumstances were so fully disclosed
that the inevitable loss of profit was made apparent to the defendant.
This however was not the case since the only communication proved was
that the article to be carried was the shaft of a mill and that the plaintiffs
were the owners of the mill.
The words “either” and “or” used in the formulation of the rule as
explained by Alderson B show that it contains two branches. The first
5
Ibid, at 354.
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Damages for Breach of Contract for Sale of Goods
137
deals with the normal damage that occurs in the usual course of things;
the second with abnormal damage that arises because of special or
exceptional circumstances.6
Asquith LJ in what is generally regarded as a classic exposition of the
law reformulated the test of remoteness of damage laid down by Alderson
B in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd7 . He
summarised the substance of the test in the following three propositions:“In cases of breach of contract, the aggrieved party is only entitled
to recover such part of the loss actually resulting as was at the time
of the contract reasonably foreseeable as liable to result from the
breach.
What was at that time reasonably so foreseeable depends on the
knowledge then possessed by the parties or, at all events, by the
party who later commits the breach.
For this purpose, knowledge ‘possessed’ is of two kinds; one imputed,
the other actual. Everyone, as a reasonable person, is taken to know
the ‘ordinary course of things’ and consequently what loss is liable
to result from a breach of contract in that ordinary course. This is
the subject matter of the ‘first rule’ in Hadley v Baxendale. But to
this knowledge, which a contract-breaker is assumed to possess
whether he actually possesses it or not, there may have to be added
in a particular case knowledge which he actually possesses of special
circumstances outside the ‘ordinary course of things’, of such a kind
that a breach in those special circumstances would be liable to cause
more loss. Such a case attracts the operation of the ‘second rule’ so
as to make additional loss also recoverable.”8
In this case the facts were as follows:
The plaintiffs, launderers and dyers, decided to extend their business.
For this purpose and for the purpose of obtaining certain dyeing contracts
of an exceptionally profitable character, they required a larger boiler.
The defendants, an engineering firm, contracted to sell and deliver to
the plaintiffs on 5 June a certain boiler of the required capacity. This
however was damaged in the course of removal and was not delivered
until 8 November. The defendants were aware of the nature of the
plaintiffs’ business and they were informed in more than one letter before
the conclusion of the contract that the plaintiffs were “most anxious” to
put the boiler into use “in the shortest possible time.”
6
7
8
This sentence was cited with approval in the Singapore High Court decision of Fazlur
Rahman v Bombay Trading Co (Pte) Ltd [1993] 1 SLR 440, at 447.
[1949] 2 KB 528.
Ibid, at 539.
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In an action for breach of contract, the plaintiffs claimed (a) damages
for the loss of profit, assessed by them at sixteen pounds a week, that
they would have earned through the extension of their business but for
the delay in delivery of the boiler, and (b) damages, assessed at two
hundred and sixty two pounds a week, for the loss of the exceptional
profits that they would similarly have earned on the highly lucrative dyeing
contracts.
In the opinion of the Court of Appeal, the defendants, with their
engineering experience and with the knowledge of the facts possessed by
them, could not reasonably contend that the likelihood of some loss of
business was beyond their prevision. They were indeed ignorant that the
plaintiffs had in prospect the “highly lucrative” dyeing contracts and so
could not be liable specifically for the “highly lucrative” profits that the
plaintiffs had hoped to make. However the plaintiffs were not precluded
from recovering a general sum which might represent the normal profit
to be expected from the completion of the dyeing contracts.
In The Heron II9, however, the House of Lords differed from the
judgment of Asquith LJ with regard to the criterion by which to determine
the remoteness of damage arising from a breach of contract. They stated
that the question is not as Asquith LJ said, whether the damage should
have been foreseen by the defendant but whether the probability of its
occurrence should have been within the reasonable contemplation of both
parties at the time when the contract was made, having regard to their
knowledge at that time.
What is the degree of probability required and how is it to be defined?
Asquith LJ said:
“In order to make the contract-breaker liable under [Hadley v
Baxendale] it is not necessary that he should have actually asked
himself what loss is liable to result from a breach. ... It suffices that
if he had considered the question he would as a reasonable man
have concluded that the loss in question was liable to result ... Nor
... to make a particular loss recoverable, need it be proved that
upon a given state of knowledge the defendant could, as a reasonable
man, foresee that a breach must necessarily result in that loss. It is
enough if he could foresee it was likely so to result. It is indeed
enough ... if the loss (or some factor without which it would not
have occurred) is a ‘serious possibility’ or a ‘real danger.’ For short
we have used the word ‘liable’ to result. Possibly the colloquialism
‘on the cards’ indicates the shade of meaning with some approach
to accuracy.”10
9 [1969] 1 AC 350.
10 [1949] 2 KB at 540.
13 S.Ac.L.J.
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In The Heron II11 their Lordships unanimously rejected the use of the
phrase “on the cards.” However they could not agree upon a suitable
substitute. Lord Reid distrusted the expression “liable to result” and
preferred “not unlikely” or “quite likely” to happen. Lord Hodson
disapproved of “likely to result” and preferred “liable to result” the phrase
which Asquith LJ had suggested. Lord Upjohn was content to adopt the
phrases “a real danger” or “a serious possibility.” If indeed a single phrase,
must be chosen, “liable to result” seems to have secured the most general
assent.
It is questionable whether this exercise in semantics is of any great value.
As Lord Upjohn said in the House of Lords, “the assessment of damages
is not an exact science,”12 and it may be added that the search of such an
elusive quantity as a person’s assumed contemplation can scarcely be
governed by any particular formula. This is an unsatisfactory case.
Foreseeability is certainly important because prices are fixed on the basis
of a foreseeable outcome; it would therefore generally be unjust to impose
liability for unforeseen consequences. But it does not follow that it is
always just to impose liability for foreseeable consequences. Whether this
is just may well depend to some degree on the nature of the contract
and on whether the price of the goods in question is likely to be affected
by the foreseeable consequences of breach. In a contract for sale of goods,
the price of the goods will normally reflect the scarcity value of those
goods. In the Victoria Laundry case the sellers were selling a boiler for
laundry use at a time when laundries were in great demand; plainly this
fact would have affected the price at which the boiler was sold; and it
was therefore reasonable to treat the seller as liable for the lost profits
arising from his delay in delivering the boiler. But in The Heron II the
defendants were shipowners and the service they were selling was that of
carriage of goods. Freight charges for the carriage of goods would not
normally be affected by the value or scarcity of the goods being carried
because these facts do not affect supply and demand of shipping space.
Therefore a shipowner would not increase his freight charges to cover
the additional risk of lost profits arising from fluctuations of market price
in the goods which he carries. Nor does it seem desirable that he should
be required to do so, because he does not have or profess the knowledge
of relevant market conditions to enable him to gauge this additional risk
accurately; nor would it be economically efficient for a shipowner to adjust
his freight charges to the particular market conditions of the goods he
carries. The Heron II is an illustration of serious deficiencies in the
sophistication of common-law courts in dealing with what are, at least,
partly economic issues.
11 Supra, n 9.
12 Ibid, at 425.
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Another case takes this principle to what are surely unacceptable
extremes. In H Parsons (Livestock) v Uttley Ingham & Co Ltd13 the
defendants supplied and installed a large hopper for holding animal
foodstuffs for the plaintiff, a pig farmer. The defendants unfortunately
left closed a ventilator at the top of the hopper (which could not be seen
from the ground) with the result that some of the food became mouldy.
The pigs became ill and later a much more serious pig disease was
triggered off by this first disease and many of the pigs died. The farmer
recovered substantial damages for all his lost and deceased pigs on the
basis that they were foreseeable results. There does seem to be an air of
unreality about the foreseability test in cases of this nature. In one sense
everything that happens (except perhaps for voluntary human action)
occurs according to the laws of the physical universe and in so far as
these are known, virtually any result is foreseeable as possible from a
base which supposes knowledge of the initial breach of contact. Thus the
only consequences that come to be regarded as unforeseeable are those
where the train of events has been interrupted by conscious human
interventions. This seems to go much too far. It would be more sensible
in a case of this nature to ask whether losses from pig disease ought to
be treated as part of the risks of farming, or of the manufacture and sale
of animal food hoppers.
This case shows the difficulties in this field have not been laid to rest.
Lord Denning MR thought that as Hadley v Baxendale, the Victoria
Laundry case and The Heron II all dealt with loss of profits, they could
be regarded as laying down a principle applicable only where breach of
contract led to economic loss and that where it led to physical loss, the
same test as in tort, i.e. that of foreseeability should apply. The distinction
between economic and physical loss is itself difficult to apply. Scarman
LJ rejected this distinction and found for the plaintiffs on the ground
that it was within the party’s contemplation that the pigs would have
upset stomachs as a result of eating mouldy nuts and that what happened
was simply a more extensive example of a contemplatable loss. Scarman
LJ’s view places a heavy burden on the distinction between type and
extent of loss. None of the judgments explain why, if any illness to feed
the pigs were contemplatable, the plaintiffs were not at fault in continuing
to feed the nuts to the pigs.
In spite of all the difficulties highlighted above it is submitted that the
two branches of Hadley v Baxendale provide the basic principle to the
question: for what kind of damage is the plaintiff entitled to recover
compensation or the question of remoteness of damage. It is impossible
to answer the question in general for just as contracts vary infinitely in
character so also do the types of loss that their non-performance normally
causes. The nature of the damage that ensues in the usual course of things
from a breach varies with the circumstances of each contract.
13 [1978] QB 791.
13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
141
We turn now to the measure of damages. The principle here is to effect
a restitutio in integrum so far as the actionable damage is concerned.
1. Non-delivery
The measure of damages for non-delivery of goods sold is prescribed by
Section 51 of the Sale of Goods Act. Section 51(2) provides that “the
measure of damages is the estimated loss directly and naturally resulting,
in the ordinary course of events, from the seller’s breach of contract.”
Section 51(3) provides that “where there is an available market for the
goods in question, the measure of damages is prima facie to be ascertained
by the difference between the contract price and the market or current
price of the goods at the time or times when they ought to have been
delivered, or, if no time was fixed, then at the time of the refusal to
deliver.”
To this, Section 54 adds that nothing in the Act shall affect the buyer’s
right to recover interest or special damages where by law recoverable.
Section 51(2) is framed in terms of the first rule in Hadley v Baxendale,
excluding the element of the defendant’s knowledge of special
circumstances; section 51(3) states the normal measure of damages under
the first rule; section 54 brings in the second rule in Hadley v Baxendale
and will in appropriate cases displace section 51(2) and (3) and allow
increased damages.
The normal measure of damages as stated in section 51(3), thereby
incorporating the common law as stated in Barrow v Arnaud 14 , is the
market price of the goods at the contractual time for delivery less the
contract price, since this represents the amount that the buyer must obtain
to put himself in the position he would have been in had the contract
been carried out. For to put himself in such a position he must go into
the market and buy equivalent goods; even if he does not choose to rebuy
in the market his loss will remain the same. If therefore there is no
difference between the contract and the market prices, the buyer will
have lost nothing and the damages will be nominal.
In Bulsing Ltd v Joon Seng & Co15 Chua J elaborated upon Section 50,
subsections (2) and (3) (dealing with damages for non-acceptance of
goods) which are similar to Section 51, subsections (2) and (3):
“In my opinion the general rule in the case of breach of contract is
that the plaintiff by way of damages, is entitled to be put in the
same position as he would have been in if the contract had been
completed. Subsections (2) and (3) ... give the measure of general
damages and the measure of damages laid down in subsection (3) is
14 [1846] 8 QB 595, at 609-610.
15 [1972] 2 MLJ 43, at 45.
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not to be applied in cases where it is not appropriate to achieve the
result required by subsection (2), for example, in the case where
the plaintiff is a dealer in the particular goods sold. In such a case,
what ensues from the breach in the usual course of things is that
the plaintiff loses the profit that he would have made had the sale
to that particular buyer been completed and he is entitled to be
recompensated (sic) for that loss. It is no answer to say that he has
sold, or may readily sell the goods to another person, for even if he
has been successful the fact remains that he has profited from one
sale instead of two.”
2.
Delayed Delivery
No rule is prescribed by the Sale of Goods Act for the measure of
damages where the goods sold are delayed and ultimately accepted by
the buyer after the delay. The consequential losses are much the same as
in non-delivery but the normal measure of damages is necessarily quite
different and is indeed more in line with the normal measure for breach
of warranty.
The normal measure of damages is the market value at the contractual
time for delivery less the market value at the time of actual delivery
since this represents the amount that will put the buyer into the position
he would have been in had the contract been carried out.
The price at which the buyer has resold the goods to a third party may
be taken as evidence of their value at the time of actual delivery where
this is difficult to assess; authority can be sought in the equivalent breach
of warranty cases. If the resale price is lower than the market value at
delivery it cannot be relied on by the buyer to augment his damages. Yet
in the converse situation where the resale price was higher than the market
value at delivery, it was held to control in Wertheim v Chicoutimi Pulp
Co.16
This was a case where the seller made late delivery of a quantity of wood
pulp bought by the buyer at 25s a ton. The market price of the pulp was
70s a ton at the port of delivery on the date fixed for delivery (that was
September/November), but by the time of the actual delivery in the
following June, the market price had fallen to 42s 6d a ton. Under various
sub-sales the buyer was able to fulfil these sub-contracts and when he
sued the original seller for damages for late delivery, the Privy Council
assessed them as the difference between (a) the market value at the port
of delivery at the due date for delivery and (b) the actual price obtained
on their resale. The Privy Council held that the sellers could rely on the
sub-sales to reduce the damages.
16 [1911] AC 301.
13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
143
Lord Atkinson said:“The market value [that is, at the time of actual delivery] is taken
because it is presumed to be the true value of the goods to the
purchaser ... but if in fact the purchaser, when he obtains possession
of the goods, sells them at a price greatly in advance of the then
market value, that presumption is rebutted and the real value of
the goods to him is proved by the very fact of this resale to be
more than market value, and the loss he sustains must be measured
by that price, unless he is, against all justice, to be permitted to
make a profit by the breach of the contract, be compensated for a
loss he never suffered, and be put, as far as money can do it, not in
the same position in which he would have been if the contract had
been performed, but in a much better position.”17
This argument has been criticised by Scrutton LJ in Slater & Anor v.
Hoyle & Smith18 where the learned judge pointed out that:“The buyer was under no obligation to deliver the contract goods
on the sub-contract. If he had bought other goods and used them
for the sub-contract, he would have been left with goods delivered
at a time when the market price was 42s 6d instead of when it was
70s, and would have recovered 27s 6d. Lord Atkinson says that in
the case of non-delivery the price at which the purchaser might in
anticipation of delivery have resold the goods is properly treated,
where no question of loss of profit arises, as an entirely irrelevant
matter. It is always so treated, as I understand the law, unless the
buyer can affect the seller with such notice of the sub-contract as
makes him liable for loss by its non-fulfillment... I respectfully think
that all the English decisions show that a plaintiff cannot measure
the real value of what he has lost by reference to a contract peculiar
to himself, for which the defendant is not responsible, and that his
loss therefore is not measured by that price.”
Here the argument of Scrutton LJ is that the buyer was under no
obligation to deliver the contract goods on the sub-contract, and that if
he had bought other goods and used them for the sub-contract he would
have been left with the original goods on his hands so that their market
price at actual delivery would have been the relevant figure in measuring
the damages. It is submitted that in the latter scenario, a different scenario
from that in Slater’s case, the difference in value of the goods as they are
when delivered and as they ought to have been would mark his real loss
and thus the measure of damages.
17 Ibid, at 307-308.
18 [1920] 2 KB 11, at 23-24.
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Scrutton LJ was of the view that whether the resale price is higher or
lower than the market price at the date of actual delivery, the buyer’s
damages should be calculated exclusively by reference to the market price
at the due date and at the actual date, since the buyer could have bought
other goods to fulfil his obligations under the sub-contract and the market
price of the goods delivered late by the seller would then be relevant to
those goods left on his hands at that date.
Another writer, G.H. Treitel19 said:“To allow the buyers to recover 27s 6d would, it was said, enable
them to make a profit out of the breach. But this is hard to fit in
with the principles normally governing the assessment of damages.
Two possibilities exist in cases of this kind.
First, the buyer has resold the very goods comprised in the main
contract. If so he has admittedly not lost 27s 6d per ton but it is
difficult to see that he lost anything at all; he would not have been
free to sell the pulp in the market at 70s per ton as he was bound to
deliver it to his sub-buyer.
Secondly, the buyer has resold an equivalent quantity. If so, the
subsale should be disregarded. Had the pulp been delivered in
September/November, it could have then been sold to a third party
and the sub-buyer could still have been satisfied with an equivalent
quantity bought in June at 42s 6d per ton. It is improbable that the
buyer would have kept the pulp throughout this period on a falling
market. On the other hand, if (in view of the delay), the buyer had
bought other goods and used them for the sub-contract he would
have been left with the goods delivered at the time when the market
price was 42s 6d instead of when it was 70s.
Nor is it right to say that the buyer would make a profit out of the
breach of contract if he were awarded 27s 6d a ton. He would make
a profit out of the advantageous subsale.”
Further, as stated in Chitty on Contracts20 :“But the buyer was not bound to fulfil the subcontracts by delivering
the specific goods which he received under the original contract....
It is submitted that the choice of the buyer not to repurchase in the
market on the date of the breach should not benefit the defaulting
seller any more than it should harm him by increasing the damages
payable by him if the resale price is below the market price at that
date.”
19 In the book entitled “The Law of Contract” (9th Ed, Sweet & Maxwell Ltd) at 857.
20 27th Ed, 1994 (Sweet & Maxwell Ltd) in paragraph 41-300 at 1280 at footnote 91.
13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
145
For as stated below, Scrutton LJ has said that if the buyer is lucky enough,
for reasons with which the seller has nothing to do, to get his goods
through on the sub-sale without a claim against him, this on principle
cannot affect his claim against the seller any more than the fact that he
had to pay very large damages on his sub-contract would affect his original
seller.
It is submitted that Wertheim’s case was rightly decided based on the
principle that the plaintiff is to be put in the position he would have
been in if the contract had been performed but not to put him in a better
position.
3.
Breach of Warranty
The measure of damages for breach of warranty generally is prescribed
by Section 53 of the Sale of Goods Act. Section 53(2) provides that in
the case of breach of warranty of quality such loss is prima facie the
difference between the value of the goods at the time of delivery to the
buyer and the value they would have had if they had answered to the
warranty. To this, Section 54 adds that nothing in the Act shall affect the
buyer’s right to recover interest or special damages where by law
recoverable.
Section 53(3) is framed in terms of the first rule in Hadley v Baxendale
excluding the element of the defendant’s knowledge of special
circumstances; Section 53(3) states the normal measure of damages under
the first rule in the case of breach of warranty of quality, but it would
appear to be equally the normal measure for other breaches of warranty,
such as those in relation to description and fitness; Section 54 brings in
the second rule in Hadley v Baxendale, and in appropriate cases will
displace Section 53(2) and (3) and allow increased damages.
The normal measure of damages as stated in Section 53(3) is the value
of the goods as warranted less their value as they are, both values being
taken at the contractual time for delivery since this represents the amount
that will put the buyer into the position he would have been in had the
warranty been satisfied. If the value at actual delivery is nil then the
market value of the goods as warranted forms the measure of damages.
Here an interesting question is whether the subsale would be relevant in
assessing the measure of damages that the seller is liable to pay to the
buyer. In Slater & Anor v Hoyle & Smith21 , the court answered the above
question in the negative. In this case, the buyer bought cotton from the
seller in order to fulfil another contract that the buyer had already made
with a sub-buyer. The seller delivered cloth that was not up to the
contractual quality but the buyer was able to perform the sub-contract
21 Supra n 18.
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by delivering the same cloth. The sub-buyer paid the full price under the
sub-contract and then the buyer sued the seller for damages. The seller
submitted, firstly, that the resale price should be taken instead of the
market value of the cloth at the time it was delivered, and secondly, that
the buyer had not in fact suffered any loss because he received the same
resale price as he would have received if the seller had not been in breach.
The Court of Appeal, however, awarded the buyer damages assessed at
the normal measure, that is, the difference between (a) the market price
at the time and place of delivery of cloth up to the contractual quality,
and (b) the market price at the time and place of delivery of the cloth
actually delivered.
Scrutton LJ said that:“If the buyer is lucky enough, for reasons with which the seller has
nothing to do, to get his goods through on the sub-contract without
a claim against him, this on principle cannot affect his claim against
the seller any more than the fact that he had to pay very large
damages on his sub-contract would affect his original seller.”22
The Court of Appeal in Bence Graphics International Ltd v Fasson UK
Ltd23 refused to follow Slater’s case. In the former case, the sellers supplied
cast vinyl film to the buyer who used it to manufacture decals that were
used in the shipping industry to identify bulk containers. It was a term of
the contract that the film would survive for at least 5 years but the film
degraded prematurely and rendered many of the decals illegible.
The Court of Appeal held that at the time of making their contract the
parties were aware of facts that indicated to both that the loss, in the
event of a breach, would not be the difference between the value of the
goods delivered and the market value and accordingly that measure of
damages ceased to be appropriate.
The Court of Appeal held that both parties contemplated (a) that the
buyer would, after manufacturing the goods into another product, sell
the latter to others; and (b) that the measure of damages for defects in
the goods should be the extent of the buyer’s liability (if any) to those
others resulting from the defect.
In Bence’s case the court accepted that its approach was contrary to
Slater’s case and was of the view that the latter case should be
“reconsidered.” Auld LJ said that in the latter case, the court wrongly
overlooked the basic rule in Section 53(2) of the English Sale of Goods
Act 1979 (which is in pari materia with the Singapore Sale of Goods Act
22 Ibid, at 23.
23 [1997] 1 All E R 979.
13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
147
(Cap 393), 1994 Ed) as to what would have been in the ordinary and
natural contemplation of the parties in a commercial contract, namely,
that the buyer could well be prejudiced in his onward dealing with the
goods if they were defective. Otton LJ distinguished Slater’s case on the
grounds that the sub-sale was of the same goods although after bleaching
and the seller did not know of the contemplated sub-sale. In Bence’s
case the goods were substantially converted or processed by the buyer
and the sellers were aware of the precise use to which the film was to be
put at the time the contract was made.
Auld LJ on the other hand did not think that Slater’s case was materially
distinguishable from Bence’s case on the two grounds given by Otton LJ.
Auld LJ said that as to the seller’s knowledge of the buyer’s intended
use of the goods,
“the report in Slater’s case states that the seller did not know of the
buyer’s onward sale contracts. However, that must simply mean that
he did not know of the specific contracts; for there can be no doubt
that, in contracting to sell 3,000 pieces of unbleached cloth of a
certain quality, the seller knew that he was dealing with a commercial
buyer who could sell them on either unprocessed or processed to
some degree, and must be taken to have contemplated that loss
could result from such onward sales if the cloth was not of the
required quality. The fact that the seller in this case had more
detailed knowledge of the use to which the buyer would put the
film is not a material distinction in determining the measure of
damages as distinct from their precise calculation.”24
It is possible to distinguish Slater’s case on the ground that on the facts,
the parties did not contemplate that if the goods were defective, the extent
of the buyer’s liability towards his sub-buyer should be the measure of
damages payable by the seller. The issue was stated in Bence’s case to be
what was within the contemplation of the parties, which issue is a question
of fact dependent on the facts of each case. However it is submitted that
this is not really a good ground of distinguishing the two cases for in
Slater’s case the sellers would have known that the cloth would be the
subject of onward dealing.
Auld LJ convincingly substantiated his ruling that Slater’s case and those
who supported it were wrong and had wrongly:
(1) overlooked the basic rule in Section 53(2) as to what
been in the ordinary and natural contemplation of the
commercial contract such as it was, namely, that the
well be prejudiced in his onward dealing with the goods
defective;
24 Ibid, at 992.
would have
parties in a
buyer could
if they were
148
Singapore Academy of Law Journal
(2001)
(2) disregarded the reasoning of the Privy Council in Wertheim’s case
that where there has been delivery in a mercantile contract and it
can be seen what the buyer has done with the goods, it is possible to
and proper to measure his actual loss by reference to that outcome;
(3) had too much regard to practicality at the expense of principle in
relying on possible difficulties of establishing causation and of
assessment where the goods sold have been subjected to some process
or where the terms of the contract and sub-contract may for that or
some other reason be different; and
(4) were seemingly content to award a buyer more than the evidence
clearly showed he had lost.
Section 53(2) of the English Sale of Goods Act 1979 provides that “the
measure of damages for breach of warranty is the estimated loss directly
and naturally resulting in the ordinary course of events, from the breach
of warranty.” Looking at Section 53(2) of the Act, Auld LJ seems to be
right in saying that one has to look at “what would have been in the
ordinary and natural contemplation of the parties in a commercial contract
such as it was, namely, that the buyer could well be prejudiced in his
onward dealing with the goods if they were defective.”25
If one were to apply this test of what is in the ordinary and natural
contemplation of the parties to Slater’s case one would have to come to
the same conclusion as in Bence’s case, that is, that the plaintiffs were
only entitled to recover damages for losses under or arising from a breach
of contract for onward sale.
Conclusion
The assessment of damages that a defendant is liable for in breaching a
contract is not an exact science and it is hardly possible to pin down the
requisite degree of foreseeability with mathematical precision. However
this does not mean that no damages are to be given just because it is
difficult to quantify the damages. Damages of the most unusual nature
may ensue from a breach of contract but on practical grounds, the law
takes the view that a line must be drawn somewhere and that certain
kinds of loss, though caused as a direct result of the defendant’s conduct,
shall not qualify for compensation. To this end, Hadley v Baxendale
defined the kind of damage t h a t is the appropriate subject of
compensation and excluded others as being too remote.
25 Ibid, at 994.
13 S.Ac.L.J.
Damages for Breach of Contract for Sale of Goods
149
As regards the question of the measure of damages, the principle is that
of restitutio in integrum. The plaintiff must be restored to the position
he would have been in had that particular damage not occurred but he
must not be put in a better position.
LEOW CHYE SIAN*
*
LLB (Sing), LLM (Cantab), Associate Professor, Nanyang Business School, Nanyang
Technological University, Singapore.