Remedies Notes

Purpose of damage in contract: compensate the claimant for the damage, loss or injury suffered – not to punish the defendant (no exemplary damages)

• A C who has not suffered to any loss is still entitled to a judgement but the damages will be nominal (btw 2 and 10) - awarded to acknowledge there has been a breach of contract

Agreed damages Clauses

• Parties can seek to remove role of the court – insert a clause which states the amount of money available if there is a breach

Penalty or liquidated damages?

• Liquidated damages - Binding on the parties – in the event of a breach the sum is fixed and no more/less can be claimed – pre-assessment of the loss which would flow from breach

• Penalty clauses – where sum inserted is intended as punishment and is not connected with the amount of loss contemplated – unenforceable and the injured party may bring an action for unliquidated damages

Dunlop Pneumatic Tyre CO v New Garage and Motor Co

• 5 sum for every breach of agreement –HL held that this was a genuine pre-estimate of the loss which might result

Lord Dunedin : guidance

1. Use by the parties of the word penalty or liquidated damages is not conclusive

2. Essence of a penalty is a payment stipulated in terorem (for the purpose of intimidation of the offending party); the essence of liquidated damages is genuine pre-estimate of loss

3. Issue is one of construction – judged at the time of making the contract and not at the time of the breach:

1. If the sum stipulated is extravagant of unconscionable in amount compared with the greatest loss which could conceivable be proved to have followed from the breach – it is a penalty

2. If the breach consists only of the non-payment of money, and the sum stipulated is greater – it is a penalty

3. Where a single lump sum is payable on the occurrence of one or more of several events, some of which may occasion serious and some trifling loss – then presumption that it is a penalty

4. No obstacle to the sum stipulated being a genuine pre-estimate that the consequences of the breach are such as t make precise pre-estimation almost a possibility

The Basis of Assessment of Damages

The Expectation Interest

Aim: to put the C, so far as money can do it in the position they would have been in had the contract been properly performed

• Claimants therefore able to recover damages in respect of the loss of gains which they have been deprived of by the breach

Robinson v Harman - ‘as if the contract had been performed’ (per Parke B)

• Principle confirmed as fundamental in – Golden Strait Corporation v Nippon, ‘The Golden Victory’

Three alternative mechanisms for calculating the expectation interest: cost of cure, diminution in value and loss of amenity

Cost of Cure and Diminution in Value

• Cost of Cure: Contracts involving defective works (e.g. building not built to contract specification) :Birse Construction Ltd. v Eastern Telegraph Co. Ltd

  • Cost of cure represents the cost of substitute or remedial work acquired to put the claimant in the position he would have been in if the contract had been properly performed

• Alternatively - can be calculated in reference to the difference in value btw the performance received and that promised in the contract (diminution in value)

• Often the two mechanisms will lead to the same result – but in Ruxley Electronics and Construction Ltd. v Forsyth – different results

  • Pool was supposed to be 7 feet 6 inches- but was only built to be 6 foot – pool was still safe for diving and there was no diminution of value

  • Cost of cure would have been 21.560 (he had paid 17 k to start with)

  • Courts recognised that there will be instances in which the innocent party should be compensated for their loss of enjoyment: an award for the cost of cure was unreasonable and there was no diminution in value - C was awarded 2,500 to compensate him for loss of a pleasurable amenity

• If it is unreasonable for the claimant to insist on cost of cure because the expense of the work involved would be out of all proportion to the benefit obtained – then the C is confined to the difference in value

• C’s intention (or lack of it) to cure the defect is relevant – if the C does not intend to cure the defect, he has lost nothing except the difference in value

• Where dimunition of value is nil – court will not automatically award the cost of cure as an alternative – not right to remedy injustice of awarding too little by unjustly awarding too much (see also Birse Construction v Eastern Telegraph Company Ltd applying Ruxley)

Loss of Amenity

• Ruxley – where there has been a breach resulting in loss of expectation of performance, satisfication of a personal preference or a pleasurable amenity, but there had been no dimunition of value – court could award modest damages to compensate the C

• Loss didn’t extend to the cost of reinstatement – would be unreasonable

• Loss of amenity is evidence of court’s growing willingness to accept that a consumer should have an available remedy where their loss is not economic in value (personal value)

• In commercial setting – ‘unusual if not impossible’ for damaged to be awarded for loss of amenity (Regus (UK) Ltd v Epcot Solutions Ltd)

Applying the mechanisms for calculating expectation interest

• Mechanisms of cost of cure and diminution are only of real value in situations where there is disparity (like in Ruxley)

• In the majority of situations the 2 mechanisms will create the same outcome – just ask what position the claimant would have been in if the contract had been properly performed

The Reliance Interest

• Allows the C to recover the expenses which have been incurred in preparing for, or in part performance of , the contract which have been rendered pointless by the breach

• More cautious – backward looking and aims to put the claimant in the position they would have been n had they never contracted

• Usually it will be more advantageous for a C to pursue expectation measure damages

General rule: Claimants have an unfettered choice when...

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