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Breach And Remedies For Breach Notes

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Breach and Remedies for Breach A contract is breached when a party, without lawful excuse, fails to perform any of his contractual obligations. Generally, liability for breach of contract is strict, and not based upon fault: the promisor undertakes to achieve a particular state of affairs, and breach is committed when performance falls short of this, even if the contract-breaker has done his best. Temporally, breach of contract can divided into anticipatory breach and actual breach.

* Anticipatory breach refers to the breach of a contract before the performance is due either by repudiation or impossibility.

*

Actual breach refers to the breach of a contract when performance is due by failing to perform the obligations.

In determining whether a contract can be terminated for breach, or whether the breach merely triggers a right to damages, the courts have looked at the importance of the term broken as well as the seriousness of the consequence of the breach, and this has resulted in the classification of terms of a contract as either conditions or warranties.

* Condition: Promise, as to a fact or as to future conduct, which is regarded by the parties as an essential term, and any breach of which gives the innocent party the option of terminating the contract and claiming damages for any loss up to termination and beyond.

* Warranty: Term which the parties do not consider essential, but as subsidiary, and the breach of that term gives rise to a claim for such damages as have been sustained by the breach of that term.

* Intermediate/Innominate Terms: Terms which do not fall under the classification of 'condition' or 'warranty' may be seen as intermediate terms. Breach of such a term entitles the innocent party to treat the contract as repudiated only if the other party has thereby renounced his obligations or rendered them impossible of performance, in some essential respect or if the consequences of the breach are so serious as to deprive the innocent party of substantially the whole benefit which it was intended he should obtain from the contract. Otherwise, the appropriate remedy will be in damages.

1. Termination (i) Conditions, Warranties & Innominate Terms Sale of Goods Act 1979, ss12-15A

*

Hong Kong Fir Shipping v Kawasaki [1962] 2 QB 26: Breach of term requiring ship to be for ordinary cargo service by providing an incompetent crew and old ship which led to delay. P sought damages for wrongful repudiation by D.

o o o o

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It is open to the parties either expressly or by necessary implication to make clear that a particular stipulation is a condition. The remedies open to a party for breach of stipulation which is not a condition will depend upon that nature of the breach and its foreseeable consequences. Q is: does the event deprive the party of substantially the whole benefit of the contract?

The Mihalis Angelos [1971] 1 QB 164: Clause of charterparty said that vessel was expected to be ready to load 'about X date'. At that time the vessel was out on another voyage. Issue as to whether the clause was a condition.

o

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It would be unthinkable that all of the trivial matters which could make a ship unseaworthy could all be breach of condition.

Megaw LJ thinks that the clause is a condition for four inter-related reasons:It tends towards certainty in the law: advantage in this where commercial contracts are concerned. Where justice does not require flexibility there is everything to be said for a degree of rigidity in principle.?Will rarely be injustice in holding person to be in breach of condition where he makes stipulation as to date; Case law in support of notion that dates are conditions; To hold that it is innominate would result in difference between charterparty and sale of goods.

Schuler v Wickman [1974] AC 235: D had obligation to promote and extend the sale of the products which included obligation (condition) to make certain visits to particular companies. D failed in this latter respect, but tried to rely on a clause which said 12 months notice must be given for termination, or entitled to do so where there us a material breach of obligation which has failed to remedy within 60 days (otherwise contract will remain in force), to say that those were only circumstances under which the contract could be ended.

o o o o

If the terms of the clause are wide enough to cover breach of the earlier noted conditions then the condition must be read as subject to that which follows. Does not matter that a better draftsman would have separated things out better. It appears that the clause was intended to apply to all material breaches capable of being remedied. Takes the meaning of remedy to mean an assurance that matters will be put right for the future; were in this case. To restrict scope to actually putting right that which has already gone wrong would leave it with virtually no meaning. Looking at the position broadly the circumstances of this case can be remedied by ensuring that the breach doesn't occur again. Just because something is called a condition does not mean that it will be treated as such; in this case the later clause changes things.

1 o o

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Note that main problem was that contract badly drafted so gave the court a lot of flexibility.

Cehave v Bremer, The Hansa Nord [1976] QB 44: Clause in contract for sale of citrus pulp pellets said 'shipment to be made in good condition, each shipment shall be considered a separate contract'. Rejected entire cargo because part of it was damaged. (CA)

o o o

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Lord Wilberforce disagrees on point of construction and thinks that is a condition in this case.

Buyers were entitled to damages but could not terminate the contract as the clause had not been expressly classified as a condition nor was the court bound by authority to hold that it was a condition. In absence of party stipulation and binding authority thought that had to be an innominate term. Seems to have been in contemplation of the court that market fluctuations meant that termination was in the interest of the party. Thought that where there was market fluctuation court should encourage performance and not avoidance of obligations.

Bunge Corp v Tradax [1981] 1 WLR 711: Time of shipment was at buyer's option but sellers had option to choose the port. Buyers were to give notice of when vessel was ready; they did so two days late. Sellers refused to accept notice and claimed that buyers had repudiated the contract when the time for notice passed.

o o o o

Reject argument of counsel that term is only a condition when every possible breach would be such as to deprive the innocent party of substantially the whole benefit of the contract. For this type of clause there is only one type of breach and that is lateness. The application of Hong King Fir to all terms not expressly classified would be commercially undesirable as it would remove the certainty so desperately needed in mercantile contracts (which often involve string contracts). It was 'clearly essential' that the buyer and seller should know precisely what their rights were; clause was a condition.

(ii) The Meaning of Termination/Discharge/Rescission for Breach

*

Johnson v Agnew [1980] AC 367: O contracted to sell land to P; P fails to complete so O gets order for specific performance. Still does not complete so O brings action in court for specific performance to be dissolved and for the contract to be terminated so that he can get damages.

o o o o

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If purchaser fails to complete the vendor may treat that as a breach and accept it, or he may bring an action for specific performance. If V chooses to accept P's breach then he cannot later bring an action for specific performance. This follows from the fact that once the contract is repudiated the parties are discharged from further performance. This is different from rescission where there is mistake, fraud, or lack of consent as in those cases the contract is treated as having never come into existence. If specific performance is sought and made then the contractual obligations remain. If there is non-compliance still then may bring a further action either to have the order enforced or to ask the court to dissolve the contract. If the latter is the course of action taken then will be entitled to damages. Where there is a contract of sale damages are usually assessed at the date of breach: although this rule is not inflexible and may be altered in the event that it is likely to cause injustice.

Photo Production v Securicor [1980] 1 All ER 556: P entered into contract for D to provide security services. Employee of D lit a fire whilst on patrol which caused damage. D pleaded in aid clause which said under no circumstances were they to be responsible for any injurious act by an employee nor for any damage by fire except that which was attributable to the negligence of an employee acting in the course of employment.

o o o o

The question whether and to what extent an exclusion clause is to be applied to fundamental breach or breach of a fundamental term is a matter of construction of the contract. Since Suisse Atlantique Parliament has intervened to say when it does not wish exclusion clauses to be applied. The doctrine of fundamental breach is no longer needed, even if in the past it has served a useful purpose. Termination means that both parties are excused from further performance. Preferable to use words such as discharge or termination. Per Diplock: Every failure to perform a primary obligation is a breach of contract. That then gives rise to a secondary obligation to pay damages and the contract remains in force unless:?

o

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Breach deprives substantially of whole benefit of contract (fundamental breach);

Where there is breach of a condition. In this case because the clause explicitly covered the type of damage concerned were absolved from liability.

Geys v Societe Generale London Branch [2012] UKSC 63: Bank dismissed E in breach of contract. E claimed that wished to affirm the contract. Bank (after affirmation) made payment to E claiming that it discharged their obligations. Issue as to whether E was dismissed only when payment was made or at the earlier date.

o o o

Repudiatory breach of contract of employment does not terminate that contract until the employee elects to accept it. Basically ordinary rules apply to employment contracts. Lord Sumption dissent on basis of White & Carter v McGregor.

2 (iii) Anticipatory Breach

*

Hochster v De La Tour (1853) 2 E & B 678: Before commencement of employment contract D said was not going to perform.

o

A party to an executory agreement may break it either by disabling himself from fulfilling it, or by renouncing the contract which will immediately give rise to the action for breach of contract.

2. Damages (i) The General Principle

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Robinson v Harman (1848) 1 Exch 850, 855: D sold a lease to P knowing that he didn't have title to do so.

o

Radford v de Froberville [1977] 1 WLR 1262: D sold land to P, part of the agreement being that P would build a house and erect a wall. P sold to 3P with covenant that they would do the work and indemnify P. Nothing done.

o

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Where a party sustains a loss be reason of breach of contract he is to be placed in the same position as if the contract had been performed.

Measure of damages was the cost to P of erecting the wall to his specification and not the amount by which the value in P's land had dropped owing to the fact that it had not been erected.

Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344: Contract for building of swimming pool that was 7 feet 6 inches deep. Only built to be 6 inches deep. No adverse effect on the value of the property; pool could be used. Cost of cure was likely to be high and P had no intention of remedying the defect. Loss of amenity award made in the court below which was not in issue upon appeal.

o o

o o o

Damages for breach of contract must reflect, as accurately as the circumstances follow, the loss which the claimant has sustained because he did not get what he bargained for. The assumption is that this is to be assessed in economic terms although this is not always necessarily the case. Gives example of specification for house to be built with blue brick but it is built with yellow; it would be unreasonable to award the owner the cost of reconstructing the house because his loss was not the necessary reconstruction of his house, which was entirely adequate for design purpose, but merely lack of aesthetic pleasure which he might have derived from the sight of blue bricks. Personal preference may be a factor in determining what loss has been suffered but cannot per se be determinative of what that loss is. Can only have relevant to the reasonableness and hence extent of the loss suffered. If the award was made in this case would result in P obtaining a gratuitous benefit which is not reasonable. Concept of reasonableness has an impact on the award of damages. If P has suffered no loss he can recover no more than nominal damages because the object of damages is always to compensate P and not to punish D.

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Chaplin v Hicks [1911] 2 KB 786: Where by contract a man has a right to belong to a limited class of competitors for a prize, a breach of that contract by reason of which he is prevented from continuing a member of the class and is thereby deprived of all chance of obtaining the prize is a breach in respect of which he is entitled to recover substantial, not merely nominal, damages.

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The Golden Victory [2007] UKHL 12, [2007] 2 WLR 691: The principle that damages should be assessed at the date of breach is not inflexible; if at the date of breach there had been a real possibility that an event would happen terminating the contract (in this case war) the quantum of damages might need to be reduced proportionately to reflect the estimated likelihood that it would happen; where the event had already happened the court would have regard to the actual facts.

(ii) Restrictions on the General Principle (a) Remoteness

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Hadley v Baxendale (1854) 9 Exch 341: P had ordered part for mill, delivery of which was delayed by common carriers such that they could not operate their mill for a few days and lost profits.

o o

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The party ought to receive, in respect of breach, damages which fairly and reasonably arise naturally or such as may reasonably have been supposed to have been in the contemplation of both parties, at the time they made the contract as a probable result of a breach of it. Special circumstances must be communicated. In this case although knew part was for a mill and that P was a miller there was nothing more to suggest any special knowledge relating to use of that part and the effect of delay such that could not be liable for the loss of profit.

Victoria Laundry v Newman Industries [1949] 2 KB 528: P wanted to extend business to dyeing contracts and so needed a new boiler. Boiler was damaged by D's contractors and delivery was delayed. D's were aware of the nature of P's business and P had requested that it was put into use in the shortest possible space of time. Wanted damages for loss of profits.

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A party is only entitled to recover such part of the loss actually resulting as was reasonably foreseeable as was likely to result. What is reasonably foreseeable depends on the knowledge possessed, which is of two kinds:

3 ?o o o

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o o o o o

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Since prices in commodity market were likely to fluctuate, shipowners could reasonably contemplate that it was not unlikely (serious possibility, real danger) that if the ships were delayed the value of marketable goods would drop. All members of the court agree that Victoria Laundry does not alter the scope of the Hadley v Baxendale test. Lord Reid disapproves of the idea of bring a reasonably foreseeable test into this area; should have said foreseeable as a likely result. There is no requirement as to the degree of probability of the result arising, since the loss is simply one which is in the contemplation of the parties as a possible result of breach. Lord Morris & Reid apply the test as; if had considered this case would have come to conclusion that this was likely or liable to result. Lord Upjohn content to adopt the serious possibility test but maintains the test is different from that for tort liability. Case has been explained as basically stating that needs to be a closer connection in contract that under the test for tort liability i.e. it is narrower in that the result must be something capable of contemplation by the reasonable man.

Denning:In the case of breach of contract the court has to consider whether the consequences were of such a kind that a reasonable man at the time of making the contract would contemplate them as being of a very substantial degree of probability.May be a distinction emerging in contract between a loss of profit and physical damage consequent on breach;

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Only liable for loss of profit if ought to have contemplated as a serious possibility or real danger.

For physical damage only have to be liable for that which ought reasonable to have been foreseen even if only slight possibility. In this instance test is similar to tort. Scarman & Orr: Do not support the above distinction but agreed with the result by usual principles.

The potential direct consequence was that P would make poor investment choices. The fact that the scale of the loss was unprecedented should not prevent P from recovering since the loss was of a type or kind foreseeable and not too remote. Distinguished Victoria Laundry saying that case was concerned with indirect loss of profits whereas this case direct.

Jackson v Royal Bank of Scotland [2005] 1 WLR 377: C provided goods to 3P after importing them from Thailand. Bank accidently sent documents to 3P which revealed the mark-up which C was putting on the goods. 3P then stopped making orders with C; C brought an action against bank claiming damages for lost opportunity to make further profits. Bank contended that the reason they made a loss was because of the profit mark up.

o o

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Thought in this case that reasonable person would have known that laundry business which was asking for boiler at time when there was a famine for laundry facilities would have its business damaged by a five month delay in delivery.

Brown v KMR Services Ltd [1995] 4 All ER 598: P was a sophisticated investor who had engaged the advisory services of D. Brought an action against D for failing to warn him of the high risks involved in his sort of investments. Claimed that loss too remote since the scale was unprecedented and unforeseeable.

o

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Do not have to prove that reasonable man would have foreseen the result, just that it was likely i.e. serious possibility, real danger.

Parsons v Uttley Ingham [1978] QB 791: As a result of lack of ventilation in pig feeder installed by D on pig farm the pigs became ill from food. D tried to allege that too remote.

o

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There may be additional knowledge of special circumstances. It suffices that if he had considered the question the reasonable man would have concluded that the loss was liable to result.

The Heron II [1969] 1 AC 350: D's knew that P's were sugar merchants and that there was a sugar market in the place which they were shipping the sugar to but no knowledge that P wished to sell it promptly after arrival. Issue of damages on delay as sugar price had dropped because of the time of year, as was normal.

o

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Every person is imputed with knowledge of the damage which flows in the ordinary course of things;

Court thought that this type of damages arose naturally from the breach of duty to prevent disclosure. Rejected approach of Court of Appeal which said quantification was limited to that in contemplation at the time of contract. Where there is no cut of point in the contract the only limit on liability is the point in time beyond which it became too speculative to say whether any loss had been sustained; appropriate cut off point was approximately four years.

The Achilleas [2008] UKHL 48, [2008] 3 WLR 345: Owing to late delivery of vessel by D, C had to agree on reduced rate of hire for the following contract which it then tried to claim. D said that its liability was limited to the difference between the market rate and the charter rate of hire (less) for the days late as that was a general understanding for those involved in the shipping market.

o

Lord Hoffmann:It is logical to found damages on the intention of the parties because all contractual liability is voluntarily undertaken. It must in principle be wrong to hold someone liable for risks which, for people involved in that market, would not have reasonably been considered to have undertaken.It is generally accepted that a party will be liable for damages which are unforeseeably large, if loss of that type or kind is one which the contract breaker ought fairly to have been taken to have accepted responsibility for. But a party may not

4 be liable for foreseeable losses because they were not of the type which he can be taken to have assumed responsibility for.

o o

? Uses assumption of responsibility test to say not liable in this case. Lord Hope: The question is whether the loss is of a type for which D can be said to have assumed responsibility. Lord Rodger & Walker & Baroness Hale: Apply 'what was in contemplation' test to achieve the same result.?

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Hale has express doubts on whether it is appropriate to incorporate the AOR test in this area; too much like negligence. Walker also chose not to endorse the Hoffmann judgment.

Supershield Ltd v Siemens Building Technologies FE Ltd [2010] EWCA Civ 7 (CA): P's building had flooded. Simultaneous failures of works done by two separate D's. If there had been single failure would have been very unlikely to flood. Issue as to whether judge in court below had made appropriate award of around 50% given the remoteness issue.

o o

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The question of remoteness cannot be isolated from consideration of the purpose of the contract and the scope of the contractual obligation. Hadley v Baxendale remains a standard rule but it has been rationalized on the basis that it reflects the expectation to be imputed to the parties in the ordinary case i.e. that a contract breaker should ordinarily be liable to the other party for loss resulting from the breach if, and only if, at the time of making the contract a reasonable person would have in mind the kind of damage as not unlikely to result from the breach. The Achielleas shows that there may be exceptions in the commercial context. Just because the water may have escaped through the drains does not mean that the loss resulting it too remote.

(b) Mitigation

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British Westinghouse Electric v Underground Electric Railways [1912] AC 673: Turbines supplied were deficient. Company replaced the turbines and issue as to whether could recover money.

o

Pecuniary advantage which derived from new turbines were taken into account for assessment of the damages because it was their duty to mitigate the damages anyway.

(c) Contributory Negligence

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Vesta v Butcher [1988] 2 All ER 43, CA: Where a defendant's liability in contract is the same as his liability in the tort of negligence independently of the existence of the contract the court has the power to apportion blame under the 1945 Act and reduce damages accordingly since the claim could be brought in contract or negligence.

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Barclays Bank Ltd v Fairclough Building Ltd [1994] 3 WLR 1057: Only entitled to apportionment where the liability for breach is the same as and coextensive with a similar liability in tort independent of the contract. Where the claim is founded on breach of strict contractual liability independently of any negligence then the contract has to be construed as excluding operation of the Act.

(d) Mental Distress; Loss of Reputation

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Addis v Gramophone Co [1909] AC 488: Court held that P was not entitled to damages for manner in which wrongful dismissal from employment took place where it injured his feelings; also ban on punitive damages.

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Jarvis v Swann's Tours [1973] QB 233: Breach of contract for holiday as entertainment facilities had not been provided as advertised. Tried to claim damages for mental distress and disappointment.

o

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Watts v Morrow [1991] 1 All ER 937: P's wanting to purchase holiday home. Instructed D to carry out structural survey of property that they were looking at; this was done negligently. Tried to claim damages for stress and inconvenience.

o o

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Appropriate measure of damages where there is a negligent survey is the decrease in property value coupled with interest. Thought that in the circumstances of this case an award should be made for inconvenience but it should only be a modest one and should not include the cost of an additional holiday in the alternative.

Mahmud v BCCI [1998] AC 20: Employee's of a bank were made redundant after it was discovered that the bank was involved in widescale fraud and was shut down. Struggled to get another job and claimed damages for the stigma in being associated.

o o o

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In a proper case damages for mental distress can be recovered in contract e.g. contract for holiday or any other contract to provide entertainment and enjoyment.

In appropriate cases damages can be awarded for loss of reputation caused by breach of contract. If it was reasonably foreseeable that a breach in trust and confidence would affect the employment prospects of the employee and a loss of that type was sustained as a result of the breach then the damages in respect of loss will be recoverable. Implied term to conduct an honest business; damages awarded.

Johnson v Gore Wood [2001] 1 All ER 481: J had company which instructed S to exercise option agreement. Claimed that it had been done negligently as took a long time. J then later brought action in own personal capacity after collapse of market claiming inter alia,

5 damages for mental distress; dismissed as being within general principle that cannot claim this sort of damages for breach of contract.

*

Johnson v Unisys Ltd [2003] 1 AC 518: P was an employee who was known to have mental problems. Claimed damages for mental breakdown after he was wrongfully dismissed on the basis that had been done in a calculated way, in breach of an implied term of relationship of trust and confidence.

o o

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Although it was possible to conceive of a case in which the common law could imply a term which allowed E to recover damages for the manner of the dismissal the Court would refrain as Parliament has taken steps to set up specialist Tribunals to deal with these kinds of matters. Further, there was no realistic prospect of overcoming the obstacle of proving the remoteness of damage.

Farley v Skinner [2001] 3 WLR 899: P wanted to purchase weekend home for relaxation. One he was looking at was only 15 miles from Gatwick airport so instructed D to check out whether noise was likely to be a problem. Done negligently.

o

General principle is that awards are only mad for financial loss resulting from breach of contract. There are however, limited exceptions to the rule:?

o o o

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Where object of the contract is to provide pleasure:

Recovery for physical inconvenience caused by the breach (Watts v Morrow). Entitlement to damages is not based on mere foreseeability; the right depends on the case falling squarely within the principles which govern the exceptions to the general rule. It is logical to begin with the reasonable expectations of the parties under the contract; in this case knew what it was for and claim is not barred by the fact that obligation was only to take reasonable care rather than guarantee relaxation. Suffices that pleasure is part of the contract rather than the entire object of it. Ruxley case supports the making of an award for loss of amenity in these kinds of contracts.

Hamilton Jones v David & Snape [2004] 1 All ER 657: Owing to negligence Father of children was able to take them out of the country illegally and without authorization from the mother. M claimed damages for mental distress.

o

Court held that there was a causal connection between negligence and the children leaving country. Because purpose of contract in this case was peace of mind form in relation to children claim was allowed.

(iii) Reliance Damages

*

Anglia TV v Reed [1972] 1 QB 60: Contract with D for them to make a TV programme. Money was spent on advertising and preparation; when D pulled out C wanted to claim back money spent because of reliance on contract.

o o

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Can recover everything reasonably in the contemplation of the parties as being lost if the contract had been broken.

C&P Haulage v Middleton [1983] 3 All ER 94: A was granted licence to occupy; he expended money making the premises suitable for work even though it said that he could not remove such features after expiry of the licence. He was unlawfully ejected 10 weeks early. A obtained permission from LA to conduct work at home which he did after expiration. A claimed money for improvements to the premises which he did. D contended that he had suffered no loss since he had been able to move the business to his home rent free and all the expenditure would have been lost at end of 6 months anyway.

o o

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P can choose to sue for losses or expenditure.

Not entitled to claim the expenses because he was no worse off than if contract had been fully performed. If he were compensated in this case it would be compensation for a bad bargain which would leave him better off- Court will not do. Nominal damages awarded.

Omak Maritime Ltd v Mamola Challenger Shipping Co [2010] EWHC 2026 (Comm): Contract required C to make costly modifications to vessel prior to delivery to D. D failed to perform part of bargain and C accepted the breach. Thereafter market rate was higher with the result that C made a far more profitable arrangement. Action for expenditure.

o o

Reliance loss is merely a species of expectation loss; so assessed on the basis of what would have happened if the contract had been performed which in this case required consideration of the profit made. Since the owners had suffered no net loss were not entitled to recover the wasted expenditure.

(iv) Restitutionary Damages

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Attorney-General v Blake [2001] 1 AC 268: D had breached Official Secrets Act and published a book relating to his spy mission on behalf of British Government. BG wanted to stop D being entitled to the profits; claimed breach of fiduciary duty.

o o

In an exceptional case where the normal remedies of damages, specific performance and injunction are inadequate, the court can, if justice demands it, grant a discretionary remedy of requiring D to account to P for benefits received from the breach of contract; the obligation is akin to a fiduciary obligation where an account of profits is the standard remedy; Crown has a legitimate interest in this matter to make sure that members of the intelligence service do not breach their obligations. Thought that this case involved particularly special circumstances incl. magnitude of profit.

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