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Damages Introduction To Remedies Notes

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INTRODUCTION TO REMEDIES The principal determinant of the appropriate remedies for a breach of contract cannot be the parties' intentions at the time that the contract was entered into, as often neither party has thought about or agreed with the other what should happen if one party breaches the contract. Therefore, when asking what remedy is appropriate, we have to ask what remedy is appropriate to reflect the value of the interest we are protecting (such as the right to contractual performance, or the objects the claimant is trying to achieve by entering into the contract), and the severity of the defendant's conduct. We can group remedies into three categories:

1. Compensatory damages aim to award the claimant the loss that he has suffered as a result of the breach.

2. Non-compensatory damages have other aims, such as to reflect the bad conduct of the defendant.

3. Specific remedies, on the traditional view, directly enforce the defendant's obligations: get him to deliver the goods he contracted to etc. If you are given numbers in a problem question, work with what you have - don't make up figures for, e.g. consumer surplus.

A.

INTRODUCTORY ISSUES: DAMAGES

Questions about compensatory damages can be approached in six stages:

1. Has the claimant suffered any loss?
a. Expectation measure b. Reliance measure

2. Has the claimant suffered an actionable type of loss?
a. Financial loss b. Consumer surplus c. Distress caused by unwelcome sensory experience d. Distress caused by disappointment that the contact has been breached e. Is the breach itself a loss for which damages can be recovered?

3. Causation: did the breach cause the claimant's loss?

4. Reasonable foreseeability: was the type of loss reasonably foreseeable?

5. Mitigation: has the claimant mitigated his loss?

6. Did the claimant's fault contribute to the loss?
Damages for breach of contract convert the defendant's primary obligation to perform into a secondary obligation to pay damages. They impose obligation on the parties that they had not agreed to or intended. The following are some basic implications of the COMPENSATORY nature of damages for breach of contract:

(I) THE CLAIMANT CAN ONLY CLAIM FOR HIS OWN LOSS, NOT A THIRD PARTY'S The claimant must show not only that a breach of contract has occurred, but also that he has suffered loss as a result. The general rule is that the claimant can only recover for his own loss.Cf Alfred McAlpine Construction Ltd v Panatown Ltd [2000] 3 WLR 946 ->
occasional circumstances that can claim damages for 3 rd party

(II) ONLY THE CLAIMANT'S NET LOSS IS RECOVERABLE The requirement of mitigation by the claimant will reduce the net loss

(III) DAMAGES FOR BREACH OF CONTRACT ARE NOT PUNITIVE HL in Addis v Gramophone [1909] held that punitive damages cannot be recovered for a breach of contract.To punish someone, need the safeguards of criminal law - not appropriate for civil system Someone commits tort drops below standard of norms, breach of contract falls below standard of contract that was set by parties

(IV) Damages are assessed on the basis that the defendant would have performed his minimum legal obligation, according to the terms of the contract Lavarack v Woods of Colchester [1967] 1 QB 278 -> damages doesn't include what D would have done more eg throw in a bonus -> assess at the minimum standardB.

Cf Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010] EWCA Civ 485 ->
courts can normally work out on the balance of probabilities what D would have done

QUANTIFICATION OF DAMAGES

Difficulty of assessment is no bar to recovering compensatory damages. Even where all the claimant has lost is the chance to obtain a benefit (e.g. claimant is deprived of a chance to win a prize), the court will attempt to put a value on this, providing that the claimant can show that he has lost a real or substantial, not merely a speculative, chance (Chaplin v Hicks [1911]). When ascertaining whether the claimant has suffered a loss, and if so, how much, damages will be assessed as at the date of the breach, unless this would be unjust, in which case the court can fix any other date that would be appropriate (Johnson v Agnew [1980]).

1.

THE CLAIMANT'S EXPECTATION INTEREST

The aim of the expectation measure is to put the claimant in the position that he would have been in had the defendant performed his obligations under the contract, but would not have done anything he was not legally obliged to do (Lavarack v Woods [1967]).Robinson v Harman (1848) 1 Exch. 850, 855 per Parke B: "The rule of the common law is, that where a party sustains a 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."

The expectation measure is the primary remedy for breach because it best signifies what is wrong about breaching a contract. By placing the claimant in the position he would have been in if the contract had been performed, it condemns the defendant for failing to carry out the obligations that he undertook. If the primary remedy was removing the profit that the defendant had made from breaching the contract, this would indicate that breaching a contract is wrong only because the defendant made a profit from it. However, CA in Durham Tees v Bmibaby [2010] decided that the general rule in Lavarack does not hold true in a case where the defendant is under a single obligation (such as to operate two or more aircraft for ten years) but the contract gives him a discretion as to how to perform it (such as by not providing for the number of flights). The court should ask how the contract would have been performed had it not been breached, rather than asking what was the minimum level of performance that the claimant could get away with under the contract. This is due to the practical problems in determining what the minimum level of performance would have been on the facts, compared with the easier task of determining how the contract would actually have been performed (using past performance as a guide). This has the odd consequence that if the claimant manages to persuade the defendant to agree to include a term in the contract promising a minimum level of performance, the claimant will be worse off in the event of breach because he will be limited to claiming damages on the basis of minimum performance. Therefore, the approach taken in Bmibaby should be limited to situations where it is not possible for the court to work out in advance what the minimum level of performance would be for the remainder of the contract, rather than any situation where the parties have not provided for one. We convert this 'loss of bargain' into a sum of money by using the following measures: (a) Difference ("diminution") in value measure The difference between (i) the value of what was actually provided/performed and (ii) the value of what should have been provided/performed if the contract had been properly performed.

-

Eg 1: Tenant promises in lease to keep premises in good repair. Tenant breaches this obligation, as a result of which the Landlord's freehold interest in the premises is worth less. This is the measure of the Landlord's damages (not the cost of doing the relevant repairs). See Landlord and Tenant Act 1927, s.18Eg 2: C contracts with D (a driveway company) to resurface C's driveway. D's price is PS5000. D breaches the contract by failing to do the work at all. Other contractors charge PS7000 for the same job (the "market value"). The difference in value measure is PS2000.Comparing contract and tort - eg car bought for 5k warranted to have done 50000miles. But car in fact did 100000miles so actual value is 4k. If car only did 500000miles value us 12k
? Contract (GAINS IF THE CONTRACT HAD BEEN PERFORMED) -> Y can obtain the dimunition measure ie the value of the car if it had complied with the warranty -> 12k-4k=8k
? Tort -> Y can obtain the difference between the price paid and the actual value -> 5k-4k=1k
? Bad bargain -> if warranted value less than agreed price (bad bargain), diminution damages is zero so only receive nominal damages - but can recover 5k-4k=1k for tort which was committed independently from the breach of contract

This measure is perfectly satisfactory where (a) substitute performance can readily be obtained in the market and (b) the claimant's reason for contracting is basically commercial - to make profit. Therefore it makes sense that this rule is used as the prima facie measure throughout the Sale of Goods Act. Notice however that it is only prima facie - in certain circumstances it will not be the best assessment of what the claimant has actually lost, whereupon it will be displaced.S53 - buyer getting damages because seller breach warranty
? S53(3) -> is the diminution measure - difference between value got and value would have got

Sale of Goods Act section 53 (buyer's damages for breach of seller's warranty)
...
(2) 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. (3) 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 fulfilled the warranty.

Sale of Goods Act section 50 (seller' damages for buyer's nonacceptance)
...
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer's breach of contract. (3) 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 at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept. (b) Cost of cure measure If cost of cure will rectify breach more cheaply than dimimunition measures - court will award cost of cure since its consistent with duty of mitigation Where the difference in value measure is inadequate the claimant might instead be awarded damages representing the cost of "curing" defective performance.Radford v De Froberville [1977] 1 WLR 1262 -> sale of part of land to D, D covenanted to build boundary wall but didn't build it in the end - court held C entitled to get cost of building a wall, irrelevant that this boundary wall made no difference to the value of the land ie land worth the same whether or not the wall is buit

Often, the diminution in value and cost of cure measures produce the same result: if goods are not delivered, the cost of cure in purchasing a substitute in the market is equal to the value of the goods. Therefore, the diminution in value measure is satisfactory where substitute performance can readily be obtained in the market and where the claimant's reason for contracting is commercial (i.e. to make a profit).Can the promisee insist on the cost of cure when this would greatly exceed the increase in value which it would bring and would thus be wholly unreasonable?
? Ie cannot get the cost of cure if it is wholly disproportionate to cure the defect
? Tito v Waddell (No 2) [1977] 1 WLR 1421 -> agreement between islanders with mining company to allow mining company to mine while islanders move out, mining company covenanted that when mining expedition over will replant the island with food bearing trees. Didn't replant island
? Difference in cost "diminution" measure was minimal because island devastated by WWII
? Cost of cure enormous
? Meggary J could not recover cost of cure as it doesn't represent their loss (performance interest - what they should have gained if the contract had been performed)

WHOLLY DISPROPORTIONATE to their actual loss - no intention on islanders to spend the money on replanting the island
? Jacob & Young v Kent (1921) 129 NE 889 -> US case, homeowner insisted on specific type of pipe, builder by mistake installed identical pipes but different manufacturer - cost of cure extremely high because need to tear down house, held cost of cure not appropriate as its unfairly out of proportion to the good that will be obtained
? Sunrock Aircraft Corp Ltd v Scandinavian Airlines Systems [2007]
EWCA Civ 882 - approves decision above o

The diminution in value approach is not so satisfactory where the claimant has contracted in part for non-financial reasons, e.g. to obtain relaxation. In such circumstances, the diminution in value may be very small, so this measure is inadequate to compensate the claimant properly. For example, in Ruxley Electronics v Forsyth [1996], builders contracted with Forsyth to build a swimming pool with a maximum depth of seven feet, but the pool eventually built was only six feet deep. When sued for the price, Forsyth counterclaimed for breach of contract, claiming the cost of rebuilding the pool to the specified depth. HL held that the missing inches made no difference to the value of the property, but the claim for cost of cure was rejected on the ground that it was wholly disproportionate to the diminution in value.-

? Judge at first instance that difference in value of the pool at 6 foot and 7 foot is zero ie that pool whether 6 or 7 foot adds the same value to the house Mr Forsyth received neither the cost of cure (PS21,600) nor the difference in value (nil).
? He received a "middle ground" award representing his "loss of amenity" 2.5k (Mr Forsyth now couldn't dive into pool but still can lie by side)
? The cost of cure would have been wholly disproportionate, whilst the difference in value measure would fail to acknowledge that he had not received the contractual performance he bargained for. Ie is there a middle ground award represent and how should it be valued?
? For Lord Mustill: "the consumer surplus"
? Works more generally that you care more for the performance as compared to the market
? Lord Mustill's use of the "consumer surplus" principle in Ruxley was followed in Freeman v Niroomand (1997) 52 Con LR 116
? For Lord Lloyd: damages for distress / disappointment, like a ruined holiday "disappointment damages"
? Only works because it's a swimming pool so get for distress

Where the cost of cure exceeds the diminution in value the starting point is that the claimant is allowed to opt for the cost of cure measure. However, he will be prevented from recovering the cost of cure if it would be unreasonable for him to do so. An important factor in deciding whether it would be unreasonable is

whether the cost of cure is 'wholly disproportionate' to the diminution in value (Ruxley Electronics).?

To work out whether the cost of cure is wholly disproportionate, we are comparing the cost of cure to the difference in market value plus the consumer surplus. Whether the claimant genuinely intends to have the consequences of the breach rectified is relevant to the issue of whether it would be unreasonable to allow cost of cure damages. If the claimant does not intend to do so, he is highly unlikely to be able to recover the cost of cure (Tito v Waddell (No 2)
[1977]).

O'Sullivan (1997) argued that a test focusing on whether the cost of rectifying the breach is disproportionate might be flawed in two respects.

1. It makes the owner's damages depend not on the extent of the defect in performance, but on the technical difficulty and thus cost of undoing the breach

2. It conveys the wrong signal to contractors. If contractors are careless and ignore any defects, he maximises the chances that the cost of curing any such defects will be high and thus rejected as disproportionate. Thus the principle encourages a culture of inefficiency. A better approach might be that of Lord Jauncey in Ruxley Electronics v Forsyth
[1996], which focuses on whether there has been a total failure of the contractual objective (i.e. on the extent of the deviation from the contractual specification/scale of defect). The greater the scale of the defect, the greater the chance of being awarded cost of cure damages. (c) Problems of non-pecuniary loss, particularly in contracts made for reasons other than profit There is a trend towards awarding damages in respect of a party's non-financial interests. This recognises that people often have non-financial reasons for entering into a contract (e.g. pleasure, security, privacy peace of mind). (i) The consumer surplus The extent to which this particular claimant values performance - which may exceed the market value. In Watts v Morrow [1991], Bingham LJ held that where the object of a contract is to provide pleasure, damages will be awarded if the fruit of the contract is not provided. This category is arguably narrower than the consumer surplus. The consumer surplus approach views the situation from the victim's perspective (what value did the claimant place on the performance of the obligation?), whereas the Watts approach requires that regard be had to the expectations of both parties in order to determine what the 'object' of the contract was. While the consumer surplus concept is not yet fully accepted in English law, there is a move towards its acceptance. In Farley v Skinner [2001], the claimant was interested in purchasing property near Gatwick airport as a quiet, relaxing

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