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Remedies for breach
The vast majority of contract claims are simply a claim for the price which is not a damages claim. However, damages are always available for breach of contract.
Damages for breach of contract are virtually always compensatory. The following are some basic implications of the compensatory nature of damages for breach of contract:
(a) C can only claim for their own loss, not a third party's
(b) Only C's net loss is recoverable
For example, remember that the claimant would have had to pay the price in order to derive the expected profit from the defendant's contractual performance - watch out for the risk of double-counting.
(c) Very often, the requirement of mitigation by claimant will wipe out loss
(d) Damages for breach of contract are not punitive
Addis v Gramophone Ltd: In an action for breach of contract, the claimant "is to be paid adequate compensation in money for the loss of that which he would have received had his contract had been kept, and no more". He cannot "recover exemplary damages, or what is sometimes styled vindictive damages". On the facts, an employee who had been wrongfully dismissed could not recover damages above that for his lost salary and commission to mark
"the harsh and humiliating way in which he was dismissed".
(e) Damages are assessed on the basis that the defendant would have performed their minimum legal obligation, according to the terms of the contract
Leverack v Woods of Colchester: Damages will only be awarded if C is entitled to recover compensation in respect of benefits which the defendant was legally obliged to confer. On the facts, an employee who had been wrongfully dismissed could not recover damages for a discretionary bonus which, but for the wrongful dismissal, he would probably have obtained.
1 Durham Tees Valley Airport Ltd v Bmibaby Ltd: (1) Where it is clear that C has suffered loss in respect of a legally protected right, but D had a choice between two or more ways to perform, C will be awarded damages on the less or least onerous basis, tilting matters in favour of D. (2) However, where D's performance involves a single obligation, within which he enjoys elements of discretion, the courts are prepared to regulate this by reference to standards of reasonableness, where necessary and appropriate.
Quantification of damages
PQ Approach in summary
Is expectation measure appropriate? If so, consider Steps 1 and 2.
Step 1: Consider difference in value or cost of cure measure
Step 2: Consider if damages for distress and inconvenience can be awarded
If not, consider reliance measure.
*Negotiating damages and restitutionary damages rarely come out for PQs.
1. The normal principle - expectation measure
Robinson v Harman: "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."
Expectation measure = what X expected to get
Difference ("diminution") in value measure
The difference between (i) the value of what was actually provided/performed and (ii) the
(market) value of what should have been provided/performed if the contract had been properly performed.
2 B sells S a laptop: its market value is 12 pounds, the sale price is 9 pounds, but the laptop is actually worth 4 pounds. Expectation measure (based on diminution in value measure) is 8 pounds - what did S expect to get (12 pounds) minus what S actually got (4 pounds).
Reliance measure (put the parties back before the contract was made): S gets back 9 pounds after giving the laptop back, but in reality he'll probably keep the laptop so he gets 5 pounds.
Therefore, it makes sense that the market value 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.
OR Cost of cure measure
In some circumstances, the difference in value measure is wholly inadequate and the claimant might instead be awarded damages representing the cost of "curing" defective performance:
for e.g., Radford v De Froberville.
In deciding if "cost of cure" damages are appropriate, the courts appear to emphasise the following factors:
(1) Whether "diminution of market value" damages are inadequate: Radford v De Froberville
(2) Whether the claimant intends to apply any damages towards finishing the work the defendant failed to do
Radford v De Froberville. Facts: R sold part of his land to D, they both contracted that D would build a boundary wall between the property she had built and R's. D
was in breach. Analysis: this made no difference to the value of R's land. Verdict:
"If the purchaser fails to build the wall and the court is satisfied that the plaintiff intends to build it on his own land what the defendant has failed to build on his,
why should he be limited to the amount by which his land is diminished in value as a saleable asset by the possibility of an occasional flood? He is interested in cultivating his garden, not selling his property."
3 Ruxley Electronics & Constructions Ltd v Forsyth: "[I]ntention is… relevant to reasonableness" and therefore "intention may be relevant to a claim for damages based on the cost of reinstatement." If C does not genuinely intend to do the work, it would be "mere pretence" to say that the cost of reinstatement is the loss which he has in fact suffered.
Tito v Waddell (No 2): "[If the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and he has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages." On the facts, Cs could not recover damages on the cost of cure measure when, in breach of contract, D failed to replant their island with trees after the completion of mining operations. It was relevant that Cs had resettled on another island and did not intend to carry out the work.
But NB in PQs: this has been criticised. The courts usually are not concerned with how the claimant aims to use damages.
(3) Whether "cost of cure" damages will be wholly unreasonable.
Tito v Waddell (No 2): (1) C cannot recover damages on the cost of cure measure if that is "disproportionate". On the facts, Cs could not recover damages on the cost of cure measure when, in breach of contract, D failed to replant their island with trees after the completion of mining operations. It was relevant that whereas the difference in value was negligible, the cost of cure amounted to several million dollars.
Ruxley Electronics & Constructions Ltd v Forsyth: (1) "If the court takes the view that it would be unreasonable for the plaintiff to insist on reinstatement, as where, for example, the expense of the work involved would be out of all proportion to the benefit to be obtained, then the plaintiff will be confined to the difference in value."
AND/OR damages for distress, inconvenience, or disappointment
NB. This can be additional or alternative to the difference in value/cost of cure measure.
4 Addis v Gramophone Co Ltd: It used to be regarded as a general rule that such damages are not recoverable on a breach of contract.
Watts v Morrow: (1) "A contract breaker is not in general liable for any distress,
frustration, anxiety, displeasure, vexation, tension or aggravation which his breach may cause to the innocent party." (2) However, there are two exceptions where damages are recoverable: (i) "[w]here the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation"; and (ii) "for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience."
(1) "Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation":
Apply the following analogously
Jarvis v Swan Tours: "damages for mental distress can be recovered in contract…
such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach."
Expansion in Farley v Skinner: suffices where pleasure etc. was a major (as opposed to the sole) object of the contract. "It is sufficient if a major or important object of the contract is to give pleasure, relaxation or peace of mind." On the facts, C could recover damages for distress when D surveyor, in breach of contract, negligently failed to detect that a house was blighted by aircraft noise, despite having been specifically asked by C to consider if it was. C then purchased the house in reliance on D's survey report.
(2) "For physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience":
Watts v Morrow: Cs could recover damages "for mental distress resulting from the physical consequence of… a breach of contract" when D surveyor, in breach of contract, failed to detect serious defects in a house. Cs then purchased the house in reliance on D's survey report. This was because "there was discomfort from the
5 physical circumstances of living in the house… during the carrying out of repairs in respect of unreported defects".
Farley v Skinner: Lord Scott (individually) extended 'physical' impact to 'sensory'
impact. "The distinction between the 'physical' and the 'non-physical'… is not a distinction between the different types of inconvenience or discomfort of which complaint may be made but a distinction based on the cause of the inconvenience or discomfort. If the cause is no more than disappointment that the contractual obligation has been broken, damages are not recoverable even if the disappointment has led to a complete mental breakdown. But, if the cause of the inconvenience or discomfort is a sensory (sight, touch, hearing, smell etc) experience, damages can, subject to the remoteness rules, be recovered." This is not the majority view but query if it applies if the facts call for it.
Ruxley Electronics & Constructions Ltd v Forsyth: in breach of contract, D built a swimming pool 18 inches less deep than C had specified, C received neither the cost of cure (£21,600)
nor the difference in value (nil).
The majority awarded him damages for distress. But Lord Mustill gave damages reflecting
'consumer surplus', which is the extent to which the the subjective valuation of performance exceeds the market valuation of performance. This consumer surplus, while being subjective and non-monetary, should be recognised by the law.
In PQs, this may arise in Ruxley scenarios, usually where there is disappointment/subjective valuation. Apply Watts v Morrow first. Then apply Lord Mustill's analysis in Ruxley but note that it is uncertain if it represents the law. In Farlay v Skinner, the court rationalises Lord
Mustill's analysis in Ruxley through the lens of Watts v Morrow damages for distress.
2. Other methods of quantifying damages
(a) "Reliance" measure
Putting C in the position he would have been in if the contract had not been made (the "precontract" position).
6 Exceptionally, he reliance measure may be used where it is impossible to quantify what the expectation would have been. Anglia TV Ltd v Reed: "If he has not suffered any loss of profits (expectation measure) - or if he cannot prove what his profits would have been - he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach."
But if it is possible to calculate the chance of an event happening, which is not too speculative, a loss of chance approach might be used (see below). The measure of damages then is unclear, but will probably aim to reflect the loss of chance.
B sells S a laptop: its market value is 8 pounds, the sale price is 9 pounds, but the laptop is actually worth 4 pounds. Expectation measure (based on diminution in value measure) is 4 pounds - what did S expect to get (8 pounds) minus what S actually got (4 pounds).
Reliance measure (put the parties back before the contract was made): S gets back 9 pounds, but S has to give back the value of the laptop too, so S gets 5 pounds.
In this scenario, S gets more from reliance measure than from expectation measure. How is this different from the previous scenario? S has made a bad bargain - paid 9 pounds for a laptop worth 8 pounds.
Not allowed to use reliance measure just because C got into a bad bargain. C & P Haulage v
Middleton: "It is not the function of the courts where there is a breach of contract knowingly, as this would be the case, to put a plaintiff in a better financial position than if the contract had been properly performed." On the facts, D could not recover the reliance measure. "A high risk of waste was from the very first inherent in the nature of the contract itself, breach or no breach. The reality of the matter is that the waste resulted from what was… a very unsatisfactory and dangerous bargain."
(b) "Negotiating damages"? (likely not in PQs)
These damages should be regarded as a form of compensation for loss - namely loss of the opportunity to bargain/ release the rights at a price.
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