8. Remedies for Breach of Contract
While it may be possible to treat a contract as at an end, or reject the goods in the case of sale of goods contract, the primary remedy for breach of contract is damages – to put the victim of breach into the position they would have been in had the contract been performed. The purpose of damages is to compensate for loss caused by the breach.
In Payless Travel v Baba Krupa Holidays [2004] All ER (D)503
Lord Justice Rix:
“I come, therefore, to the final narrow point which is that legal causation has not been established. It is true that the judgment of the recorder does not deal specifically with the way in which the breach led to damages. She clearly took it for granted that if 34 passengers were going to turn up for a flight which they thought they were booked on the damages in question ensued from any breach involved in the failure to give them warning of the cancellation of their tickets or any breach involved in the failure to ensure that any improper cancellation had been put aside. I am therefore not surprised that there is not an express discussion of the sole legal issue raised on this appeal which is whether the recorder was entitled to find causation of loss under the doctrine of common sense for which the decision in this court of Galoo v Bright Grahame Murray [1994] 1 WLR 1363 (see especially at 1374G-1375A) is a well-known modern authority. In my judgment, it is plainly a matter of common sense which the judge was entitled, in effect, to take for granted, that the two breaches of duty which she found and identified would lead to the kind of damages which Baba Krupa were claiming.”
Transfield Shipping Inc v Mercator Shipping Inc [House of Lords] [2009]
Damages – Contract – Breach – Time charter – Late redelivery – Whether charterers liable for owners’ loss of profit under new charter – Whether loss arising naturally from breach of contract
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8.1 Introduction
8.1.1 Discharge of the contract
A breach of contract does not, of itself, discharge the contract. A breach of warranty gives rise to a claim in damages only. A breach of condition gives rise to an election on the part of the victim to either affirm the contract and sue in damages or to treat the contract as having been repudiated by the other party, accept the repudiation, treat the contract as at an end and claim for losses (if any) in damages.
The victim will be able to claim that he is discharged from further performance for breach of an innominate term where the breach is serious and the Court treats the breach as it were a breach a condition.
8.1.2 The victim does not have to accept the repudiation
The victim has an election. he may affirm the contract or accept the repudiatory breach and treat the contract as at an end.
For contracts other than sale of goods contracts, a victim, with full knowledge of the breach, is said to affirm the contract where he elects to go on with it. The right to repudiate in such a case is then lost. The victim may, of course, still bring an action in damages for the breach and repudiate the contract for all future breaches.
See also: Waiver – Charles Rickards v Oppenheim [1950] 1 KB 616
(In the case of sale of goods contracts governed by the Sale of Goods Act 1979 the rule is rather stricter and a victim may be deemed to have accepted the goods and, thereby, have lost his right to treat the contract as having been repudiated and reject the goods. See: ss 34-36 Sale of Goods Act 1979 ).
Fercometal SARL v MSC Mediterranean Shipping Co SA [1989] AC 788
Where the contract is not discharged by the breach both parties remain liable to perform the contract.
8.1.3 Where the victim does choose to terminate
Where the victim accepts a repudiatory breach the contract comes to an end, both parties are released from their future obligations. Extant obligations remain binding and damages are payable by either party in respect of breach arising before termination.
Vitol SA v Norelf Ltd [1996] AC 800.
Normally the victim must unequivocally indicate that he intends to terminate. If the victim affirms the contract it remains in force. If the victim fails to rescind the contract, it also remains in force. However, sometimes mere inactivity is enough to demonstrate that the victim has accepted a repudiatory breach:
8.1.4 Anticipatory repudiatory breach
A party to the contract may indicate before performance is due that he will not perform his part of the contract. This is known as an anticipatory breach, repudiatory in the case of a breach of a condition.
The victim in such a case may elect to accept the anticipatory breach and sue for damages or wait until the time fixed for performance to see if the contract will be performed at that time and sue for damages if the contract is then not performed.
Avery v Bowden (1855) 5 E&B 714
There is a risk in such cases than a supervening event could frustrate the contract or render it illegal.
8.1.5 Remedies for breach
There are a number of remedies for breach – the common law remedies of an action for the price, self help remedies, an action upon a liquidated sum, the common law remedy of damages and the equitable remedies of specific performance, restitution and the quasi-contractual remedies including quantum meruit.
Payless Travel Ltd v Baba Krupa Holidays [2004]ll ER illustrates the rule in contract cases that the breach must, generally, be the cause of the loss.
This section deals with damages.
8.1.6 Who can sue? privity and third parties
Traditionally in English law, only a party to the contract can sue on the contract. This is known as the doctrine of privity.
Alfred McAlpine v Panatown [2001] 1 AC 518.
The parties contracted for building work, which was a disaster. The problem for the claimants, Panatown, was that they did not own the land where the building work was conducted. It was owned by a sister company. Panatown (rather than the owner of the land) contracted with McAlpine as a way of minimizing VAT. However when things went wrong, Panatown sued the builder. They recovered nothing because, not being the owner of the land, they had suffered no loss. (The case was somewhat complicated by the fact that there was a deed under which the owner of the land could have sued). This is just one of example of a problem which has frequently given the courts a problem.
The courts have developed a number of exceptions to the privity rule to soften its impact, for example in Linden Gardens Trust v Lenesta Sludge Disposals Ltd [1994] 1 AC 85.
However, since the enactment of Contracts (Rights of Third Parties) Act 1999 (which was not in force at the relevant time in Panatown) these problems have largely been solved.
Under s.1 it is been possible for a third party who is expressly identified in a contract to sue for breach of a term which purports to confer a benefit on him.
Section 3 allows the defendant to a claim by the third party to rely on set-off our counter-claim either against the other contracting party or against that third party, unless the possibility of set-off against the third party is expressly excluded by the contract.
Another situation where privity has been a problem for potential claimants arises with manufactures’ guarantees. Where a consumer buys goods from a retailer or distributor, and not direct from the manufacturer, there is no privity between the manufacturer and the customer.
Shanklin Pier Ltd v Detel Products Ltd [1951] 2KB 854
The manufacturer of paint persuaded the pier owners to use that paint on the basis of statements as to its quality. It proved unsatisfactory. The pier owners had bought the paint from a distributor, so there was no privity between them and the manufacturers. The court found there was a collateral contract between the pier owners and the manufacturers, so the ‘guarantee’ of the paint was a binding term. This case, using the ‘collateral contract’ technique developed in land law, is much quoted in textbooks, but is rarely if ever followed in practice.
McNair J:
| “ | This case raises an interesting and comparatively novel question whether or not an enforceable warranty can arise as between parties other than parties to the main contract or the sale of the article in respect of which the warranty is alleged to have been given…. I am satisfied that, if a direct contract of purchase and sale of [the paint] had then been made between the plaintiffs and the defendants, the correct conclusion on the facts would have been that the defendants gave to the plaintiffs the warranties substantially in the form alleged in the statement of claim. In reaching this conclusion, I adopt the principles stated by Holt CJ in Crosse v Gardner and Medina v Staughton that an affirmation at the time of sale is a warranty provided it appear on evidence to have been so intended.If, as is elementary, the consideration for the warranty in the usual case is the entering into of the main contract in relation to which the warranty is given, I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A. |
However, in the case of guarantees offered to consumers, these do now have contractual force under the Sale and Supply of Goods to Consumers Regulations 2002 .
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8.2 Damages for Breach of Contract – General principles
The general principles applicable to damages claims can be summarised as follows:
1. Breaches of contract are actionable per se
2. The object of damages is to compensate
3. There is a requirement to mitigate loss
4. Damages can be recovered only for loss sustained
5. The loss must be caused by the breach.
8.2.1 The basic principle of assessment
The object of damages
The object of damages in contract is to compensate the victim of the breach for losses arising as a result of the breach. Damages in a commercial contract would therefore normally include loss of profit.
The basic principle
The basic principle, and the starting point for the assessment of damages for breach of contract, is that stated by Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 29:
“… you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”
This principle is still quoted with approval in most cases concerning damages for breach of contract today: see for example Hayes v Dodd [1990] 2 All ER 815, at 818, per Staughton LJ. Nevertheless, the difficulty lies in the application of the principle.
8.2.2 Different Methods of Application of the Basic Principle
The two approaches
If a contract is broken, or a term of it is broken, it could be argued that in the award of damages the party not in breach should be placed in the position in which he would have been if the contract had been successfully carried out without any breach of contract.
But in some cases it may also be argued that the better approach in cases of breach of contract is to restore the party not in breach to the same position as if there had been no contract at all.
In this section the two approaches will be described respectively as:
THE ‘SUCCESSFUL-TRANSACTION METHOD’
and
THE ‘NO-TRANSACTION METHOD’
although other expressions have from time to time been used in judgments:
– “expectation loss”
– “reliance loss”
The difference between the two approaches
The difference between the two methods of assessment was clearly marked in the case of:
Wikipedia note: Royscott Trust Ltd v Rogerson [1991] 3 All ER 294
Royscott Trust v Rogerson (BAILII: [1991] EWCA Civ 12 ) [1991] 2 QB 297, [1991] 3 All ER 294
A car dealer (the second defendant) misrepresented to a finance company (the plaintiff) the amount paid by way of deposit for the purchase of a car by the first defendant. On the strength of this representation the finance company lent £6,400 to the first defendant who later sold the car without it having been paid for in full.
The misrepresentation was that the deposit was £1,600 in relation to a purchase price of £8,000, whereas it was in fact £1,200 in relation to a purchase price of £7,600.
The plaintiff sued for damages, and the issue was how damages against the second defendant should be assessed. The second defendant argued that damages should be assessed as nil. The argument was that (applying the “successful-transaction” method) the resulting transaction would have been the same whether or not the amount of the deposit had been correctly stated. In either case, it was argued, the finance company would have lent the purchase price less the deposit, which in either case was £6,400.
The County Court applied a different variant of the same principle, finding that on a “successful-transaction” basis, the finance company would normally only have lent 4 times the amount of the deposit, i.e. £4,800. On this basis the County Court judge awarded £1,600 to the plaintiff, ie. £6,400 actually lent, less £4,800 which would have been lent had no misrepresentation been made.
On appeal to the Court of Appeal, damages were re-assessed as £3,625.24. In arriving at this sum the Court of Appeal applied the “no-transaction” method. Thus the plaintiff was awarded damages on the basis that no money would have been lent to the first defendant but for the misrepresentation. The sum awarded was therefore £6,400 less £2,774.76 received from the first defendant by way of payment.
Clearly there is a difference between the different methods of assessment. How did the Court of Appeal decide to apply one method rather than the other? In this particular case it was held that although the misrepresentation was innocent, the second defendant failed to prove that it was made in the belief up to the time when the contract was made that the facts represented were true. When this occurs, Section 2(1) of the Misrepresentation Act 1967 applies, and damages are awarded as if the misrepresentation had been fraudulent. This is treated, on a tort basis, with the result that all loss to the plaintiff must be made good. Thus the “no-transaction” method is appropriate.
8.2.3 Further principles
Some further principles may now be outlined:
(a) The tort principle is to assess damages by restoring, so far as is possible, the position of the injured party to the position before the damage occurred. If this is applied to a contractual situation, it will approximate to the “no-transaction” principle. The number of instances where the tort principle will apply are relatively few, and are most likely to arise under statute, such as the Misrepresentation Act 1967.
(b) A contract may require care and skill in advising a person in relation to a transaction which that person is about to enter into. This is the case, for example, when solicitors act for a person purchasing property.
In such a case, it will be permissible for a court to assess damages for breach of the contractual duty to take care and to use reasonable skill on the basis that but for the breach of this contract, the person about to make the purchase of property would not in fact have made that purchase.
Hayes v Dodd [1990] 2 All ER 815
Damages for failure to use reasonable skill and care in relation to a purchase of property were assessed on the “no-transaction” basis, because if the plaintiffs had been properly advised that there was no right of way to reach the rear of the property, they would not have bought it.
(c) Cases which usually come within the “successful-transaction” method of assessment include cases of non-acceptance of goods, under s.50 of the Sale of Goods Act 1979, cases of non-delivery of goods, under s.51 of the Sale of Goods Act 1979, damages for breach of warranty under s.53 of the Sale of Goods Act 1979 , as well as cases involving loss of profit, loss of a bargain, and loss of opportunity. In each of these cases the court is measuring the expectations of the innocent party under the contract, and compensating that party for the difference between what he/she might have expected to receive, and what in fact was received.
Chaplin v Hicks [1911] 2 KB 786
P sued the D for failure to give her a reasonable opportunity to attend an interview, at which, had she been successful, she might have been selected for employment as an actress. The agreement that she would attend the interview was of a contractual nature, and it was held that by failing to give the plaintiff a reasonable opportunity to attend, the defendant was in breach of contract. Damages of £100 were awarded on the basis that an opportunity to compete is something of value, and the damages were to compensate for that advantage being taken away.
Lord Justice Fletcher-Moulton:
“Where by contract a man has a right to belong to a limited class of competitors, he is possessed of something of value, and it is the duty of the jury to estimate the pecuniary value of that advantage if it is taken from him. The present case is a typical one. From a body of six thousand, who sent in their photographs, a smaller body of fifty was formed, of which the plaintiff was one, and among that smaller body twelve prizes were allotted for distribution; by reason of the defendant’s breach of contract she has lost all the advantage of being in the limited competition, and she is entitled to have her.loss estimated. I cannot lay down any rule as to the measure of damages in such a case; this must be left to the good sense of the jury. They must of course give effect to the consideration that the plaintiff’s chance is only one out of four and that they cannot tell whether she would have ultimately proved to be the winner. But having considered all this they may well think that it is of considerable pecuniary value to have got into so small a class, and they must assess the damages accordingly.”
Contrast Anglia Television Ltd v Reed [1972] 1 QB 60
A film had to be abandoned because of repudiation by actor. Profit not claimed, as would have been speculative. Successful claim was for money spent on actors, script-writers, locations etc.
(d) It is possible that some cases of breach of contract could yield the same result whether the damages were assessed by the “no-transaction” method, or whether they were assessed by the “successful-transaction” method.
See the example given by Staughton LJ, in Hayes v Dodd [1990] 2 All ER 815 at p.819.
(e) The issue as to which method of assessment of damages to use does not arise if the damages for a particular breach of contract are stipulated in advance by a provision for liquidated damages. Liquidated damages provisions are, however, subject to the rule against “penalties”, which will be dealt with later.
(f) Common sense in cases where breach has no adverse effect:
In Ruxley Electronics v Forsyth [1996] AC 344
D contracted to construct a swimming pool on P’s land. The contract specification required that the deep end of the pool should be 7 feet 6 inches deep. The pool was constructed, but the deep end was only 6 feet deep. P claimed damages in the sum required to reconstruct the pool to the specified depth, viz. £21,560. The trial judge rejected that claim, but awarded the plaintiff damages in the sum of £2,500 for loss of amenity.
The Court of Appeal allowed the plaintiff’s appeal from that decision, and awarded him the full sum claimed by him. The House of Lords allowed the defendants’ appeal from the decision of the Court of Appeal, on the ground that the expenditure required to reconstruct the pool to the specified depth was out of all proportion to the benefit to be obtained, and restored the judgment of the trial judge (summary quoted from McA lpine v Panatown ). Although courts are not concerned with the way the successful claimant spends his award, common sense will be invoked to prevent the claimant from receiving a “windfall.”
(g) Restitutionary damages? The Blake case.
AG v Blake [2001] 1 AC 268
Blake employed by the British security services. He spied for the enemy and was convicted and imprisoned. He escaped to Moscow and contracted with a publisher to publish a book about his spying. He planned to publish material which was no longer secret. However, publication would still be a breach of his contract of employment. The Attorney General sued him for an account of profits from the book. The Crown would not lose anything by the publication, but it seemed wrong for a spy to benefit from his treachery. Applying the compensatory principle, the Crown could not recover damages because it had no losses. The House of Lords held by a majority that there was a discretionary power to order an account of profits received as a result of breach of contract, instead of compensatory damages.
The case was decided in a political atmosphere where the idea that Blake would profit from his treachery caused public outrage. The chance of the courts applying the Blake principle in a commercial case is very small.
Wikipedia note:Lord Nicholls , Lord Goff of Chieveley , Lord Browne-Wilkinson and Lord Steyn held that in exceptional cases, when the normal remedy is inadequate to compensate for breach of contract, the court can order the defendant to account for all profits. This was an exceptional case. Blake had harmed the public interest. Publication was a further breach of his undertaking of confidentiality. Disclosure of non-confidential information was also a criminal offence under the Official Secrets Act 1911 . An absolute rule against disclosure was necessary to ensure that the secret service was able to deal in complete confidence. It was in the Crown’s legitimate interest to ensure Blake did not benefit from revealing state information. The normal contractual remedies of damages, specific performance or injunction were not enough, and the publishers should pay any money owing to Blake to the Crown.
Lord Hobhouse dissented. He would have held that since the information was no longer confidential, there could be no misuse of confidential information.
The Blake principle was applied in Esso v Niad Ltd [2001] All ER (D) 324. It was then rejected in AB Corporation v CD Company [2002] 1 Loyds Rep 805
In Experience Hendrix v PPX Enterprises Inc [2003] EWCA Civ 323 a recovery of profits arising on a breach of breach of contract was not awarded. The Court of Appeal took a broader approach and held that the defendants should pay a reasonable sum based on what the claimants would have demanded had they agreed to the use of the recordings.
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Important note:
When it is either not possible or desirable to award damages measured in that way, a court may award money damages designed to restore the injured party to the economic position that he or she had occupied at the time the contract was entered (known as the “reliance measure”), or designed to prevent the breaching party from being unjustly enriched (” restitution “).
- Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191
- J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9
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8.3 Remoteness of Damage
Remoteness of Damage
Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48
House of Lords
The House of Lords reviewed the law relating to remoteness of damage in Contract, narrowing the approach to be taken in connection with the recovery off damages. Professor McKendrick notes in his Contract Law 3ed Chapter 23, 889 ‘although the precise ambit of the decision is unclear’ and goes on to state:
“It is, however, clear that it is no longer sufficient simply to show that the loss which has been suffered is a reasonably forseeable consequence of the breach. In decsiding whether or not the loss is recoverable, it may be important to ask whether or not the defendant accepted responsibility for the loss in respect of which the claim has been brought. The expectation of the market would also appear to be an im[portant factor to take into account when deciding whether the defendant should be held responsible for the loss which has been suffered.”
The facts are relatively straightforward: A charted vessel was redelivered late, resulting in the owners having to reduce the hire rate for the follow-on time charter. The claimed a daily loss rate of $8800 for 191 – a claim of $1,364,584 in damages. The House of Lords held that liability was confined to $158,301 – the difference between the market and the charter rates of hire for the nine days during which the owners were deprived of the use of their ship.
Professor Mckendrick notes : “While they agreed in the result, the reasoning of their Lordships differed in significant respects so that it is no easy task to identify the ratio of the case.”
Analysis: Lord Hoffman focuses on the issue of whether the defenadant has assumed responsibility, objectively judged, for the loss in question and was attracted by importing the South Australia Asset Management Corp principles into the law of contract. For Lord Hoffman the key question is …. is the loss for which damages can be given of a type or kind which the person breaking the contract ought to be taken to have accepted responsibility? He held that contracting parties in this market would not have considered the losses arising out of a follow on fixture to be of a type or kind which the charter was taking responsibility for.
Lord Hope also focused on the assumption of responsibility issue. Lord Rodger was not troubled by the South Australia Assett Management issue and McKendrick notes ” In his view, the loss suffered by the owners was not the ‘ordinary consequence’ of the breach of contract. The loss arose as a result of the ‘extremely volatile market conditions’ which could not have been reasonably foreseen as being likely to arise out of the delay. The difficulty with this approach is that what was not foreseen was the extent of the loss, rather than its nature”
Baroness Hale was not attracted by the idea of importing South Australia Assett Management principles into contract and decided the case on the decided the case the basis that the ‘parties would not have had this particular type of loss within their contemplation.’ In her judgment, the parties would have expected that the owner would be able to find a use for the ship even if it was returned late and that ‘it was only because of the unusual volatility of the market at that particular time that this particular loss was suffered.’
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8.3.1 What heads of damages may be awarded? Principles of remoteness of damage
Remoteness of damage
The Argentino (1888) LR PD 191, 195,
“This rule (the measurement of compensation) does not come into play with regard to any claimed head of damage until it has been determined by the rule as to remoteness whether that head of damage can be brought into consideration at all.”
per Lord Esher MR.
Some kinds of damage are appropriate for compensation. Others are not, and are said to be too “remote”.
What can you recover for?
Assuming that I deliver to you defective goods, under a contract between us, I am liable to you in damages, usually on the basis of the sum needed to put you in the position in which you would have been if I had delivered the item contracted for in good condition. But the question of remoteness deals with what items can be taken into account. Can you, for example, recover for loss of profit or of productivity?
Can you recover any interest charges which you have incurred as a result of my breach?
Can you recover any items of expenditure which you may have incurred as a result of the breach?
Can you recover for loss of enjoyment, or for any form of mental distress?
8.3.2 Remoteness: the rule stated
The rule in Hadley v Baxendale
The rule governing remoteness of damage, as stated in: Hadley v Baxendale (1854) 9 Exch 341 at 354: This case involved a claim for loss of profit for failure to deliver a mill shaft on time. The loss of profit was held to have been too remote for the plaintiffs to recover. Loss of profit did not arise naturally from the failure to deliver on time, since the plaintiffs might have had a spare shaft available. As to the second part of the rule in Hadley v Baxendale , the plaintiffs could not recover lost profit under this rule since they had not made it clear that loss of profit would result from any delay.
“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, according to the usual course of things from such breach of contract, 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.”
per Alderson B.
There are therefore two limbs of recovery under Hadley v Baxendale :
1. Damages which may ‘fairly and reasonably be considered either arising naturally according to the usual course of things…
2. Damages which ‘may reasonably be supposed to have been in the contemplation of both parties, at the time of the contract, as the probable result of the breach.
Victoria Laundry v Newman Industries
Damages were awarded for loss of profit in:
Victoria Laundry v Newman Industries Ltd [1949] 2 KB 528.
It was clear to D, who were to sell and deliver to P a boiler, that it was needed for immediate use, and that profits would be lost if it was not delivered on time.
However, although the claim for the normal profits which the plaintiffs would have earned was allowed, the claim which the plaintiffs made for loss of exceptional profits which would have been earned in special dyeing contracts was disallowed, and profits at the normal rate were awarded for these contracts. This may be seen as an application of the second part of the rule in Hadley v Baxendale .
Asquith LJ re-stated the principles
(1) “It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights have been observed. This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto arising from a particular breach, however improbable, however unpredictable. This in contract at least is recognised as too harsh a rule, hence:
(2) 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.
(3) What was at the time reasonably foreseeable, depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.
(4) 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 that ordinary course. This is the subject matter of the “first rule” in Hadley v Baxendale , but to this knowledge, which the 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 the additional loss recoverable.
(5) In order to make the contract breaker liable under either rule it is not necessary that he should actually have asked himself, “What loss is liable to result from the breach?” As has often been pointed out, parties at the time of contracting contemplate, not the breach of the contract, but its performance. 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.
(6) Nor, finally, to make a particular loss recoverable, need it be proved that on 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 that it was likely to so result.
8.3.3 Refinement of the rule: The Heron II
The Heron II [1969] 1 AC 350,
Damages were awarded for loss of profits, on the basis that although the appellant, a ship owner, did not know that the respondent intended to sell a cargo of sugar immediately on its arrival, nevertheless the appellant knew that the respondent was a sugar merchant, and should have contemplated some financial loss as a result of a shipment of sugar arriving nine days later. This is an example of the first part of the rule in Hadley v Baxendale .
See also: H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791.
The members of the Judicial Committee of the House of Lords in this case came to no general consensus on remoteness, indicating a reticence to use the word ‘foreseeable’ but forward a number of formulations.
“It is clear that on the one hand the test of foreseeability as laid down in the case of tort is not the test for breach of contract; nor on the other hand must the loser establish that the loss was a near certainty or odds-on probability. I am content to adopt as the test a ‘real danger’ or a ‘serious possibility’. There may be a shade of difference between these two phrases, but the assessment of damages is not an exact science and what to one judge or jury will appear a real danger may appear to another judge or jury as a serious possibility.”
per Lord Upjohn.
Lord Morris ‘Not unlikely to occur’ or ‘liable to result’
Lord Hodson ‘liable to result’
Lord Reid ‘not unlikely’
8.3.4 Hadley v Baxendale applied
It would seem, from Heron II, that a higher degree of foreseeability is required to satisfy the test of remoteness in contract than in tort.
The rule requires the type of damage sustained to be foreseeable. If the type is foreseen the defendant is liable for all damage of that type, even though it may be far greater in extent than was envisaged – subject always, to the duty to mitigate, which may lessen the loss sustained. (Infra)
H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791
D supplied a pig food storage hopper to the P, failing, in breach of contract, to provide adequate ventilation resulting in the food going mouldy and the pigs thereby dying from a rare intestinal disease. D were held liable for the loss of the pigs.
All the members of the Court of Appeal upheld the trial judge’s order that the damages should be assessed for the value of the pigs that had died, the plaintiffs expenses in dealing with the infection and “loss of sales and turnover”. Lord Denning M.R. considered that the higher degree of foreseeability set out in Heron II only applied when the plaintiff’s claim was for financial loss, where his claim was for physical damage the test of remoteness was the same in contract as in tort. Orr and Scarman LJJ took the view that “there neither was nor should be any distinction between financial loss and physical damage for the purpose of remoteness. Their decision in favour of the plaintiffs was based on the view that the test of remoteness laid down in The Heron II was satisfied as the defendants could have contemplated a ‘serious possibility’ that the pigs might have become ill as a result of the defect in the hopper”.(Treitel, The Law of Contract)
Wikipedia note: Court of Appeal all held that the loss was not too remote. But the majority, Scarman LJ and Orr LJ held that the type of loss rather than the actual loss is relevant when applying the contract remoteness test. Scarman LJ agreed that it would be absurd if the test generally was different in contract or tort – just because of the cause of action.
Lord Denning MR (dissenting on the reasoning) would have held that a distinction should be drawn in contract between loss of profit and physical damage. He relied on Hart and Honore to say that a distinction between economic loss and physical damage is ‘emerging’ in contract, like in tort. For economic losses, it should have been foreseen as a ‘serious possibility’. For physical damage, there should be compensation if there is only a ‘slight possibility’.
A contract breaker is liable if the loss occurs in the ordinary course of events as defined by Heron II
Treitel observes that on this ground a person:
“who agrees to supply or repair an obviously profit-earning thing is liable for loss of profits resulting from delay (1) that a seller of poisonous cattle food is liable for the loss of the cattle to which it is fed (2) that a merchant who sells defective seed to a farmer is liable for the loss of the expected crop (3), that a supplier of defective components to a manufacturer is liable for loss of business suffered by the latter when customers dissatisfied with the end product do not replace repeat orders (4)……”
(1) Fletcher v Tayleur (1855) 17 CB 21
(2) Pinnock Bros v Lewis & Peat Ltd [1923] 1 KB 690
(3) George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803
(4) GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555
Treitel, Law of Contract
A contract breaker is not liable for loss caused by special circumstances simply because he knows about it.
Liability depends on some knowledge and acceptance by one party of the purpose and intention of the other in entering the contract, although that acceptance does not need to be explicit.
See the discussion of Horne v Midland Railway (1873) in Treitel Law of Contract
8.3.5 The ‘Reasonable Contemplation’ test is a test for remoteness not of quantification
The test establishes whether a contract breaker is liable for the loss. It does not determine the extent of that liability. The measure of damages is considered below.
8.3.6 Interest
Interest and financing charges may be awarded as damages under the principles arising from Hadley v Baxendale. As long as the possibility that the plaintiff would incur such charges as a result of the breach of contract was within the contemplation of the parties, damages may be awarded under this heading.
Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397
D sold and delivered to the plaintiff a quantity of scrap metal. The metal was intended to be reduced to fragmentised scrap steel by the plaintiff, who used a machine called a fragmentiser for this purpose. Some of the metal sold was not of the quality contracted for, and it seriously damaged the fragmentiser, which required repairs. The plaintiff sued for:
£47,259 for the cost of the repairs;
and,
£21,911 for loss of profit during the period
when the machine could not be used.
Of the above two heads of claim, the £47,259 included £2,149 in respect of finance charges which the defendant disputed liability to pay. Cantley J stated:
“What was the plaintiff’s situation? He needed to have some money under the existing hire-purchase agreement for the fragmentiser … I hold that the plaintiff acted entirely reasonably in entering into the new hire-purchase agreement and that the sum of £2,149 is recoverable as damages.”
Hayes v Dodd [1990] 2 All ER 815
Interest on a sum borrowed from a bank to finance a purchase of property was one of a number of heads of damage allowed by the court, in awarding damages for breach of contract. The heads of damages will be set out after a brief summary of the facts of the case, and it will be clear that interest as a head of claim for damages are of course a different thing from interest upon damages.
The plaintiffs, Mr and Mrs Hayes, wished to expand their motor repair business, and to buy a property in Tenterden, consisting of a leasehold workshop and yard, and a freehold maisonette. The maisonette had to be included in the sale. Access to the workshop was by a tunnel from the main street, which was narrow and inconvenient, and by a rear access. The rear access depended upon a right of way which the defendants, solicitors acting in the purchase for the plaintiffs, stated was secure. Shortly after completion, the right of way was blocked by an adjoining owner, and was not in fact a right of way at all. The defendants had apparently received copies of letters before the sale took place, showing that the right of way was asserted by the owners of the land at the rear not to exist.
The plaintiffs had to give up trying to run the business, and made various endeavours to sell the property.
Hirst J awarded damages for expenditure thrown away in the purchase of the business, including capital expenditure and interest; he also awarded other items of expenditure thrown away, and damages for anguish and vexation, or “mental distress”.
In the appeal against the quantum of damages, the table of damages, as re-assessed by the Court of Appeal, read as follows:
Damages Interest
£ £
1. Lease of workshop and yard 5,000 3,000
2. Rent 14,875 3,832
3. Rates 2,200 1,100
4. Insurance 1,125 440
5. Bank Interest 32,000 –
6. Redundancy 329.81 200
7. Goodwill 5,000 3,000
8. Travel 1,400 750
9. Loss on disposal of plant 7,561 –
10. Conveyancing costs 4,040 2,400
11. Life Insurance 500 150
12. Various other items 9,360 4,185
The total of damages awarded was £83,390.81, together with a total of £19,057 as interest on those damages. From this was deducted the sum of £10,400, which represented 80% of the increase in the value of the maisonette when it was eventually sold by the plaintiffs. (The reason why deduction of 80% of the gain to the plaintiffs was made, rather than the full amount of the gain, was that the court had only allowed the plaintiffs to recover 80% of the plaintiff’s claim for the interest they had paid on their borrowings from the bank to finance the purchase. The reason for only allowing 80% was that the judge, Hirst J, had accepted the defendant’s argument that the plaintiffs had paid too much for the property in the first place. The Court of Appeal agreed with this approach).
Several items which had originally been awarded by Hirst J were disallowed by the Court of Appeal:
(a) Although the plaintiffs made a gain on the sale of the maisonette, they made a loss on disposal of “plant”, i.e. workshop fittings. Hirst J had awarded the sum of £7,561 in this respect, together with interest on this sum. The Court of Appeal disallowed the interest on this sum, on the ground that that was already covered by the award of interest on the bank loan. To award it again would be double counting.
(b) Hirst J had awarded £1,500 to each of the plaintiffs for mental distress. This was disallowed by the Court of Appeal. This issue was one of remoteness of damage, and Staughton LJ approached it with caution, since he felt that important principles were involved. Indeed he felt that the position might need clarification by the House of Lords or by the Law Commission.
See: Raphael Wiseman v Virgin Atlantic Airways Ltd [2006] EWHC 1566 (QB) for an example of the difference between remoteness and causation.
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8.3.7 Type of loss recoverable
Compensation not punishment
Addis v Gramophone Co Ltd [1909] AC 488
“I have always understood that damages for breach of contract were in the nature of compensation, not punishment.”
per Lord Atkinson.
Exemplary or punitive damages, which are sometimes available in tort cases, are not available in contract cases. See however the discussion of AG v Blake [2001] 1 AC 268 above, where the damages were arguably awarded to punish rather than to compensate.
As a matter of policy certain heads of damage in contract are not recoverable:
Damages to reputation are provided for in tort and cannot usually be claimed in contract. Hurst v Picture Theatres Ltd [1915] 1 KB 1 – although injury to commercial reputation is recoverable in contract. Anglo-Continental Holidays v Typaldos Lines [1967] 2 Lloyd’s Rep 61
Injury to feelings is not usually recoverable in contract. Addis v Gramophone Co Ltd [1909] AC 488
Mental Distress
Staughton LJ, in Hayes v Dodd [1990] 2 All WR 815 stated that the foreseeability test might not be the correct test to apply to claims for damages under this head. Instead, he took the view that the issue was one of policy, i.e. it was for the courts to determine as a matter of policy the classes of case in which damages for mental distress may be awarded. He noted that in some states of the USA, damages may be awarded for the distress caused by wrongfully defending an action, but stated that “there is no such remedy in this country so far as I am aware.”
Note was taken of Perry v Sidney Phillips & Son [1982] 3 All ER 705, in which the Court of Appeal had awarded damages for distress, inconvenience and trouble due to defects in a house, which had been overlooked by a surveyor. However, although Lord Denning MR had awarded damages on the wider grounds of foreseeability, Kerr LJ had awarded them on the narrower ground of the physical consequences of the damage. This narrower ground was emphasised by Staughton LJ in Hayes v Dodd .
Staughton LJ also referred to a classification made by Dillon LJ in Bliss v South East Thames Regional Health Authority (1987) ICR 700, of cases “…where the contract which has been broken was itself a contract to provide peace of mind or freedom from distress …” but Staughton LJ added that “it may be that the class is somewhat wider than that.”
Watts v Morrow [1991] 1 WLR 1421
The Court of Appeal reduced a claim for damages for distress in a case of surveyors’ negligence.
In Watts v Morrow [1991] 1 W.L.R. 1421, 1445, Bingham L.J. (as he then was) said –
- “A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. This rule is not, I think, founded on the assumption that such reactions are not foreseeable, which they surely are or may be, but on considerations of policy.”
Contrast Farley v Skinner [2001] UKHL 49; [2002] 2 AC 737
The House of Lords, reversing the Court of Appeal, reinstated an award against a surveyor who had negligently failed to advise buyers of a property that it was affected by aircraft noise. It was central to the case that the buyers had specifically asked the surveyor to investigate the property’s exposure to aircraft noise.
Lord Scott held that if Mr Farley had known about the aircraft noise he would not have bought the property. He could either claim for being deprived of the contractual benefit ( Ruxley Electronics Ltd v Forsyth ), or he could claim as having consequential loss on breach of contract ( Watts v Morrow ). He added that if there had been an appreciable reduction in the house’s market value, he could not recover both, which would have been double recovery. Although £10,000 was ‘on the high side’, the value was within the right range.
‘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 et) experience, damages can, subject to the remoteness rules, be recovered.’
Lord Clyde said it was ‘the specific provision relating to peacefulness of the property in respect of the aircraft noise which makes the present case out of the ordinary’. The predominant object test was dispensed with, so it was enough that the term broken was known by both parties to have been important (it did not matter whether the purpose of the contract was to provide peace of mind). So it seems surveyors will not ordinarily be liable when a house is defective and it causes distress.
See also: Jarvis v Swans Tours Ltd (1973) 1 QB 233
The plaintiff suffered distress and disappointment when a holiday fell well below the expected standard.
See also: Jackson v Horizon Holidays [1975] 1 WLR 1468
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8.4 The Measure of Damages
8.4.1 The measurement of damages: restitutio in integrum
The principle
In Hayes v Dodd [1990] 2 All ER 815, at 825, Purchas LJ said:
“The measure of damages is that figure which, so far as is practical in the circumstances, achieves the maximum restitutio in integrum.”
Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 All ER 225
P’s factory had been destroyed by fire caused by a defective heating system installed by the defendant. In the claim for damages for breach of contract, it was held that since the P had no option but to rebuild the factory, the measure of damages was the cost of reinstating the factory. Further, since P had merely replaced the destroyed building (albeit with a better design), and had not added extra facilities, no credit had to be given for betterment.
See: Measure of Damages. © Daniel Atkinson 2007 29 April 2007
Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397
The supply of metal of the wrong kind to P caused the destruction of the rotor of his fragmentiser. The High Court awarded the full cost of purchasing a new rotor to P, (as well as interest and other heads of damages already discussed).
D in this case argued that plaintiff should be made to give credit for the fact that the damaged rotor was almost halfway through its working life, while it would be replaced with a new one which would last a full 7 years.
Cantley J did not accept this argument, and said that it was not the fault of the plaintiff that he had suddenly to buy a new rotor: it was entirely the fault of D, and furthermore, P could not have bought a replacement which was half-used: it had to be a new one.
Both Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd , and Bacon v Cooper (Metals) Ltd , were followed by the Court of Appeal in:
Dominian Mosaics & Title Co Ltd v Trafalgar Trucking Co Ltd 1989, The Times, March 3.
This case was an action in tort, since there was no contract between the plaintiff and the defendants, but the same principle of restitutio in integrum was applied, and the plaintiff was entitled, inter alia, to the full cost of replacing premises and equipment damaged by a fire caused by the defendants. It had been argued that the correct figure in respect of the equipment was £13,500 which was the acquisition cost, whereas the court accepted the replacement cost which was £65,000.
A difference between the assessment of damages in this case and that in Hayes v Dodd , is that in Hayes v Dodd , the plaintiffs had to give credit for part of the gain made on subsequent sale of the maisonette, whereas in this case, Dominian did not have to bring later dealings into account, although by selling the premises which it had acquired to replace the damaged premises, a gain of around £240,000 had been made.
(Readers are invited to consider the difference between the two cases, and why a distinction should be made).
Cost of Cure
For a good illustration of a cost of cure measure being applied see Sunrock Aircraft Corporation Ltd v Scandinavian Air Systems [2007] EWCA CIV 882
Important note:
When it is either not possible or desirable to award damages measured in that way, a court may award money damages designed to restore the injured party to the economic position that he or she had occupied at the time the contract was entered (known as the “reliance measure”), or designed to prevent the breaching party from being unjustly enriched (” restitution “).
- Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191
- J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9
Time for assessing damages
Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL
Courts generally award damages assessed as at the date the claimant could have mitigated after the breach of contract
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8.4.2 The Sale of Goods Act 1979
Overview
Three sections of this Act may be singled out for particular attention: sections 50, 51 and 53, dealing respectively with: damages for non-acceptance, damages for non-delivery, and damages for breach of warranty. In each case the Act states that the measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of contract. (Section 54 of the Act preserves the law as to special damages by stating that “Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable …).
Sections 50 and 51 contain a rule for measuring damages for non-acceptance and for non-delivery where there is an “available market” for the goods. The measure is “prima facie to be ascertained by the difference between the contract price and the market or current price at the time when the goods ought to have been accepted or delivered, in the case of non-delivery or if no such time was fixed, at the time of the refusal to accept or deliver.
The measure is “prima facie”, so it is possible for the courts to adopt different methods of measurement where the circumstances require. See for example Thompson v Robinson (1955) 1 All ER 154: lost profit recovered for non-acceptance of a car.
See also: Shearson Lehman v Maclaine Watson (No 2) [1990] 3 All ER 723:
Damages for non-acceptance of 8,000 tonnes of tin; problem as to what was the market price, since this would probably be affected by the size of the re-sale. Held: re-sale could be spread over a few days to avoid distortion.
Section 53 of The Sale of Goods Act 1979
The general rule for assessing damages is under s.53(2): the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty. The detailed measure of such damages, under s.53(3) 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.
The rule under s.53(3) is only prima facie: see Naughton v O’Callaghan [1990] 3 All ER 191. Racehorse misdescribed as to pedigree. Sold for 26,000 gns. If all facts had been known at time of delivery to the buyer, the horse would have fetched 23,500 gns. So applying s.53(3), damages would have been 2,500 gns. But the rule is prima facie, and the High Court in fact awarded damages on the basis of the difference between the sale price and the value of the horse after the facts about it were discovered, by which time it had run badly and was worth only £1,500.
( NB This case was also decided on the basis of misrepresentation, which gave the same result, the measure being simply the actual loss resulting.)
8.4.3 The seller’s action for the price
The seller may sue for the price where the property in the goods has passed (s.49(1) SOGA 1979, where the price is payable on a day certain irrespective of whether the property in the goods has passed or not (s.49(2) SOGA 1979) or where there is an express provision in the contract allowing the seller to sue for the price where the property in the goods has not passed.
S. 49(1)(2) SOGA 1979
“(1) Where under a contract of sale, the property in the goods has passed to the buyer, and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
(2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay the price, the seller may maintain an action for the price, although the property in the goods has not passed, and the goods have not been appropriated to the contract.”
8.4.4 The action for damages for non-acceptance of the goods
S. 50 (1)(2)(3) SOGA 1979
“(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
(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.”
(a) General principles: The general principles applicable to damages claims can be summarised as follows:
1. Breaches of contract are actionable per se
2. The object of damages is to compensate
3. There is a requirement to mitigate loss
4. Damages can be recovered only for loss sustained
5. The loss must be caused by the breach.
(b) Mitigation: The distinction between breach and anticipatory breach is fundamental.
Even where there is no available market, damages will be assessed on the basis that the seller should have acted reasonably to mitigate his loss.
Assessing damages in case of anticipatory breach may be more difficult, because the rule that damages should be assessed at time of ‘refusal to accept’ may not apply. The mitigation rule still applies.
‘The seller cannot advance the relevant date for ascertaining the market price merely by exercising his option to accept the anticipatory breach: a lower market price at the time of repudiation should not increase the damages… But the doctrine of mitigation may over-ride this rule. If the seller does accept the buyer’s anticipatory repudiation, his damages will be assessed on the basis that he took reasonable steps to mitigate his loss.’
Benjamin, Sale of Goods , 6th Edition, 16-077
See also: Gebruder Metelman v NBR [1984] 1 Lloyd’s Rep 614
(c) Calculation of damages: is laid down in s.50(3)(2)
s. 50(3) Meaning of ‘available market’.
A place where goods can be sold
Dunkirk Colliery v Lever (1878) 9 Ch D 20
Thompson v Robinson Gunmakers Ltd [1955] Ch 177
Charter v Sullivan [1957] 1 All ER 809
Jenkins LJ considered that since there was a distinction between contract price and market price there was only an available market where the market price was regulated by supply and demand. This would exclude markets where the goods were sold by reference to a fixed price in which case the available market rule is inappropriate and the question becomes one simply of the amount of lost profit made on the lost sale. Where there is no available market the measure will generally be the difference between the sale price and the value of the goods to the seller at the time of breach.
Harlow & Jones v Panex International [1967] 2 Lloyd’s Rep 509
The measure under s.50(3) is only a prima facie measure.
The seller plays the market, takes the risk and sells at a higher price than the market price.
The duty to mitigate precludes the situation where the seller delays re-selling after breach and attempts to claim damages based on the market price fall subsequently.
The converse is more interesting. What is the position if the seller does not sell, holds onto the goods and sells at a higher than market price at a later stage. In the circumstance it is submitted that the seller will still be able to claim the difference between the contract price and the market price at the date of breach – and retain any gain he made as a result of taking the risk of market fluctuation.
Campbell Mostyn Ltd v Barnett Trading Co [1954] 1 Lloyd’s Rep 65.
(d) No available market: the seller must claim under s. 50(2). The seller’s loss is the difference between the contract price and the value of the goods to the seller at the date of breach.
The principles of remoteness of damage are well known and are not rehearsed
The Heron II [1969] 1 AC 350
(e) Special Loss: If the seller sustains consequential loss this may recovered under the two limbs in Hadley v Baxendale. This is provided for in s. 54.
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8.4.5 Remedies of the buyer
Express terms
(a) Condition
The buyer enjoys the election to affirm the contract and claim damages or accept the repudiatory breach, treat the contract as at an end and claim damages.
(b) Innominate Term
Ex Post Consequences of Breach Test
If the breach is serious the court will treat the breach as a breach of condition. If the breach is not serious the court will treat the breach as a breach of warranty.
(c) Warranty
The remedy for breach of warranty is damages.
Breach of Implied Term
Buyer has Not Accepted Goods (ss.34/35 11(4))
1. Rejection (See s.36)
2. Money Back [Q/Ct; Restitution] s.54
3. Damages: Non Delivery s.51
4. Damages for breach of Warranty s.53
5. Damages for special loss
Buyer has Accepted Goods (s.11(4))
1. Cannot Reject (s.11(4))
2. Damages: for breach of Warranty s.53
The buyer may bring action for Specific Performance s.52
Misrepresentation
Fraudulent – Rescission & Damages
Negligent – Rescission & Damages
Innocent – Rescission OR Damages
Negligence
Donoghue v Stevenson
Junior Books v The Veitchi Co Ltd [1983] 1 AC 520
Simaan General Contracting Co v Pilkington Glass Ltd (No. 2) [1988] 2 WLR 761
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8.4.5 Damages for non-delivery
s. 51, (1)(2)(3) SOGA 1979
“(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
(2) 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.
(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 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.”
Similar points as arose in connection with the seller’s claim under s.50 apply in the context of the buyer’s remedy under s.51. These are not rehearsed here.
Loss of profits may be claimed under the rule in Hall v Pim where the buyer is able to prove that the seller knew at the time of contracting that the buyer definitely intended to resell – (the identical items (?) is this the point of distinction between Hall v Pim and Williams v Agius [1914] AC 510?) While there is no provision in the statute regarding delay in delivery the measure of damages, if the buyer accepts late delivery will be the difference between the contract price and the value of the goods at the time of late delivery. The buyer will, of course, have to pay the price.
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8.4.6 Damages for breach of warranty
s. 53
“(1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods but he may – (a) set up against the seller the breach of warranty in diminution or extinction of the price, or (b) maintain an action against the seller for damages for breach of 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.
(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.”
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8.4.7 Anticipatory breach and its effect upon the measure of damages
Basically ss.50 and 51 of the Sale of Goods Act 1979 apply to cases of anticipatory breach as they do to other breaches amounting to non-acceptance or non-delivery. But there are differences, since the innocent party has a choice as to whether to accept the repudiation of the other party, and to sue for damages immediately, or to refuse to accept the repudiation, and to continue to treat the other party as being bound by the contract. If the former course of action is chosen, the duty to mitigate arises, whereas if the latter is chosen, the duty to mitigate does not arise until after the due date for delivery. Where the duty to mitigate does arise, it overrides the prima facie rules of ss.50 and 51.
Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory (1979) AC 91
If no fixed delivery date, and delivery is to be within a reasonable time, then section 51(3) does not apply to cases of anticipatory breach by the seller, and damages are to be assessed in accordance with section 51(2).
8.4.8 The “breach date” rule: assessment as at the time of the breach
Damages for breach of contract have usually been assessed as at the time when the contract was broken. So if the contract was broken in 1970, and, as happened, in the next few years the value of sterling changed, the change in value after the accrual of the cause of action would be ignored.
In Miliangos v George Frank (Textiles) Ltd (1976) AC 443, the House of Lords held that where appropriate, judgment could be given in a foreign currency. In this case a Swiss citizen sold a quantity of polyester yarn to an English company, and the contract price was stipulated in Swiss francs. The contract also provided for payment in Switzerland, and for the contract to be governed by Swiss law. After delivery, the buyer defaulted as to payment, and an action for the price was brought in England. Between the date when payment was due, and the date of the hearing, three years later, sterling had devalued against the Swiss franc, and the plaintiff sought judgment in Swiss francs. In sterling terms the contract price was £42,000, but by the time of the hearing, the sum of £60,000 would have been required to give the same value in Swiss francs. The House of Lords held that judgment for the plaintiff could be entered in Swiss francs or the sterling equivalent at the time of payment.
It will be noted that this was an action for the price, rather than a claim for damages.
However, courts have subsequently been prepared to award damages in a foreign currency, and moreover, this has been done even in cases governed by English law: Jean Kraut AG v Albany Fabrics Ltd [1977] QB 182;
George Veflings Rederi A/S v President of India [1978] 1 WLR 982
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8.5 The Duty to Mitigate Loss
The duty is well known. In Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 All ER 225, at 240, Widgery LJ stated:
“In my opinion each case depends upon its own facts, it being remembered, first, that the purpose of the award of damages is to restore the plaintiff to his position before the loss occurred, and secondly, that the plaintiff must act reasonably to mitigate his loss.”
The duty to mitigate is only a duty to act reasonably to keep losses from becoming higher than is necessary. Modern interpretation of the rule does not impose a strict duty to take whichever steps are calculated to cause the minimum amount of loss.
Banco De Portugal v Waterlow & Sons Ltd (1932) AC 452,
“The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken”.
per Lord Macmillan at 506:
The above was applied in: Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397.
Hire purchase charges for the purchase of a new rotor, to replace a damaged rotor, were high, perhaps, compared to others, but the plaintiff had not acted unreasonably in the circumstances in incurring these charges.
See also Hayes v Dodd (1990): plaintiffs had some delay in selling the properties, because they tried unsuccessfully to sell both properties together. Only later did they sell them separately. This meant that the figure for rent was higher than it might have been. However, it was held that all the rent was recoverable as damages by the plaintiffs, as they had acted reasonably.
See also James Finlay & Co Ltd v Kwik Hoo Tong (1929) 1 KB 400.
8.5.1 Contributory negligence and damages for breach of contract
This raises questions of great difficulty, and courts have sometimes stated that the defence of contributory negligence is not available when a claim is made for damages for breach of contract.
See Basildon District Council v JE Lesser (Properties) Ltd (1985) QB 839
The matter turns upon the interpretation of the Law Reform (Contributory Negligence) Act 1945 , and the question of whether or not the “fault” referred to in that act is exclusively tortious. It has been held that the defence of contributory negligence can be raised where the defendant’s liability is in tort as well as in contract: Forsikringsaktieselskapet Vesta v Butcher [1988] 2 All ER 43.
There are also other possible approaches to the issue: see Lexmead v Lewis (1982) AC 225.
8.6 The Effect of Provisions for Liquidated Damages in Contracts
Genuine pre-estimates of loss are permissible in contracts; penalties are not.
Kemble v Farren (1829) 6 Bing 141
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
The House of Lords summarised the rules for guidance as to the distinction between a penalty and a provision for liquidated damages:
1. A sum is a penalty if it is excessive in comparison with the greatest loss which could flow from the breach.
2. A clause providing for payment of a greater sum, on failure to pay a certain sum is a penalty.
(However, later cases have shown that clauses providing for interest on sums due are acceptable; clauses providing for damages for breach of contract on failure to pay sums due may be acceptable or may fall into the category of penalties, depending upon drafting techniques: Lombard North Central PLC v Butterworth [1987] QB 527.)
3. If the sum stipulated is payable on a single event, it is liquidated damages, subject to rules 1 and 2 above. If it is payable on several events of different types, or where the damage is of different degrees, there is a presumption that it is a penalty.
The fact that the expression “liquidated damages” has been used, or indeed the word “penalty”, is not conclusive, although it must be regarded as an indication of the intentions of the parties.
Liquidated damages clauses are used in most standard form building and engineering contracts today. See JCT; I Mech.E; IEE; ICE, I Chem E, GC Works.
The test is one of presumed intention of the parties at the time of making the contract: see Lord Diplock in Photo Production Ltd v Securicor Ltd [1980] AC 827:
“Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits that the agreement must retain the legal characteristics of a contract and must not offend against the equitable rule against penalties; that is to say it must not impose upon the breaker of a primary obligation a general secondary obligation to pay to the other party a sum of money which is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained by him in consequence of the breach of the primary obligation.”
8.7 Contractual Terms Limiting Liability
Contractual terms limiting liability are subject to rules governing the precise construction of those terms, and to the Unfair Contract Terms Act 1977 .
P Monetary limits upon liability:
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803
P Time limits upon liability for breach of contract:
RW Green Ltd v Cade Bros Farm [1978] Lloyd’s Rep 602
Rees-Hough Ltd v Redland Reinforced Plastics Ltd (1983)
P Clauses purporting to exclude particular types of loss or damages which would otherwise be payable in respect of breach of contract.
Clauses in contracts may exclude the liability of one of the parties for “indirect” or “consequential” loss or damage. Where the expression is not defined by the contract, the dividing line between the liability which is excluded, and the liability which is not, is often difficult to draw.
Croudace Construction Ltd v Cawoods Concrete Products Ltd (1978) 2 Lloyd’s Rep 55 Court of Appeal HELD that the word “consequential” in a clause in a particular contract excluding liability for “any consequential loss or damage caused or arising from late supply fault or failure or defect …” did not cover (and therefore did not effectively exclude liability for) any loss which directly and naturally resulted in the ordinary course of events from late delivery.
However, it is clear from the judgment of Megaw LJ in this case that the word “consequential” may bear different meanings, and that much depends upon the way that the particular terms of the contract are drafted.
8.8 The Effect of Tax Liability Upon Damages
British Transport Commission v Gourley [1956] AC 185:
In assessing damages, account may have to be taken of the plaintiff’s liability to taxation, for example in assessing damages for loss of earnings or income or profits. The above case was a tort case, but the same principle has been applied to claims in contract: Beach v Reed Corrugated Cases Ltd [1956] 1 WLR 807: wrongful dismissal.
Much depends upon the extent to which the damages would be taxable in the hands of the plaintiff: double taxation to be avoided. However, the system is inexact: see Beach v Reed Corrugated Cases : method of taking into account liability to higher rates of tax.
8.9 Remedies provided by legislation
Many pieces of consumer legislation include remedies, in some cases refunds and/or specified sums in compensation, in specific contracts. Many of these implement EU legislation. Examples include the employment legislation, Consumer Protection Act 1974, Consumer Protection Act 1987, Fair Trading Act 1973, Package Travel Regulations 1992, Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987, Electronic Regulations 2002, Denied Boarding Compensation Regulation 2004.
8.10 Valuation of property on breach
Platform Funding Ltd v Bank of Scotland plc (formerly Halifax plc) [Court of Appeal] [2009] Contract – Breach – Valuation of property – obligation on valuer that of reasonable professional – clear language were required to impose an obligation stricter than that of reasonable care in a particular case