7. damages

basic framework for damages

1. breach

2. measure of loss

3. non-pecuniary loss

4. causation

5. remoteness

6. mitigation

1. breach (3)

The court must identify the type of term that has been breached

express term

implied terms (eg. sga 1979 / sgsa 1982 / cra 2015)

2. measure of loss framework

1. expectation or performance interest (expectation damages)

   • difference in value

   • cost of cure

   • loss of amenity

2. reliance interest (reliance damages)

   • wasted expenditure

3. consequential loss

expectaiton interest definition +case

‘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 interest)

[robinson v harman 1848]

difference in value

Market value of the performance the defendant promised minus the value actually given.

cost of cure +3 cases

must be not out of proportion to the benefit obtained [ruxley electronics v forsyth 1996]

money must be used to carry out the repairs [bire construction v eastern telegraph 2004]

must suffer financial loss to claim for more than nomial damages [alfred mcalpine construction v panatown 2001]

ruxley electronics v forsyth 1996

where C ordered construction of a swimming pool but it was not as deep as he wanted it. The cost of rebuilding it to the specific depth would cost more than the market value. Held it was not reasonable to revoked cost of cure damages as the pool was still functional.

bire construction v eastern telegraph 2004

d sold a college and did not address defects, c sued for money that was not spent on defects - court awarded damages as there was no intention to use the money to carry out the repairs

alfred mcalpine construction v panatown 2001

Delay and defects of AMC caused loss to one of Panatown’s companies. They also entered a contract to say if there was no reasonable care or skill then the remedy was at a nominal amount. Held employer suffered no financial loss so could not claim for more than the nominal damages

loss of amenity (3 +2 cases)

consumer surplus only for consumer contracts

The law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure. [ruxley]

Where it is reasonable for C to do something other than immediately mitigate the loss, the court will postpone the assessment for damages. [radford v de froberville 1977]

radford v de froberville 1977

C agreed with D to build a wall separating their lots but D failed to do so. C was awarded cost of cure even though a less costly structure (pre-made fence) would have been equally sufficietn

reliance interest (5 +4 cases)

• wasted expenditure - c has an unfettered choice either loss of profit or wasted expen. [anglia television v reed 1971]

• courts will not award damages for expectation interest if a calculation would be highly speculative - instead reliance losses [seen in mcrae v commonwealth disposals commission 1951]

• cannot be used to escape a bad bargain [haulage v middleton 1983]

• c must prove it would not have been able to recover expenditure if contract was properly formed [haulage v middleton 1983]

• unless d’s breach makes it impossible for c to establish this [ccc films v impact quadrant films 1985]

anglia television v reed 1971

d refused to take part in film and no one would take his place - tried to claim for loss of profits but no way of knowing how well the film would do

mcrae v commonwealth disposals commission 1951

aussie case- C was contracted by D to find a tanker but no tanker existed. C claimed lost profit but HC of Australia held this was too speculative as there were no details about whether the salvage operation would be successful.

haulage v middleton 1983

D obtained approval from local council to operate in his own garage for no cost. C claimed for unpaid rent as d was ejected from c’s prem 6 months before end of lease. Held D was entitled to nominal damages as D suffered no loss from profit since he saved payment for the remaining lease.

ccc films v impact quadrant films 1985

a contract was discharged due to D’s breach which deprived C of the films which were likely to have general profits. Held the burden is on D to prove that C would have not been unable to recover the expenditure.

consequential loss (1+case)

losses that are an inevitable consequence from the breach [h parsons v uttley ingham 1978]

h parsons v uttley ingham 1978

negligence of a air vent installation lead to pigs dying. C sued for loss of profits.

3. non pecuniary losses framework

mental distress

exeception: pleasure relaxation and peace of mind contracts

exception: mental distress consequent on physical inconvenience

mental distress

general rule is that damages are not recoverable [addis v gramophone 1909] / [johnson v unisys 2001]

exceptions names from [watts v morrow 1991]

contracts where object is pleasure relaxation and peace of mind - recoverable [jarvis v swan tours 1973] / [farley v skinner 2001]

if the inconvenience or discomfort is a sensory experience - damages [farley v skinner 2001]

addis v gramophone 1909

damage to reputation after wrongful dismissal could not be claimed

johnson v unisys 2001

no claim for psychiatric injury caused by stressful manner employer conducted dismissal

watts v morrow 1991

morrow failed to identify defects on house w tried to recover distress caued by repair - held ‘A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation’.’

jarvis v swan tours 1973

ski facilities idd not live up to what was advertised

farley v skinner 2001

D was asked to report on aircraft noise on a county residence near Gatwick airport. D said it was unlikely the properly would suffer from the aircraft noise, C was awarded damages of £10,000 for distress and inconvenience for noise caused by aircraft.

4. did the breach cause the loss

the breach must be the dominant or effective cause of the loss [galoo v bright grahame murray 1994]

war doesn’t break chain [monarch steamship co v karlshamms oljefabriker 1949]

continued use of known broken object breaks chain [lambert v lewis 1982]

galoo v bright grahame murray 1994

auditors produced inaccurate accounts for the company but the court held that negligence had created that and the breach of contract was not the effective cause of the loss.

monarch steamship co v karlshamms oljefabriker 1949

cause of delay was unseaworthiness of the vessel not the war as that was foreseeable

lambert v lewis 1982

used broken trailer knowing it was damaged - no liability for defective product

framework for loss must not be too remote

• two limbs

• reasonable contemplation

• assumption of responsibility

5. losses must not be too remote (3)

losses must have been within the reasonable contemplation of the parties to be recoverable either in the usual course of things or where the parties have actual knowledge [hadley v baxendale 1854]

two limbs:

losses arising naturally

unusual abnormal loss requiring actual knowledge [victoria laundry (windsor) v newman industries 1949]

hadley v baxendale 1854

C owned a mill with a broken crankshaft and engaged D to transport it somewhere to get it repaired. D then made an error which delayed the return of the crankshaft and C tried to claim loss of profit. Held that the loss was reasonably foreseeable as a naturally occurring event

victoria laundry (windsor) v newman industries 1949

a boiler from D was delivered late and C sued for the loss of profit for new profits and the loss for missing a lucrative (great profit) government contract. Held the exceptional loss from the lucrative contract was not recoverable as it was not foreseeable but the ordinary loss was.

test for reasonable contemplation

only the type of loss not the extend needs to be foreseeable to be recoverable [h parsons (livestock) v uttley ingham 1978]

[koufos v czarnikow heron II 1967]

h parsons (livestock) v uttley ingham 1978

d neglected to open ventilator on pig food storage container so it grew mould and 200 pigs died - loss of profits was reasonably foreseeable as pigs may become ill

koufos v czarnikow heron II 1967

a voyage of 20 days to transport sugar took 9 days longer after deviations from the route and the market price of sugar dropped resulting in loss of profit. Held the charters were entitled to recover from the loss of profit as the change in market price was not unlikely.

assumption of responsibility

a voyage of 20 days to transport sugar took 9 days longer after deviations from the route and the market price of sugar dropped resulting in loss of profit. Held the charters were entitled to recover from the loss of profit as the change in market price was not unlikely.

transfield shipping v mercator shipping, the achilleas 2008

a ship returned late and lost profits on a lucrative charter. C tried to claim full loss of the charter. The charter said damages should only be fore the nine days that it was late, Held that the higher amount was not in reasonable contemplation.

supershield v siemens building technologies 2010

a sprinkler system became blocked and lead to damage to electrical equipment Supershield said that the sprinkler was unlikely to fail in a flood and this situation was an unlikely event. Held Supershield had assumed a contractual duty

6. mitigating the loss

the injured party should take reasonable steps to mitigate their loss [british westinghouse electric manufacturing v underground electric rail co 1912]

no requirement to embark on a complicated and difficult piece of legislation [pilkington v wood 1953]

[banco de portugal v waterlos & sons 1932]

british westinghouse electric manufacturing v underground electric rail co 1912 +quote

In the case C had to supply turbines but they did not meet the specification and were replaced and the savings over the orginal turbines

‘[T]‌‌his second principle does not impose on the claimant an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business.’

pilkington v wood 1953

purchased home that has defective title - solicitor liable for different in value with and without defect - The claimant was entitled to sue the vendor, although the court held there was no duty to sue the vendor in order to mitigate their loss arising from the defendant’s negligence.

banco de portugal v waterlos & sons 1932

D’s breach resulted in a large number of forged banknotes in Portugal and C undertook to honour the face value of the notes. C’s actions increased the loss but held to be reasonable because otherwise there would have been a further crisis in the paper currency

contributory negligence

Only applies where D’s liability in contract is the same as his liability in negligence (negligent breach) which arises independently of the contract. [Forsikringsaktieselskapet Vesta v Butcher [1986]

Forsikringsaktieselskapet Vesta v Butcher [1986]

Norwegian claimants were insurance of a fish farm under Norwegian law but secured reinsurance from London marker reinsures which was governed by English law. The farm lost 100,000 fish due to weather conditions. The Norwegian insurers were liable but under English law at the time did not require any casual link between breach and loss so no liability arose.