Damages

What is the typical rule for quantifying damages in contract?

Put CL in same position they would have been in if contract had been properly performed.

Why? Because breach deprive them of benefits they expected to get.

True or False: The purpose of damages is not only to award the CL their expectation loss, but to punish the defendant for the breach.

False.

Purpose not to punish or recoup benefit from breach contract.

Analyse the attached scenario and calculate the award of damages Smith is entitled to.

£6,000

Look at CL’s position ‘as it is’ and compare with position CL would have been in if contract performed.

Called ‘expectation loss’ / ‘loss of bargain’.

What is the alternative to ‘expectations loss’ otherwise known as ‘reliance loss’ entitle the CL to?

[Anglia TV v Reed]

CL claim expenses incurred because of reliance on contract.

Arise where CL unable recover profits because too speculative.

• CL engage D (actor) take lead role TV show. D dropped out.

• Cancelled entire production. CL seek recover expenditure (i.e. editing, sets, director’s fees).

• Held - Recoverable. Damages not valid because unclear profit from TV show.

NOTE - Recover expenses incurred before and after breach.

True or False: Both pecuniary and non-pecuniary (i.e. physical inconvenience, pain and suffering) damages can be claimed.

[Jarvis v Swan Tours]

True

Pecuniary = Lost profit / property damage (i.e. can ‘put it right’).

Non-pecuniary = Physical inconvenience, pain, suffering. Often linked to wedding and holidays.

• Travel agents advertise ‘ house-party’ in Switzerland.

• Not as described. Few guest; none the 2nd week.

• Held - Damages for loss of enjoyment (i.e. non-pecuniary).

What is the test for remoteness of loss in contract?

TEST = Was particular loss in reasonable contemplation of parties at time of contract as being a likely consequence of breach?

If natural / inevitable consequence then deemed to have been in reasonable contemplation.

Other loss - Was D aware of ‘special circumstances’ which meant loss would be a likely consequence of breach?

Rudi sold his camera for £100 and gave a 1-year guarantee. John bought the camera for a wedding he was contracted for later that week. The camera broke the next day and John lost £2000 in profit on the deal.

Can he recover this loss?

No.

Will be able to recover damages for camera (i.e. 1-year guarantee).

Wedding too remote.

BUT - If John informed Rudi of this purpose he could recover. Would be a ‘special circumstance’ situation.

Provided the particular type of loss is not remote will the extent of loss be a factor in limiting damages?

[Parsons v Uttley Ingham]

No.

• CL bought hopper from D to feed pigs. Defective. Food grew mould.

• Pigs contract infection; 100s died.

• Held - Illness of pigs within reasonable contemplation as a likely consequence of breach.

• Extent of loss recoverable. Death not remote.

Is the CL obliged to mitigate their losses? To what extent must they do so?

CL must take reasonable steps to mitigate losses.

Cannot sit back and watch losses mount.

Fail to do so? CL cannot recover damages as a result of their failure to take reasonable steps to mitigate.

Who bears the burden of proving that the CL has failed to take steps to mitigate their loss?

The defendant. Difficult to do so.

Reasonable = question of fact for court.

What is the method to quantity damages for defective work?

[Ruxley v Forsyth]

Cost of reinstatement or ‘cost of cure’.

• Contract to build swimming pool 7ft 6in deep. Actually 6ft 9in deep.

• No difference in value. Would cost £21,560 to rectify.

• F entitled to ‘£0’ (difference in value), £21,560 to rectify or sum in between? Trial judge awarded £2500.

• Held - Gave £2500. Loss of amenity; personal preference unsatisfied.

  • £21,560 unreasonable in relation to benefit obtained.

NOTE - If not personal preference? F would not get £2500. Did not ‘lose’ preference.

If depth was for expert or highly specialised reason (i.e. sports diving) then more likely entitled to £21,560 to rectify.

What is the method to quantity damages for defective goods?

Difference in value between goods (as they are) and goods as they were expected to be.

Parties often include ‘specified damages / liquidated damages’ clauses within their contracts to provide pre-determined damages in the case of specific breaches. Enables them to avoid court.

What is the difference between a specified / liquidated damages clause and a penalty clause?

• Specified damages = Genuine attempt pre-estimate loss. Damages may be less / more actual loss. Rules of remoteness, mitigation etc. do not apply.

• Penalty clause = Sum extravagant / disproportionate. Courts apply rules of measure, remoteness, mitigation etc.

How does the court decide if a clause is a specified damages clause or penalty clause?

[Cavendish Square Holdings v Makdessi]

Penalty clauses apply to ‘secondary obligations’.

• Obligation on one party to perform act. Fail to perform results in payment of money.

If so then…

TEST = Does clause impose a detriment…out of all proportion to legitimate interest of the innocent party in enforcement of contract?

How did ‘ParkingEye v Beavis’ provide an example of the ‘Cavendish’ penalty clause test in application?

• B parked car in car park. Exceed 2-hour limit by 1-hour. Fined £85.

• Prominent signs throughout warning of time limit.

• Held - Not a penalty clause. Legitimate interest. Receive income to meet costs of running car park.