NON PECUNIARY LOSS

Addis v Gramophone Co [1909]

FACTS

C was employed as a manager by D but D fired him. C brought an action for breach of contract saying he should be compensated for the insulting manner in which he was fired.

OUTCOME

here are no recoverable damages for hurt feelings or emotional distress (damages for financial loss allowed). If this “objectionable” idea were allied, it would “breed barren controversies and increase costs” to allow claims for the “harsh and humiliating way in which he was dismissed”. In some cases, C could seek a tort remedy. 

• Shows the absurdity of the idea: “Is the creditor or vendor who sues for one of such breaches to have the sum recovers lessened if she should be shewn to be harsh, grasping or pitiless, or even insulting, in enforcing his demand, or lessened because the debtor has struggled to pay, has failed because of misfortune, and has been suave, gracious and apologetic in his refusal?”

Jarvis v Swan’s Tours [1973]

FACTS

C booked a sports holiday with D, described as a “house-party” with lots of entertainment. The entertainment (and other features) were inferior compared to the brochure’s description

OUTCOME

J was entitled to damages including the amount he paid for the holiday and an additional sum of £60 to compensate for the disappointment he suffered. To not compensate C for this shows the judge “under-valued the loss” to C and “under-estimated the inconvenience” to him. C was compensated for “his loss of enjoyment” and “his disappointment” as his “expectations have been largely unfulfilled”.

• Lord Denning: The brochure’s statements were “representations or warranties”, so breach of them gives rise to damages.
  
  

• Edmund Davies LJ: D did not limit themselves to providing a package holiday but “assured and undertook to provide a holiday of a certain quality”. 

OBITER

• Lord Denning: The general rule that damages cannot be recovered for mental distress are “out of date” - nervous shock can be recovered in tort, so mental distress should be recoverable in contract.

  • It is “difficult” to assess mental distress, but “it is no more difficult than the assessment in which the courts have to make every day in personal injury cases”. 

[Look at Lord Scott in Farley on the different views of the judges!]

Watts v Morrow [1991]

FACTS

C instructed D to survey a house. D found the property to be in good condition. C purchased the property and had to spend £33,000 to fix its defects. C sued D for the cost of repair work and further damages for the distress of having to live on a building site.

OUTCOME

C recovered damages for the excess price paid in reliance on the report but not the cost of conducting the repairs as the proper measure of damages was to put C in the position he would have been in if the report had been correctly prepared - the loss suffered was the difference in value as presented and the actual value. Modest damages for physical discomfort awarded.

• Damages for mental distress: “A contract breaker is not in general liable for any distress which his breach of contract may cause to the innocent party” due to policy reasons (not due to the fact that such distress is unforeseeable).

  • Exception #1 (“the exceptional category”): “Where the very [“sole”] object of the contract is to provide pleasure, relaxation, peace of mind or freedom from molestation” and this is not met.

    • “If the law did not cater for this exceptional category of case it would be defective.”

  • Exception #2 (cases not within “the exceptional category”): Where “physical inconvenience and discomfort” is caused by the breach, with damages recoverable for “mental suffering directly related to that inconvenience and discomfort”. 

    • [Added in Farley: Where the distress is caused by a physical problem equal to nuisance].

• The current case: Does not fall under exception #1 as there was no express or implied promise for the provision of peace of mind or freedom from distress (an ordinary surveyor’s contract does not fall under this). Damages recoverable under exception #2.

Ruxley v Forsyth [1996]

FACTS

C paid D £17,000 for a swimming pool to be 7’6 deep, but it was 6’9 deep. This was perfectly acceptable for diving. The cost of cure would have been £21,000. There was no difference in value so the diminution in value would have been £0. A question of “everyday practical importance”.

OUTCOME

Loss of amenity damages for non-financial were awarded for £2,500 (but they have to be restrained and modest). It suffices that the provision of peace of mind or the prevention of distress is an “important object” of the contract [but need not be the “predominant” object - less stringent than Watts].

• Loss of amenity damages: Damages awarded where “the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure” - where there is “consumer surplus” which is incapable of “precise” monetary valuation as it is “a personal, subjective and non-monetary gain”. The pool served its “practical purpose” but C lost “amenity, convenience or aesthetic satisfaction”. 

  • Why were they awarded here?: Without them, D would “escape unscathed” as they would only have to show the “average potential buyer” was satisfied, which would “make part of the promise illusory, and unbalance the bargain”. “It would be equally unreasonable to deny all recovery for such a loss”. 

    • It would be “unacceptable to the average householder” that they could only recover the diminution in value (£0) as it is common with home improvements that they do not change its market value and that “comparatively minor deviations from specification or sound workmanship may have no direct financial effect at all”.

  • C was “lucky” to have such a large loss of amenity award here.

  • Traditional approach to damages: Damages normally assume that each party’s interest “was purely commercial” and that their loss is “measurable in purely economic terms. But this assumption may not always be appropriate”.

    • Cost of cure and diminution of value “are not two alternative measures of damage, at opposite poles, but only one; namely, the loss truly suffered by the promisee.”

    • “But these remedies are not exhaustive”, which is why amenity damages exist.

  
  

  • Is loss of amenity a new principle?: It is a “logical application or adaptation” of the exception to Addis for contracts to afford pleasure. 

    • It suffices that the provision of peace of mind or the prevention of distress is an “important object” (not predominant, per Watts) of the contract.

  Lord Lloyd: “An alternative ground for justifying the judge’s award of damages” (loss of amenity damages) could be to “compensate the buyer for his disappointed expectations”, even though disappointment is not normally actionable.

Mahmud v BCCI [1998]

FACTS

C claimed damages, saying the way in which D had behaved during their employment had led to continuing losses (“stigma damages”) to C after termination, as C was forever associated with the bad reputation of D. D breached the contract by acting as a corrupt employer

OUTCOME

Although damages cannot be recovered in contract for injury to reputation per say, “stigma damages” may be awarded where the loss of reputation caused by the breach of contract causes financial loss. To limit recovery to premature termination losses would be unacceptably narrow as employers have a duty to not do acts that would damage employees’ future employment prospects. The fact that the loss might be recoverable in defamation changed nothing here.

• On Addis: Addis was not a bar to the claims in this case. Even though it is “far from clear” how far its ratio extends, it stands for the “wider principle” that “damages for breach of contract may only be awarded for breach of contract, and not for loss caused by the manner of the breach”.

  • Loss of reputation could not be compensated in Addis because it was not caused by the breach of contract. Here, it was!

Farley v Skinner [2001]

FACTS

D, a surveyor employed by C, told C the property he wanted to buy would be unlikely to suffer from aircraft noise, after C specifically requested such a survey. C bought the house and spent money on improving it, but it was very noisy from aircraft. The breach did not cause a diminution in value of the house and C did not pay more than the property was worth initially

OUTCOME

Outcome: C was entitled to damages for loss of enjoyment caused by the noise. This was because C asked for a specific assurance. Three “alternative” lines of reasoning as to why damages were recoverable here to compensate C for the “real discomfort” he suffered. Damages for mental distress of £10,000 given.

Ruxley v Forsyth approach: C was deprived of the contractual benefit he was entitled to - to find out about the noise. The “information clearly had a value to him”, as he would not have bought otherwise. Damages awarded by placing a value on this deprived benefit. 

• Lord Scott:  This approach applies to “provide damages for deprivation of a contractual benefit where it is apparent that the injured party has been deprived of something of value but the ordinary means of measuring the recoverable damages are inapplicable.” In Ruxley, there was no consequential loss from the breach.

• Lord Hutton: The Ruxley principle “can be of more general application” - the law must provide a remedy where the value of the promise to C exceeds the financial value. Minor deviations can be compensable here: building the pool to 7’6 rather than 6’9 was not the sole object of the contract.

• D argued Ruxley was different as D’s obligation was to take reasonable care and not to guarantee a result (CA accepted this). But, it should not be the case that C who negotiates guarantees may only recover non-pecuniary damages.
  
  

1. Watts v Morrow (exception #2) approach: C suffered physical discomfort as consequential loss from the breach. D should have reasonably contemplated that C made his decision to buy based on the report about aircraft noise.

   • Lord Scott: This should be used “to determine whether and when contractual damages for inconvenience or discomfort can be recovered”. Consequential damage must be reasonably foreseeable as liable to result from the breach. 

   • Lord Browne-Wilkinson: The discomfort must not be a “mere matter of disappointment or sentiment”, but inconvenience (but it does not have to be “impossible” for C to enjoy the property, just that it “significantly interferes”).

Lord Scott: Must be a sensory inconvenience, not just a breakdown.

Watts v Morrow (exception #1) approach: “But it is possible to approach the case as one of the exceptional kind in which the claim would be for damages for disappointment”. C was entitled to damages for loss of enjoyment caused by the noise because a “major or important part of the contract” (in this case, it was the “raison d'être”) was to provide enjoyment or peace of mind [or to prevent mental distress] - “peace and tranquility”. 

Lord Steyn: It would be too narrow an interpretation of Watts to say peace had to be the “sole” object - it suffices it is a “major or important object”.

OBITER

• Lord Hutton’s test for when Watts applies: 1) The matter C seeks damages for is of “importance” to him. 2) C has “made it clear” to D that this is the case. 3) The action taken relates to a specific term of the contract.

  • A test is needed to preserve the “fundamental principle” that damages are not recoverable for mental distress and to “prevent the exception expanding to swallow up, or diminish unjustifiably, the principle itself.”

• Lord Scott on other cases: Jackson and Hobbs are Ruxley type cases.

  • Lord Denning in Jarvis: Says “contract for a holiday, or any other contract to provide entertainment and enjoyment” is “consistent with an intention to compensate the plaintiff for contractual benefit of which he has been deprived” (Ruxley) but the reference to “‘disappointment, the distress’ reads like a reference to consequential damage” (Watts).

  • Edmund Davies LJ in Jarvis: Used a Ruxley approach as he based his decision on D’s failure to fulfil the contractual terms and compensated C based on this.

  • Stephenson LJ in Jarvis: Referred to the “reasonable contemplation of the parties” - Watts approach.

• Cases cited as precedent for this decision: 

  
  

  • Hobbs v London and South Western Railway Co [1875]: Birth of the “physical inconvenience” exception. C had to walk five miles home due to train mishaps as there were no alternative cars available. 

  
  

  • Diesen v Samson [1971]: A photographer failed to turn up to a wedding. C was awarded damages for her “distress and disappointment”. 

  
  

  • Jackson v Chrysler Acceptances Ltd [1978]: The car sold to C by D did not meet the implied condition of merchantability. C told the seller one of the main reasons for buying the car was to drive on holiday in France. “The disappointment of a spoilt holiday” was compensated for. Here, the spoiled holiday was only “one object of the contract”.