Contract - Remedies

What is the purpose of awarding damages for breach of contract?

Compensation for the claimant for the damage, loss or injury they suffered as a result of D's breach NOT to punish D

What is the default position for compensating the innocent party?

Putting them back in the position they should have been in had the contract been performed properly so far as money can do this- protecting the innocent party's expectation

What is the 'expectation interest'?

Protecting the position the party expected to be in

What are the 3 mechanisms for calculating the expectation interest?

Cost of cure

Diminution of Value

Loss of Amenity

What is the usual method for calculating damages/expectation interest for defective works?

Cost of cure

What is the cost of cure for the expectation measure of damages?

The cost of substitute or remedial work - cost to fix the work so that it is how it should have been if the contract was properly performed

What must the claimant do relative to defective works?

Act reasonably - cannot cure defective works for purely aesthetic reasons

What is diminution in value or the expectation measure of damages?

Calculating claimant's expectation interest by reference to the difference in value between the performance received & the performance promised in the contract

What is the usual method for calculating damages/expectation interest when the loss is not in economic value but the loss has a value to them? (eg emotional dissatisfaction from bad holiday)

Loss of amenity

Which 2 measure for damages will usually have the same value for the expectation measure of damages?

Cost of cure & Diminution of Value

What is the reliance measure of damages?

Allows the claimant to recover the expenses which have been occurred in preparing for or in part performance of the contract which have been rendered pointless by the breach.

What position does the reliance measure of damages aim to put the claimant in?

The position they would have been in had they never contracted

When is the court likely to order reliance losses as opposed to expectation damages?

Where the expectation damages are highly speculative

What does the reliance interest ONLY allow the recovery of?

Wasted expenditure, not all expenditure

When are reliance losses incurred?

BEFORE the breach, not as a consequence of it

Which types of loss have special rules for damages?

Mental distress

Loss of reputation

Loss of chance

What is the general rule for damages for mental distress?

They will not be awarded in relation to mental distress, anguish or annoyance caused by breach of contract

What are the exceptions to the general rule on damages for mental distress?

They can be awarded for mental distress where:

- The whole purpose of the contract was the provision of pleasure, relaxation & peace of mind

- Non-pecuniary loss where a major object (not whole purpose) of the contract was to provide pleasure, relaxation & peace of mind

What is the general rule for damages for loss of reputation?

Damages will not be awarded for loss of reputation

What is the general rule for damages for loss of chance?

Recoverable in damages if:

- The lost chance is quantifiable in monetary terms

- There was a real & substantial chance the opportunity might have come to fruition

What damages may be recoverable even if the loss of chance is held to be speculative?

Expectation interest, even if precise quantification of loss may not be straightforward

When should a claimant's loss practically be assessed as a loss of chance?

if it is calculated as a percentage chance of obtaining a benefit of below 50%

C must show:

- Their loss of chance of a benefit falls below 50%

- The loss is assessed as real and substantial

What should a claimant seek if their chance of obtaining a benefit is 50% or more?

To recover the expectation loss in full in the usual way

On the balance of probabilities

What is the general rule for damages on behalf of another?

Damages cannot be recovered on behalf of another party/ for losses suffered by another party

In what circumstances will damages for loss of chance be awarded?

If the lost chance is quantifiable in monetary terms and there was a real and substantial chance that the opportunity might have come to fruition

How is causation relevant to damages?

Damages can only be recovered if they are caused by the breach

How is remoteness relevant to damages?

Damages cannot be recovered if they are too remote from the breach

How can causation be assessed when establishing a causal link between D's breach & the loss to recover damages?

Did the breach caused by D in fact caused the loss suffered by C ? (factual causation)

As a matter of law, should D be held responsible for the loss cause by its breach? (legal causation)

How do courts determine factual causation in contract law when assessing causation for damages?

D's breach should be a dominant or effective cause of the loss for the loss to be recoverable

Broad interpretation

Common sense approach

How do courts determine intervening acts when assessing legal causation in contract law for causation for damages?

If the intervening event was likely to happen it will not break the chain of causation

What is the remoteness principle for contract law damages?

Not all losses flowing from a breach of contract are recoverable

What are the 2 types limbs/types of losses which are NOT too remote & are recoverable in damages (Hadley Baxendale)?

1. Loss of a type ordinarily & naturally arising from the breach (normal loss from that breach, based on the usual course of things)

OR

2. Losses reasonably in the contemplation of both parties at the time they made the contract

- risks communicated to the contracting party that they should/would have known of

What is the general rule on mitigation for loss/damages?

The party who has suffered the loss should take reasonable steps to minimise the effect of the breach

Is there an obligation to mitigate losses?

Technically no but losses attributed to a failure to mitigate are not legally recoverable

What happens if a claimant fails to mitigate their losses following a breach of contract by the other party?

Damages can be reduced/ are not recoverable for losses attributable to failure to mitigate

What is 'reasonable' in regards to steps taken to mitigate losses?

Not expected to embark on complex litigation

Accepting performance offered by D under a new contract even if this amounts to breach of the OG contract

No duty to mitigate claim for a payment of a debt

Which damages are not too remote, as per Hadley v Baxendale?

The damages which arise naturally according to the usual course of things from the breach

Those which the parties contemplated at the time they made the contract would probably be caused by a breach of contract.

What is the test for factual causation in contract law?

The test is whether the defendant's actions were a dominant or effective cause of the loss

What happens if a claimant fails to mitigate their losses following a breach of contract by the other party?

The claimant will not be able to recover the losses attributable to the failure to mitigate

When is it only possible for a claimant to claim its reliance interest of damages?

If the contract would have enabled the claimant to recover those expenses, had it been properly performed

Can't claim for expenditure that would have happened with or without the breach (for a bad bargain)

What is the windfall principle?

That no award of damages can put the claimant in a better position than it would have been in had the contract been performed

Where is the burden of proof for the reliance interest of damages?

On the defendant to prove that the claimant would NOT have recovered the expenditure had the contract gone ahead

What is the restitution interest of damages?

Compensation for the interest a claimant has in the recovery of the profit/gain the defendant has made from their breach of contract at the claimants expense

Restitution interest is a rarely used method for damages - what is the general test as to whether they can be used?

Other remedies inadequate

Did the claimant have a legitimate interest in preventing the defendant's profit making activity and depriving them of their profit?

What kind of breach is required for the restitution interest to be compensated for in damages?

- The breach was cynical & deliberate

- Breach enabled D to enter into a more profitable contract elsewhere

- By entering into a new & more profitable contact, D put it out of his power to perform the contract with the claimant

- Breaching party put in better position than if there had been no breach

What is the doctrine of total failure of consideration/failure of basis?

Where the courts will reverse unjust enrichment where a party provides value under a contract but receives none of the core benefit they bargained for

When the fundamental purpose/basis of the agreement collapses leaving C with no return for performance

Under what circumstances will a remedy of an account of profits be awarded for a breach of contract?

In exceptional circumstances where traditional remedies are inadequate

Which 3 remedies are available for consumers where their goods are non-conforming with the requirements under the CRA?

Short term right to reject

Right to repair or replacements

Right to reduction or final right to reject

When is the short term right to reject for a consumer for breach of implied terms of CRA available ?

Available for 30 days running from:

-When ownership passed (or possession transferred)

- When goods have been delivered

- When trader has notified consumer the required steps have been taken (if trader has to take action/install goods for consumer to use them)

When is the right to replacement for a consumer for breach of implied terms of CRA available?

Available unless replacement is either impossible or disproportionate (imposes unreasonable cost on the trader relative to other remedies in the interest of the consumer)

When is the right to price reduction/final right to reject for a consumer for breach of implied terms of CRA available?

Not entitled to both

Final right to reject only be exercised where:

- After 1 repair/replacement goods still do not conform to contract

- Repair/replacement is impossible/disproportionate

- Trader has failed to repair/replace goods within a reasonable time & without significant inconvenience

What is the general rule on refunds when exercising the remedy of final right to reject for a consumer for breach of implied terms of CRA available?

Where the final right to reject is exercised within 6 months from the time ownership has passed etc., there should be a FULL refund with NO deduction for use

Which remedies are available for non-conforming digital content goods for a consumer for breach of terms of the CRA?

Right to repair/replacement

Right to price reduction

How is the right to refund exercised for where a trader had no right to supply digital content that it supplied?

Consumer has right to receive a refund of all money paid for the digital content within 14 days using same payment method

Which remedies are available to a consumer for services which are non-conforming under the CRA?

Right to require repeat performance

Right to price reduction

What remedy is available to a consumer under the Consumer Rights Act 2015 where the digital content supplied is non-conforming and it is impossible to replace it?

The consumer has a right to a price reduction

How can the right to require repeat performance be exercised by a consumer for services which are non-conforming under the CRA?

Supplier must provide repeat performance within a reasonable time & without a significant inconvenience to the consumer

Cannot be required if repeat performance is impossible

When does the right to price reduction become a remedy for a consumer for services which are non-conforming under the CRA?

Only where repeat performance is impossible or where a trader has failed to provide repeat performance within a reasonable time & without significant inconvenience to the consumer

What is the time limit under the Consumer Rights Act 2015 for exercising the short-term right to reject goods that are non-conforming?

30 days

What is a liquidated damages clause?

A clause in the contract which stipulates a certain sum which is to be payable on a particular breach of contract.

What are the commercial benefits of having a liquidated damages clause?

Fixes the amount that will be recoverable/due for a breach as a DEBT arising under the contract

Claimant does not have to establish its case for damages

Clearly outlines risk in the contract when negotiating/agreeing

In what kind of industries are liquidated damages clauses common?

Construction

Technology

When will the court intervene in relation to liquidated damages clauses?

If it is a penalty clause - one which requires the party in breach to pay an excessive sum, such that it becomes a penalty.

Penalty clauses will NOT be upheld

What is the test to determine whether a clause is a valid liquidated damages clause or is a penalty clause?

Is the clause a primary or secondary obligation?

- If primary, not a penalty clause

- If secondary, the clause is a penalty if it imposes detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation

The clause will not be a penalty if it protects a legitimate business interest and imposes a detriment which is not disproportionate to protect the legitimate interest.

When is a clause a primary clause in the test for liquidated damages or penalty clause?

if it is part of the primary obligations in the commercial context of the contract - furthers the commercial objective of the contract

When is a clause a secondary clause in the test for liquidated damages or penalty clause?

If it is an obligation triggered by breach of contract to compensate the innocent party

How will courts assess whether a potential penalty clause imposes detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation?

1. What if any legitimate business interest is served & protected by the clause

2. Is the detriment imposed to protect that interest extravagant, exorbitant or unconscionable?

burden of proof on the party alleging the clause is a penalty

What is the starting point regarding any agreement within the contract by the parties?

These will be upheld

What is the general position regarding liquidated damages/penalty clauses where the parties to the contract negotiated a contract on a level playing field with legal advice?

Less likely for a clause to be held to be a penalty clause

What happens if a court finds that a liquidated damages clause is a penalty?

The liquidated damages clause will be struck down and the claimant will be entitled to unliquidated damages assessed by the court using the normal rules of contract law

What are positive & negative terms in a contract?

Positive term = party must DO something

Negative term = party must NOT DO something

What is specific performance?

An order or decree requiring the defendant to carry out its obligations under a positive term of the contract

Must do what they were supposed to do

Why is specific performance a remedy if it tells a party to do what they already are supposed to do?

Breach of an order for specific performance can be treated as contempt of court & lead to imprisonment

How is specific performance issued by the court?

The court issues an order or decree

What is a prohibitory injunction?

A court order restraining a part from breaching a negative term

How can a breach of specific performance/prohibitory injunction be treated/punished?

As contempt of court

When will specific performance/injunction be granted?

Only if damages are NOT an appropriate & adequate remedy

How can it be shown that damages are inadequate as a remedy?

subject matter of the contract is unique/irreplaceable

OR

An award of damages would be ineffective to provide adequate compensation

What kind of remedies are specific performance & prohibitory injunctions?

Equitable

Discretionary- no clear criteria which entitle parties to the remedy

Which equitable principles apply to the equitable remedies?

You must come to equity with clean hands - will consider the conduct of the claimant

Delay defeats the equities - action must be brought reasonably promptly

Which principles apply to the grant of an order for specific performance? (Potential obstacles)

- Won't be awarded if it will cause hardship on D

- A promise given for no consideration is not specifically enforceable, even if made as a deed

- Not awarded for breach of contracts of employment

- Not awarded for breach of obligation to perform a series of acts requiring court supervision

- Not awarded for breach of a contract NOT binding on BOTH parties

How will a court impose a prohibitory injunction?

In a way that is reasonable in all the circumstances of the case

Extent or limit

When will the court impose a prohibitory injunction?

Only where just and convenient

What will the court look at when deciding whether the remedy sought by a party is/should be a prohibitory injunction or specific performance?

The substance of the proposed remedy, not what they have asked for (form)

What is a guarantee?

A promise by a party to ensure that another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so

e.g. A & B have an agreement, C guarantees for B.

If B doesn't pay A, C has to instead

What is an indemnity?

A promise to reimburse someone in the event that they suffer a stated loss

Can a party give both an indemnity & a guarantee?

Yes

What happens to a guarantee and an indemnity if there is a change to the contract between 2 parties after the guarantee/indemnity is given by 3rd party?

Guarantee = discharged

Indemnity = remains in force

What happens to a guarantee and an indemnity if the contract is set aside between 2 parties after a third party has given a guarantee/indemnity is given by 3rd party?

Guarantee will cease

Indemnity remains in place

How can indemnities be given?

In 2 party contracts: for both delivery/performance & reimbursement

In 3 party contracts: for reimbursement if another party fails in their deliver/performance

What formalities are required for a guarantee?

In writing

Signed by the person agreeing

What formalities are required for an indemnity?

None