Factors Limiting Damages

What is a limiting factor?

Legal doctrines which limit the amount of compensation you can receive.

what are the 4 limiting factors

1. causation

2. remoteness

3. contributory negligence

4. mitigation

causation

you only have to compensate for the damages which your breach caused when several different factors have contributed to a loss

remoteness

even if we accept that a breach of contract caused a loss, it is too far removed and, therefore, the contract-breaker is not obliged to pay compensation

mitigation

if the promisee could have minimised losses but didn't, the contract-breaker is not obliged to pay for losses which could have been easily avoided - not a duty but you will only get damages if you do the reasonable thing

what is the test for mitigation

Is the promisee's behaviour reasonable in keeping the costs down?

what is the mitigation rule

you should keep losses minimal in so far as is reasonable

3 principles of the mitigation rule

1. avoidable loss rule - cannot recover loss that could have been avoided

2. reasonable expenses rule - money spent to keep costs down is recoverable

3. avoided loss rule - cannot recover a loss you would have faced, whether or not the contract was breached

whats the purpose of mitigation?

to act as an incentive for the promisee to buy a substitute performance when a contract is broken since they know they will be repaid for the loss and if they don't purchase a substitute they will be seen as acting unreasonably

British Westinghouse Electric & Manufacturing Co v Underground Electric Railways Company of London

Facts: C supplied defective turbine engines and D replaced them with machines which were much better quality

Decision: D could be compensated for the money spent gaining the new machines but since he gained from the better quality new machine, the damages which could be paid would be reduced

Pilkington v Wood

it is not a requirement for an individual to have taken legal action to show they have taken reasonable steps to mitigate less

James Finlay & Co Ltd v Kwik Hoo Tong

Facts: D sold sugar and delivered it late so C had issues selling it off. D used a fake documentation which said the sugar was delivered on time and argued C should have used this to insist the buyers accept the sugar

Decision: C is not required to do shabby business work and damage his reputation to mitigate

Clippens Oil Co Ltd v Edinburgh & District Water Trustees

Facts: D wrongfully prevented C from using their shale mine and C could not buy a substitute because he was broke and went out of business

Decision: the contract breaker has to deal with the claimant as they are, if they cannot go out to buy a replacement, that is the contract breaker's fault

positive duty

to take reasonable positive action to minimise losses

negative duty

not to unreasonably increase losses in mitigation efforts

Kaines v Isterreichische

Facts: D was meant to sell oil to C and breached their contract. 9 days later when C bought oil, the price had increased

Decision: the breach was anticipatory, C delayed by 9 days meaning he did not take positive action to minimise losses

Yetton v Eastwoods Froy Ltd

Facts: C was wrongfully dismissed as the managing director of a company, they offered him a new job as assistant managing director at the same salary but C refused and applied for other jobs but was unsuccessful

Decision: C acted reasonably in not agreeing to the contract breaker's offer and looked for other jobs so he could claim full losses

Anderson v Hoen (The Flying Fish)

Facts: a navy gunboat collided with C's ship and the navy sailor offered to help save the ship but C refused and the ship sank losing cargo

Decision: C had not acted reasonably and could only receive the damages for the initial collision but not the ship sinking/lost cargo

Selvanayagam v University of the West Indies

Facts: C fell into a hole at work and refused the operation because of other medical concerns

Decision: C had acted reasonably and could receive full compensation, the loss was not reasonably avoidable

Payzu Ltd v Saunders

Facts: C had an agreement to buy silk from D and pay in instalments but was late on a payment. D said C had to pay in cash upfront now and C refused and bought silk elsewhere for an increased price

Decision: C was not entitled to full damages as he unreasonably refused a new offer to keep buying at the same price but on different terms

Sotiros Shipping Inc v Sameiet Solholt

Facts: there was a contract to buy a ship for £5million but the sellers of the ship were late in delivering it and and the buyers had to purchase an alternative ship for £5.5million

Decision: the buyers did not act reasonably as they paid more instead of waiting for the late delivery of the ship and suing for compensation for being late

Holden Ltd v Bostock & Co Ltd

Facts: the plantiffs were brewers and bought sugar from D to use in their beers. The sugar contained arsenic and the brewers destroyed the beer and issued a public notice

Decision: plantiffs can be compensated for the market value of the lost beer and the public notice as this was a reasonable step to minimise the loss of business

Bacon v Cooper

Facts: C brought scrap metal from D and the metal broke C's machine. C spent 41k on a new machine part and D argued the damages should only cover the 3.5 years remaining of the machine's lifespan

Decision: C had no practical choice but to buy a brand new machine part and C should not be penalised for the fact that the replacement was an improvement

The borag case

Facts: A ship was wrongfully detained and the owners had to issue a guarantee to get it released, they paid with an overdraft and the interest rate on the overdraft was very high

Decision: using the overdraft with the high interest rates was no reasonable and the owners could not be compensated beyond what was reasonable

Stansbie v Troman

Facts: a decorator left the door to a house open and a thief came in and burgled it

Decision: The decorator was under a contractual duty to prevent thieves from entering and was liable for the expected breach of the contract

Monarch Steamship Co Ltd v A/B Karlshamns

Facts: the ship was defective and the delivery was delayed. During the delay a war broke out and the govt said the ship could not sail where it was intended to

Decision: the loss was attributed to the breach of contract, if the ship was on time it could have been able to sail before war broke out

Lambert v Lewis

Facts: a trailer with a defective hitch was bought which caused a fatal road accident. the owner knew about the defective hitch

Decision: the owner's negligence broke the chain of causation and because he knew about the hitch he caused the argument

contributory negligence

If the victim was also negligent, and their negligence contributed to the loss, the damages would be reduced proportionately to reflect their contribution.

Quinn v Burch Bros

Facts: C was a contractor made to paint something he could not reach. He was not given a stepladder so he improvised, fell and was injured

Decision: The negligence of the worker is the cause of their injuries

Vesta v Butcher

Contributory negligence can only work in contract law in the same way in tort law when the breach of contract is exactly the same at tort

Barclays Bank v Fairclough Building Ltd

held that there is no defence of contributory negligence for an ordinary breach of contract

remoteness

It is unfair to expose D to a liability that is disproportionate to the contract price, especially if it is unforeseen

test for remoteness

Hadley v Baxendale: Would this kind of loss have been reasonably foreseeable to the parties (as not unlikely to result from breach) at the time of making the contract?

default rule and if there is a limitation clause this would apply instead

Hadley v Baxendale

Facts: mill owners asked D to transport a broken crankshaft for a replacement and could not work until the new one arrived, D delayed and C claimed a lost profits. D argued this was too remote

Decision: two limb test for remoteness:

1. You have to compensate for losses that naturally flow from the breach

2. If the parties could reasonably foresee when making the contract that a breach could lead to the loss, then compensation is required

Simpson v London and North Western Railway

Facts: At an agricultural show, someone makes a contract to transfer goods at the next show, the delivery isnt made on time and isnt on time for the show

Decision: Hadley v Baxendale applies as anyone one would have known if the delivery was not made on time then they would be unable to use it for the next show

Victoria Laundry v Newman Industries

Facts: C was a laundry company that buys boilers from D, the boiler was defective and C sued for normal business and the special extra extra-profitable contract which C had with the government

Decision: There are different thresholds to foreseeability — a loss likely to result, a serious possibility or a real danger C couldnt recover for their extra lucrative contract with the govt as it was not foreseeable and was not communicated to D — too remote

Koufos v C Ltd (The Heron II)

Facts: C contracted with D to deliver sugar to sell, D was 9 days late and the market price of sugar fell - C claimed the difference in price as damages

Decision: D knew C was a sugar merchant and the price of sugar fluctuates so he knew a loss was due if he delivered late

Parsons (Livestock) Ltd v Uttley Ingham Ltd

Facts: D sold C a mouldy container for grains and the pigs got E coli and died

Decision: D does not have to know the pigs will get E coli, just that they would get sick - If type of loss is within parties' reasonable contemplation, then party is liable for full scale of that loss even if higher than contemplated

Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)

Facts: charterers brought back a ship late and shipowners lost a large amount of money as prices had gone down by time the ship returned. The shipowner had to sell the ship to the next charterers for 1.3 million

Decision: Hadley and Baxendale cannot apply here, instead an assumption of responsibility test should be used

assumption of responsibility

question whether the parties contracted on the basis that the charterers were assuming responsibility for the consequences of that event

what is the current law

generally apply Hadley and Baxendale unless there is something in the contract that implies the parties did not intend that