CONTRACT - DAMAGES

THREE WAYS TO ASSESS EXPECTATION LOSSES

1. Diminution in value

2. Cost of cure

3. Loss of amenities

DIMINUTION IN VALUE CASE

• Robinson v. Harman (1848)

  •  The court held that the plaintiff, who received an invalid lease, should be compensated for the difference between the value of a valid 21-year lease and what they actually received.

COST OF CURE CASE

• Radford v De Frobeville

C was entitled to damages based on the cost of erecting the wall, even though the lack of a wall did not diminish the value of the land.

LOSS OF AMENITY

• Ruxley Electronics and Construction Ltd v Forsyth 

  •  The court decided that awarding the cost to rebuild the entire pool was unreasonable as it did not reflect the claimant’s actual loss.

• The claimant was awarded a lesser amount to compensate for the loss of having a deeper pool – the loss of amenity.

RELIANCE CASE

Anglia Television Ltd v Reed :

• Recover the wasted expenditure incurred in preparing for a film that had to be abandoned due to the defendant's breach. 

  • Either choose to claim either their lost profits or their wasted expenditure, but not both.

GAIN BASED DAMAGES REQUIREMENTS

1. The defendant was enriched by the breach.

2. The enrichment came at the expense of the claimant.

3. It is unjust to allow the defendant to keep the benefit of their breach (their gains) without compensating the claimant.

GAIN BASED DAMAGES CASE

• Attorney General v Blake 

• Gain-based damages are an exceptional remedy, awarded when other remedies are insufficient and the claimant has a legitimate interest in preventing the defendant’s profit-making activities.

LIMITATIONS OF DAMAGES

1. Causation

2. Remoteness of Loss or Damage:

• Hadley v Baxendale (1854)

1. Imputed knowledge: Losses that arise naturally from the breach, according to the usual course of things, are recoverable. 

2. Specific knowledge of special circumstances: Losses that may reasonably be supposed to have been in the contemplation of both parties at the time of contracting are recoverable. 

APPLICATION OF HADLEY V BAXENDALE RULES ON REMOTENESS

• Victoria Laundry (Windsor) Ltd v Newman Industries Ltd 

DUTY TO MITIGATE LOSS CASE

• British Westinghouse Electric Co Ltd v Underground Electric Railway Co **

  • While the claimant was entitled to damages for defective turbines, the court offset the pecuniary advantages the claimant gained by replacing the turbines with more efficient ones. 

NON PECUNIARY LOSS - MENTAL DISTRESS

• Jarvis v Swan Tours Ltd

  •  Where damages for mental distress and injury are permissible. 

    • This exception applies when the contract is specifically for the claimant’s enjoyment or mental peace (e.g., holiday contracts or contracts to provide peace of mind).

Liquidated Damages Clause Requirements

•  For this clause to be enforceable:

1. Must represent a genuine pre-estimate of the losses the innocent party will likely suffer due to the breach. 

2. The claimant does not need to provide evidence of their actual loss, they can recover the amount stipulated in the clause.

Penalty Clause Case

THESE ARE UNENFORCCEABLE

• Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

  • The court must determine whether the stipulated payment is a genuine attempt to pre-estimate the loss or merely a threat to discourage breach.

PENALTY CLAUSE TEST (CASE)

Cavendish Square Holding BV v Talal El Makdessi

1. Is the clause penal?: This involves examining the primary function and purpose of the clause.

2. Does the clause protect a legitimate interest of the claimant? The protected interest need not always be financial.

3. Is the stipulated sum proportionate to the claimant’s loss or interest? The sum should not be extravagant, exorbitant, or unconscionable in light of the interest being protected. A significant disproportion between the stipulated sum and the highest possible damages suggests a penalty.