Damages Notes

Damages Notes

Contract law seeks to fulfil the expectations created by a binding promise.

Aim of Damages is to put the claimant in a position they would have been in had the contract been
performed (expectation loss).

Purpose to award damages in contract law is to compensate the injured party and not to punish the
party in breach. They are a sum of money given to the claimant only liability has been established.
And they represent actual financial loss suffered.

Robinson v Harman- Robinson was able to claim damages for the expenses he incurred and the loss
of the bargain. And it was held that party may recover damages which would put them in a position
they would have been in had the contract been performed.

Punitive damages aren’t available in contract law even if the breach was made deliberately.

2 Measures of Damages and restitution loss

There are two possible bases for assessing damages – the expectation loss and the reliance loss.
However, a third approach has been used for breach of contract: the restitution loss.

i) Expectation Loss

Based on the claimant’s loss of bargain (loss of profit that could have occurred if the contract was
preformed) and the damages are given on the “claimants expectation” for the profit they would
have received.

This is the basic measure of damages also known as the contractual measure of damages. The loss is
summarised in the following case.

In Robinson v Harman (1848)- Parker B stated that the “rule of the common law is, that where a
party sustains loss by reason of a breach of contract, he is, so far as money can do it, to be placed in
the same situation, with respect to damages, as if the contract had been performed”.

This is because when in a contract there is an expectation for performance and when a breach
occurs that claimant is able to claim damages for those disappointed expectation.

Issue with expectation loss

Whether the damages should be given as cost of cure or diminution/ difference in value (value that
has been lost.

Cost of cure is the money that is required to be paid to a third party to perform the contract.

Generally, where the defendant breaches the contract or performs badly the claimant is entitled to
the ‘cost of cure’.

Watts v Morrow- where the claimant bought a house based on a survey, but the survey didn’t
include the defects in the house that needed to be fixed it was held that damages could only be
recovered based on the difference in value, to put them in a position they would have been in had
the survey been carried out properly. They weren’t able to claim cost of repair because they would
be recovering for breach of warranty about the condition of the house and no such warranty was
given.

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In most cases there is little to no difference between cost of cure and diminution in value.

Ruxley Electronics v Forsyth (1995)- where the cost of cure far exceeded the difference in value.
Where the claimant contract to get a pool built to a specific depth for recreational use but it was
built to the wrong depth. The court held that cost of cure would be removing the pool, digging the
area again and replacing it with a new pool. The diminution in value was nil. If he was to get the cost
of cure it would overcompensate him. Due to this the court granted ‘loss of amenity’ because it was
made for recreational use.

The court won’t give cost of cure for any unwarranted loss and only be given by reference to the
warranty.

125 OBS v Lend Lease Construction Ltd (2017)- where damages for continuous damage to the glass
used was around 14.7 million. It was argued that a cheaper alternative would be to build a canopy to
catch falling class. The argument was rejected.

Substantial damages are those which bring about actual economic loss. The claimant will not receive
substantial damages where the breach of contract has left him no worse off.

Haulage v Middleton (1983).

Loss of a chance can also be claimed for loss of expectation.

Chaplin v Hicks (1911) where the plaintiff received damages for the loss of a chance to compete in a
competition. Such damages are meant to be grated for the lost opportunity and because there was
no certainty that the claimant would win the damages would be less than the prize.

ii) Reliance Loss.

This is where the claimant is unable to prove their expectation and cannot state at to the extent he
would have been at if the contract had been performed. The court will then grant damages based on
reliance loss also known as loss of expenditure.

Anglia Television v Reed- where the claimant was unable to show his expectation for the profit his
television show would have made and claimed for expenditure he had incurred.

Bridge UK Ltd v Abbey- where loss of expenditure was given because a contract to install machinery
was breached and that claimant had to outsource. Cost of outsourcing was granted.

Reliance loss will not be granted where the party is seeking to escape a bad bargain.

Restitution

Restitution damages are those that are granted based on any profit the defendant made at the
claimant’s expense. The defendant is required to give up the profits he retained at the claimant’s
expense.

Restitution will only occur where it can be proved that would be unjust to allow the defendant to
retain his profit without compensating the claimant because the defendant was enriched at the
claimant’s expense.

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Total Failure of Consideration or performance

To get restitution damages, the claimant needs to establish that there has been a total failure of
consideration, if the contract has been performed in any part, then the claim for restitution will not
succeed. They will claim the basis upon which he inferred the benefit upon the defendant has failed
in its totality.

Whincup v Hughes- where the claimant paid the defendant to teach his son for 6 years but after 1
year the defendant died. It was held that the claimant couldn’t claim the payment he made for the
remaining 5 years because some consideration was made.

Unjust Benefit (account of profits)

This is where damages are claimed on the basis that the defendant has gotten unjust benefit or
profit at the claimant’s expense.

In Attorney general v Blake- the house of lords held that they would grant an account of profit where
neither damages at common law nor equitable remedies are sufficient.

Attorney general v Blake- where a former spy went to Russia and published an autobiography about
his life and breached a lifelong contract of confidentiality and revealed secret matters. An order for
accounts was granted and it was held that he would have to pay all the profits he earned from the
autobiography. And it was held that these damages would only be granted in exceptional cases.

In Wrotham Park Estate v Parkside Homes (1974) the house of lords held that Blake is a rare
example of restitutionary damages for breach that were granted in the past. And in this case only
fractional accounts for profit were granted based on the amount a reasonable person would ask for
a waiver of the agreement.

In Experience Hendrix LLC v PPX Enterprises Inc (2003)- where recordings of Jimi Hendrix were
released in breach contract the Court of Appeal ordered a fractional account of profits. And
preferred to grant compensatory damages for damage to position.

In Devenish Nutrition Ltd v Sanofi-Aventis SA (2008)- the court of appeal stated that the remedy of
accounts of profit will only be granted where other damages or remedies are insufficient.

“In Morris-Garner v One Step- the Supreme Court limited the availability of ‘Wrotham Park awards’,
now known as ‘negotiating damages’, to cases where the defendant has deprived the claimant of a
valuable asset. It is no longer a sufficient justification for such a gain-based award that the claimant
was not able to prove his financial loss in the usual way” (module guide).

Non-pecuniary loss

This is where damages are claimed for non-financial loss such as distress, anxiety, hurt feelings etc.

The decision of the house of lords in

Addis v Gramophone- the claimant was not allowed to recover damages for the indignity he suffered
because of the way he was dismissed by the defendant. And the house of lords held that injured
feelings could not be compensated in contract law.

There have now been cases where damages have been granted for non-pecuniary loss in certain
circumstances.

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i) Where the provision of non-pecuniary benefit is an important part of the contract e.g.,
pleasure.
Jarvis v Swan tours- where damages were granted for loss of holiday enjoyment due to a
breach.
ii) Where avoidance of a non-pecuniary loss is an important part of the contract e.g.,
mental distress
Farley v Skinner- where the claimant asked the surveyor to check whether the aircraft
noise is an issue in the house to which the surveyor said it wasn’t an issue. The noise
became an issue the claimant sought damages for distress. It was held that damages
could be granted because avoidance of the distress was an important aspect of the
contract.
iii) Where the claimant has suffered physical discomfort
Milner v Carnival plc- where the claimants’ clothes and cabin were damaged on a cruise
due to a storm and they were able to claim damages.
iv) Where the distress suffered was a direct result of physical discomfort.
Watts v Morrow- where due to a negligent survey the claimant bought a house and
suffered distress due to the repairs he had to carry out.
v) Loss of amenity (or enjoyment)-
Ruxley Electronics v Forsyth (1995)- where loss of amenity was given because cost of
cure and diminution in value were insufficient.

Limitations on damages

i) Remoteness

This is where courts will decide whether the damages are caused by the breach of the contract.

Hadley v Baxendale- where a shaft was delivered late, and the owners were not able to mill during
this time. They claimed damages for the loss of business during this time. It was held that damages
are not recoverable because damages for loss of business was not reasonably foreseeable by the
carrier, and it wasn’t in contemplation of the defendant that the mill wouldn’t be able to operate.

The basic rules were developed by Alderson B in the case of Hadley v Baxendale where it was held
that damages will only be recoverable when.

1. They can reasonably be considered as arising from the breach. These can also be
one’s which are likely to arise naturally or arise during usual course of dealings
because of a breach.

Australia Asset management v York Montaguei- it was held what occurs in the ‘course of dealing’ will
depend upon the knowledge the party possesses and the duty under the contract.

2. The damage was in contemplation of the parties at the time of the contract (for
example telling the party what would happen if the performance was not completed
on time). This is where special contract is lost due to the breach. But they will only be
recoverable if they are in reasonable contemplation od the parties.

Victoria Laundry v Newman Industries- where the defendant was hired to deliver a boiler to the
claimant’s laundry which they delivered 5 months late. They claimed damages for loss of profit and a

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lucrative government deal. It was held that they can claim damages for loss of profit but couldn’t get
damages for loss of the lucrative business deal as it wasn’t in contemplation of the defendant.

The Heron II- where a ship carrying sugar arrived late and due to this the price of the sugar had fallen
and the claimant suffered loss. Damages were granted because the defendant should have
anticipated that the prices would fluctuate.

Issues with Hedley rule-

When is a loss in reasonable contemplation of the defendant? This rule has been made more
confusing in the case of Transfield shipping v Mercator Shipping (Achilleas) where Lord Hoffman said
that the essential question that should be asked is, whether the party in breach ought to have
assumed responsibility for the loss caused by their breach. This added a new test to the
determination of remoteness. This has caused uncertainty in the law regarding remoteness and the
matter is still uncertain because the lordships gave different judgements so a ratio cannot be
distinguished. It was held in the Achilleas that Hedley will apply to most cases, but Transgrain would
apply to difficult cases

Transgrain shipping v Mercator Shipping (the Achilleas)- where the Achilles ship was chartered for 7
months but arrived 9 days late. And the claimant sought damages for loss of profit during these 9
days and loss of a lucrative deal when the market rate was at peak. They calculated their losses to be
$1.36 million and the hirers thought the loss would be the difference between the charter rate and
market rate of $158 000. It was held that the loss the claimant incurred was of $158,000 and the
hirers won’t be liable for any other loss.

This case was confirmed in Super shield ltd v Siemens technologies.

ii) Mitigation

Claimants are under a ‘duty to mitigate their loss’. If the claimant fails to mitigate their loss, their
award will be decreased. This is the ‘duty to mitigate’. There are two elements of mitigation.

1. To avoid increasing loss and keep them to a minimum but they are only expected to do
what’s reasonable and not to out of their way.
2. To act reasonably to reduce it this may include contracting with another party to avoid
further loss.

The general rule of mitigation was stated by Viscount Haldane in British Westinghouse Electric Ltd v
Underground Electric Railways.

Pilkington v Woods- where due a solicitor’s negligence the claimant bought a house with a defective
title couldn’t move into the house and incurred extra loss. The solicitor tried to argue that the
claimant could have mitigated these expenses by suing the seller. The solicitor’s argument failed.

Liquidated Damages

These are a sum of money which the parties to a contract state in the contract which would be
payable in events of a breach.

The issue with this is what would happen if the sum of money stated is far higher than the loss that
is actually suffered. The house of lords tried to answer this question in

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Damages Notes

Dunlop Pneumatic Tyre v New Garage and Motor (1915)- stated that the liquidated damages clause
is enforceable only if it’s a genuine pre-estimate of the loss that could occur and not unreasonable.

However, this principle set by the house of lords in Dunlop was changed by the decision of the
supreme court in Cavendish Square Holdings BV v Makdessi and Parking Eye Ltd v Beavis [2015]

These cases were heard at the same time

In Cavendish- the issue was whether the 2 clauses in a commercial contract were enforceable. If they
were found to be enforceable, then it would reduce the consideration payable by $44 million. The
clause was that if the defendant breached the contract, he wouldn’t be able to receive the
instalments that were left and would have to sell his shares to the claimant regardless of that.

In Parking eye- the issue was whether the 85 pound fine for overstaying at a parking lot was
enforceable.

The supreme court held that neither of those clauses were held to be penalties (were not invalid).

In Cavendish- the clauses which provided stipulated damages that were greater than the
compensation was put in place to protect a legitimate interest.

Penalty- is an invalid contractual provision

Points that the supreme court noted-

i) The supreme court changed the penalty rule and not abolish it.
ii) Where there is a contract between two parties who have been advised legally and have
the equal bargaining power, the clauses are PRESUMED to be enforceable.
iii) The definition of penalty in stated Dunlop (‘a genuine pre-estimate of loss’) will no
longer apply.
iv) The new test for penalty from Cavendish is that the court has to determine whether the
clause is a primary or secondary consideration. And the claimant will be able to enforce
a secondary obligation when it is penal. (a secondary obligation arises when there is a
breach of a primary obligation- which is a term of a contract)
v) The supreme court confirmed that the rule will continue to apply to any obligation which
requires the party to transfer property at a lower price to and also to those which
require a payment to be made.
vi) And the penalty rule won’t be applicable when the obligation requires a payment to be
made upon an event other than a secondary obligation (breach).