contract 16

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1.

The purpose of an award of damages Ruxley Electronics and Construction v Forsyth (1995) Chaplin v Hicks (1911) C and P Haulage v Middleton (1983) and St Albans v ICL (1996) Sempra Metals Ltd v Inland Revenue Commissioners (2007) (Johnson v Agnew (1980) Golden Strait Corporation v Nippon Ysen Kubishika Kaisha (2007): compensate the injured party, not to punish the party in breach Punitive damages are not available for a breach of contract The claimant will not, however, receive damages where the breach of contract has left him no worse off.

2.

Ruxley Electronics and Construction v Forsyth (1995) received smaller depth pool: HL :upheld an award of 2500 for loss of amenity we must look to 'the loss truly suffered by the promisee'. " a common feature of small building works performed on residential property that the cost of the work is not fully reflected by an increase in the market value of the house, and that comparatively minor deviations from specification or sound workmanship may have no direct financial effect at all.

3.

Chaplin v Hicks(1911) the defendant in breach of contract prevented the claimant from taking part in the final stage of a beauty contest: damages for the loss of a chance, assessed at 25% of winning the competition.

4.

C and P Haulage v Middleton (1983) George Middleton had a licence to occupy premises for six months a time, renewable. He used it for his car repairs business. He improved the property.: no reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have been

5.

example where damages go beyond limits of exclusion clause deemed unreasonable. St Albans v ICL (1996) computer error=> huge loss Provided that in no event will ICL be liable for (i) loss resulting from any defect, or deficiency which ICL shall have physically remedied at its own expense within a reasonable time; or (ii) any indirect or consequential loss or loss of business, or profits sustained by the customer; or (iii) loss which could have been avoided by the customer following ICL's reasonable advice and instructions.': the defendant had not justified the figure of limited liability of 100,000 which was small both in relation to the potential risk and the actual loss, noting also that the defendant was insured for 50 million worldwide. If the loss were to fall on the council it would ultimately be borne by the local population. He did not think it unreasonable that he who stood to make the profit, who had been well able to insure and in this case was insured, should carry the risk and therefore awarded damages to St. Albans well over 100,000.

6.

(Johnson v Agnew (1980): (Johnson v Agnew (1980) date appropriate is the date of breach, or when a contracting party could reasonably be aware of a breach. principle for the assessment of damages is compensatory, ie that the innocent party is to be place, so far as money can do so, in the same position as if the contract had been performed.

7. 8.

3 bases for assessing damages: the expectation loss, the reliance loss and the restitution loss. Expectation loss Robinson v Harman (1848): Robinson v Harman (1848) 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.

9.

Expectation loss: cost of cure Watts v Morrow (1991): Both cases state that the damages should be based on the difference between true market value and the amount paid at the time of the contract. All three Judges sitting on the case agreed that this method was the right method as it placed the plaintiff in the same position had the contract been properly performed. appeal substantially reduced awarded damages. Did not award for repairs which were was 2x. On appeal, the court considered that the proper approach is to fix a modest sum for the amount of physical discomfort endured

10.

Tito v Waddell (No 2) (1977) A term of the mining contract was that the mining company would replant trees on the island once the mining was over. The mining was extensive and eventually all of the inhabitants of the island were moved to a neighboring island. There was also a claim for additional royalties for the original inhabitants. Furthermore, a claim was made on the basis of a fiduciary duty, to order the cleaning up of the island.: Tito v Waddell (No 2) (1977) held that there was no enforceable right to additional royalties, but there was a duty to replant/recover the mined out areas. no specific performance because it made neither aesthetic nor economic sense. Therefore the issue become one of what was the appropriate quantum of damages. It was held that even where there is a disparity between the cost of cure and the diminution of value if the cure is not implemented, the cure will be ordered by specific performance only if the work has been done or if it can be shown that it will be done. However in this case there was no evidence that the trees would be replanted; there was no "fixed intention" to complete the work which was supposed to be done under the contract. D were assessed on the basis of the difference in value of the land

11.

loss of amenity cases:: Tito v Waddell (No 2) (1977). Ruxley Electronics and Construction v Forsyth;Birse Construction Ltd v Eastern Telegraph Co Ltd [2004] reliance loss or the loss of expenditure Alternative to expectation loss: may not be appropriate to measure the claimant's loss on the basis of his expectations. It may be the case, for example, that the claimant is unable to prove the value of his expectations. He cannot establish to what extent he would have been better off had the contract been performed. claimant decides CCC films v Impact Films

12.

13.

Anglia Television v Reed (1972) nglia (P) made preparations to produce a play for television titled "The Man in the Wood". Anglia contracted with Robert Reed (D) to star in the production. Reed agreed to come to England and be available from September 9-October 11, 1968 to rehearse and act in the film in exchange for 1,050 pounds, a living expense of 100 pounds per week, and first class air fare between England and the United States. D repudiated the contract and informed P that he was booked for another play and would not be available for P's film. P sued D and sought wasted expenditure but not lost profits.: plaintiff was unable to establish what profit his television show would have made and consequently claimed for the expenditures he had made.

14.

C & P Haulage Co Ltd v Middleton (1983) had a licence to occupy premises for six months a time, renewable. He used it for his car repairs business. He improved the property, even though the contract stated fixtures were not to be removed at the end of the licence. C&P Haulage Co Ltd ejected him in breach of contract. Mr Middleton argued he should be entitled to damages for the cost of the improvements he made: Middleton's loss did not flow from the breach of contract, but him going and doing the repairs when he was not meant to. So no recovery of reliance loss was available, where it would allow Middleton to escape a bad bargain or reverse the contractual allocation of risk. no D either for C & P since breach leaves them no worse off.

15.

EX: The government of the (fictitious) country of Culloden offers for sale the rights to hunt and shoot three bighorn mountain sheep. These very rare sheep are highly prized by big game hunters, who consider the heads of the sheep to be attractive trophies. Damian accepts Culloden's offer and pays 1 million for the hunting rights. He spends 100,000 outfitting a group for the hunt. After several months of searching, it transpires that the bighorn mountain sheep are extinct, a matter long suspected by some within the Culloden Ministry for the Environment.: offered for sale something that some of its civil servants suspect does not exist. The next issue is as to the measure of damages recoverable. What amount of money will put Damian in the position he would have been in if the contract had been performed? 1. loss of profits or 2. wasted expenditure. If the sheep are very rare, loss of profits, measured by the value of the trophy heads of the sheep, could be great. The difficulty with this measure is that Damian may well have problems proving this loss (see Anglia Television v Reed). Another way of looking at this is to say that Damian's loss of profits is too speculative because Culloden has not promised him three sheep, but the opportunity to hunt three sheep. Hence Damian is unable to prove that there is a loss of profit and is confined to claiming his expenditures (McRae v Commonwealth Disposals Commission (1951)).

16.

(McRae v Commonwealth Disposals Commission (1951) The Commonwealth Disposals Commission sold McRae a shipwreck of a tanker on the Jourmaund Reef, supposedly containing oil. No tanker ever existed. CDC argued there was no liability for breach of contract because it was void given the subject matter did not exist.: held that McRae succeeded in damages for breach of contract. They rejected the contract was void because CDC had promised the tanker did exist. Courturier v Hastie was distinguished because there the parties had both shared the assumption the corn existed, but here CDC had actually promised the tanker existed and therefore had assumed the risk that it did not.

17.

EX: Emma contracts with Fun Toys Co to purchase 10,000 toys from them. Emma intends to resell the toys in her chain of toy shops. The selection of the toys is to be made within one year by Emma and is to be from Fun Toys' range of 300 different toys. These toys range in wholesale price from 1.99 to 200. Emma never selects any toys and refuses to do so.: The great difficulty here surrounds the assessment of damages. Fun Toys Co should be able to claim for loss of profits (the case fits ideally within Robinson v Harman). price of toys should be selected reasonably. Paula Lee Ltd v Robert Zehil [1983]

18.

Paula Lee Ltd v Robert Zehil [1983] undertook to purchase not less than 16,000 garments each season and by cl 7 of the agreement it was agreed that the defendants were to have complete discretion on the marketing and selling policy to be adopted in the territory. Thus, provided the defendants ordered not less that 16,000 garments per season, they were entitled to sell or market the plaintiffs' products to whoever and on such terms as they wished within the territory. terminated early: Where damages were required to be calculated for breach of contract in a situation where the defendant could fulfill his part of the contract by performing his obligation by alternative methods and had a freedom of choice which method to use, damages were to be assessed by reference to that method of performance which was least unfavourable to the defendant. However, in making that assessment the contract was to be read subject to an implied term in the contract that the defendant's freedom of choice was limited to those methods of performance which could be regarded as reasonable in all the circumstances

19.

Why does McKendrick write that 'In awarding loss of amenity damages it can be argued that the House of Lords (in Ruxley Electronics and Construction v Forsyth, 1995) took one step forwards and one step backwards'?: 'loss of amenity' as the step forward. The step backward, however, is the apparent limitations that the decision places upon the valuation of the expectation interest with regard to the claimant's performance interest. It will often be the case that the claimant has contracted to receive something which is really only a benefit to himself and would not provide a benefit to most people. For example, the claimant, a keen gardener, may contract to have special rails affixed to the exterior of his house to hold plants. The majority of householders would not do this and would see no value in such fixtures (and may well believe that the value of the house was diminished if the rails were in place). This means that there will be no, or only a slight, increase in value if the work is performed. Consequently, the damages will be low.

20.

When is restitution available?: during breach of contract => strictly limited. This will occur only when they can establish that the defendant was enriched at the claimant's expense and that it is unjust to allow the defendant to retain his profit without compensating the claimant. purpose of a restitution award is for the defendant to disgorge the profit obtained as a result of his wrongdoing. When a contract is terminated because of the defendant's breach, the claimant may elect to proceed in contract or restitution

21.

(Planche v Coburn (1831): The Defendants engaged the Plaintiffs to write a treatise for a periodical publication. The Plaintiff commenced the treatise, but before he had completed it, the Defendants abandoned the periodical publication.: the Plaintiff cannot sue on a quantum meruit; and the jury found that no new contract had been entered into. Under these circumstances the Plaintiff ought not to lose the fruit of his labour; The claimant was entitled to recover 50 because the defendant had prevented the performance.

22.

restitution:Total failure of consideration Whincup v Hughes (1871) the plaintiff apprenticed his son to a watchmaker for 6 years for a premium which was paid. The watchmaker died after one year.: No part of the premium could be recovered. That was because there was not a total failure of consideration. claimant may seek a restitutionary remedy by saying that the basis upon which he conferred a benefit has failed entirely because of the defendant's breach of contract.

23.

Total failure of consideration illegality cases: Bowmakers v Barnet Instruments (1945) and Tinsley v Milligan (1993): lovers owning house, D is able to claim back her share even though only registered in name of Tinsley, since she had paid for her share and agreement was that it would be shared (house only in Tinsley's name to illeaglly claim benefits). Note the possibility of the defence of change of position: Lipkin Gorman v Karpnale (1992).

24.

Bowmakers v Barnet Instruments (1945 he Defendant hired some machine tools from the Claimant under a hire purchase agreement. The agreement did not comply with statutory requirements. The Defendant missed payments due under the agreement and the Claimant sought to recover the machines. The Defendant argued that the Claimant's illegality in failing to comply with the statutory requirements, barred their recovery.: The Claimant was successful. The Claimant did not plead the illegal agreement in making their claim. It was based on their ownership of the machine and therefore they did not need to rely on their illegality to found the claim.

25.

Lipkin Gorman v Karpnale (1992). established that the basis of an action for money had and received is the principle of unjust enrichment, and that an award of restitution is subject to a defence of change of position. gambled and lost 1/2 returned the rest.: Lipkin Gorman v Karpnale (1992). HL money must be returned principle of unjust enrichment, however only the difference due to change of position of the club (Karpnale).

26.

Unjust Benefit: claimant seeks a restitutionary remedy on the ground that the defendant has obtained an unjust benefit, or profit, because of his breach of contract. Unjust Benefit Surrey County Council v Bredero Homes Ltd (1993): held that gains-based damages are not generally available for a breach of contract.

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28.

Unjust Benefit Attorney-General v Blake (2000) He escaped and fled to the Soviet Union. spy writes book: House of Lords held that the court would order an account of profits (which would require the wrongdoer to disgorge his profits) where specific performance or an injunction would not provide a sufficient remedy to the claimant, nor would an award of damages based upon a financially assessed measure of damages. This would only occur in exceptional cases where there was no other effective means of protecting the claimant's performance interest.

29.

The Defendant had been granting licences to exploit master recordings containing works featuring Jimi Hendrix, in breach of a 1973 agreement settling earlier litigation. The Claimant had no evidence to show or quantify any financial losses suffered as a result of the breaches.: Relying on Attorney General v Blake [2001] AC 268 the remedy of account of profits was available for breach of contract but in the circumstances of this case a full account was not appropriate but the Defendant should make a reasonable payment for its uses of master recordings in breach of the settlement agreement,

30. 31.

Remoteness of damage: If the loss is too remote, the claimant cannot recover damages for them. Remoteness of damage Hadley v Baxendale (1854)the owners of a mill took their broken shaft to a delivery company to send it to engineers in Greenwich. delay: remoteness: naturally arising within contemplation

32.

South Australia Asset Management Co v York Montague Ltd (limb 1 of Hadley) negligently advised his client bank that property which it proposed to take as security for a loan was worth much more than its actual market value. The question was whether he should be liable not only for losses attributable to the deficient security but also for further losses attributable to a fall in the property market.: The House decided that he should not be liable for this kind of loss. what will determine which damages arise in the usual course of things, as a probable result of breach, will depend on the degree of knowledge the parties are presumed to possess and the scope of the contractual duty.

33.

limb2 if the contract is breached, then the consequences of the breach will be particularly severe because, for example, an especially lucrative opportunity will be lost. recovery of damages: the damages will only be recoverable (that is to say, they will not be too remote) if the special circumstances are reasonably within the contemplation of the parties at the time they made the contract as likely to occur if the contract is breached. These two limbs are not mutually exclusive (Jackson v Royal Bank of Scotland (2005)

34.

Jackson v Royal Bank of Scotland limbs not mutually exclusive. RBS sent Economy Bag a document showing that Jackson was making a 19% markup on every transaction. Feeling cheated, they cancelled the business relationship with Jackson and Davies. Jackson sued RBS for the loss of the opportunity to make further profits.: Jackson v Royal Bank of Scotland HL loss of future orders was not too remote, and that Jackson had an obvious commercial interest in retaining confidential information. The point of damages for breach of contract with RBS, to which Jackson was entitled, was to put him in the position as if there had been no breach.

35.

Transfield Shipping Inc v Mercator Shipping Inc (The 'Achilleas') [2008]. The Achilleas, charterers delivered a vessel back to the owners late, but were held to be liable only for the market rate between the end of the charter and actual re-delivery, and not for the period of a charter the owners lost because the vessel was re-delivered late.: Transfield Shipping Inc v Mercator Shipping Inc (The 'Achilleas') [2008]. Lord Hoffman found that in the particular case, if these parties, contracting against the background of market expectations then existing, had reasonably contemplated the extent of the liability they were undertaking, they would have considered the loss of the following fixture (a subsequent contract) as a type or kind of loss which the charterer was not assuming. Indeed, such a loss would have been completely unquantifiable.

36.

What is the policy behind the rules of remoteness? What is the link, if any, between these rules and the cost of insurance?: limiting the amount of damages that can be recovered. It enables parties to, potentially, plan for any losses which may occur as a result of breach. Thus, for example, parties are able to ensure that they have adequate insurance cover for any loss which will occur. If the loss creates exceptional damages, the party responsible for this loss will want to ensure that they have extra insurance coverage. It also allows parties to determine whether or not it is in their best interests to breach a contract. The link between these rules and the cost of insurance is that the rules give, at least in theory, the insurers the ability to assess loss and hence estimate the cost of the premiums to be paid for the insurance to cover this loss.

37.

In H Parsons (Livestock) v Uttley Ingham, was it at all probable that the pigs would die? Why should it be enough that it might be foreseen that they would become ill? How can this decision be reconciled with the distinction drawn elsewhere between 'ordinary' and 'special' business profits?: unlikely that the pigs would die, although it was likely that they would suffer some form of illness as a result of the way in which the pig nuts were stored. unlikely that the pigs would die, although it was likely that they would suffer some form of illness as a result of the way in which the pig nuts were stored. too much to expect the parties to have a 'prophetic foresight as to the exact nature of the injury that does in fact arise'. not easy to reconcile with the cases that distinguish between 'ordinary' and 'special' business profits, Victoria Laundr Ltd v Newman Industries . In this case, there had to be disclosure of a particularly lucrative contract that increased the amount of the damages. It may be possible to say that such a contract could be disclosed by the plaintiff because it was within his special knowledge, but that to foresee that the breach of contract in Parsons case would cause death was not within the particular knowledge of either party. This does, however, beg the question of how the cases can be satisfactorily resolved. Essential difference in Parsons: court was also concerned with the concept of remoteness in tort where it is well-established that it is the category of harm resulting from the tort, not the actual extent of the harm, that must be foreseeable: Hughes v Lord Advocate (1963).

38.

Under the second rule in Hadley v Baxendale, is the defendant's knowledge of the special circumstances enough to make him liable or is something more required. If so, what?: It is difficult to provide a satisfactory answer to this question. On the one hand, it seems to be sufficient that the defendant is aware of the exceptional circumstances: see Simpson v London and North Western Railway Co (1876) and Seven Seas Properties Ltd v Al-Esa (No 2) (1993). On the other hand, there are some indications that the defendant must also agree to accept liability for this exceptional loss: see Horne v Midland Railway (1873) and Kemp v Intasun Holidays Ltd (1987) FTLR 234. If the defendant, aware of the special circumstances, carries on with the contract is he not impliedly accepting these losses?

39.

'duty to mitigate British Westinghouse Electric Co Ltd v Underground Electric Railways Company of London Ltd [1912]: Claimants are said to be under a duty to mitigate their losses and there are two elements to this duty: first, to avoid increasing loss and secondly, to act reasonably to reduce it.

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British Westinghouse Electric Co Ltd v Underground Electric Railways Company of London Ltd [1912]: The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.

41.

Payzu v Saunders (1919). duty to mitigate requires party to recontract on different terms. The plaintiff agreed to buy certain goods from the defendant over a period of nine months with payment within one month of delivery, and deliveries monthly. The plaintiff failed to make prompt payment for the first instalment, and the defendant, in breach of contract, refused to deliver any more instalments under the contract, but offered to deliver the goods at the contract price if the plaintiff paid cash on delivery of the order. The plaintiff refused this and claimed damages, these being the difference between the contract price and the market price.: It was held that the plaintiff had permitted himself to sustain a large measure of the loss which, as prudent and reasonable people, they ought to have avoided. He had the cash available to meet the defendant's demands and could have mitigated by purchasing off the defendant at the contract price as the defendant offered, instead of going into the market to purchase at a higher price. He was, therefore, not entitled to damages.

42.

N on-financial loss Addis v Gramophone Co Ltd (1909): plaintiff was not allowed to recover damages to cover the indignity he suffered because of the manner in which he was dismissed by the defendants. HL held that injured feelings were not compensatable for a breach of contract.

43.

rule in Addis v Gramophone Co Ltd (1909) has exceptions mostly due to contracts to provide pleasure e.g. Jackson v Horizon Holidays (1975) Heywood v Wellers (1976): Heywood v Wellers (1976) the plaintiff instructed solicitors to bring proceedings to restrain a man from molesting her. The solicitors negligently failed to take appropriate action with the result that the molestation continued. The Court of Appeal allowed the plaintiff damages for mental distress and upset. he said (1976) UK: "The plaintiff could recover the 175 as money paid on a consideration which had wholly failed. She was, therefore, entitled to recover it as of right. And she is entitled to recover as well damages for negligence.

44.

N on-financial loss: recent developments, Ruxley Electronics and Construction Ltd v Forsyth (1996): damages were available for a 'loss of amenity'. Malik v BCCI (1997): Malik v BCCI (1997) held that damages could be awarded for the effect of an employer's dishonest business operation on the future employment opportunities of honest employees. broadens the ambit for non financial loss.

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46.

Addis v Gramophone Co Ltd Mr Addis was Gramophone's manager in Calcutta. He was given six months' notice as required and appointed a successor. They took steps to prevent Addis acting as manager. This was humiliating. The jury awarded Addis 340 for loss of commissions and 600 for wrongful dismissal. Could there be damages for the manner of dismissal? The Court of Appeal had allowed damages for the manner of the dismissal.: Lord Loreburn held that 600 was not allowed, that he could only recover his six month salary and no more. At 491 he said, 'If there be a dismissal without notice the employer must pay an indemnity; but that indemnity cannot include compensation either for the injured feelings of the servant...'

47.

Johnson v Unisys Ltd (2001),: Johnson v Unisys Ltd (2001), held that Addis v Gramophone Co Ltd did not prevent recovery in circumstances where the claim was based on breach of an implied term of trust and confidence in the contract. The House of Lords held, however, that an employee had no right to damages arising from the unfair manner of his dismissal.

48.

Farley v Skinner (2001), got Mr Skinner to survey his new house, particularly for aircraft noise. Skinner carelessly answered it was not bad, when at 6 am the noise was very bad. Holding patterns formed right above the house. This distressed Mr Farley because he liked to spend early morning in the garden.: Farley v Skinner (2001), held that damages for non-pecuniary losses would be allowed for a breach of contract where a major or important object of the contract was to give pleasure, relaxation or peace of mind. The claim for non-pecuniary damages was not defeated by the fact that the defendant had only promised to exercise reasonable care in the performance of his obligations, as opposed to guaranteeing a certain result. f Mr Farley had known about the aircraft noise he would not have bought the property. He could either claim for being deprived of the contractual benefit (Ruxley Electronics Ltd v Forsyth), or he could claim as having consequential loss on breach of contract (Watts v Morrow). If the cause is no more than disappointment that the contractual obligation has been broken, damages are not recoverable even if the disappointment has led to a complete mental breakdown. But, if the cause of the inconvenience or discomfort is a sensory (sight, touch, hearing, smell et) experience, damages can, subject to the remoteness rules, be recovered

49.

Hamilton Jones v David & Snape (a firm) [2003] allowed the claimant to recover damages for mental distress suffered when the defendant solicitors breached their duty to her in not taking reasonable steps to prevent the claimant's husband from removing their children from the United Kingdom.: held that the claimant did not need to establish that peace of mind or freedom from distress was the predominant object of the contract but only that these were important terms of the contract. effect of these cases appears to be, however, that the manner of the breach cannot be compensated but the courts will consider a wider range of terms (implied and express terms) within a contract which may allow damages for mental distress.

50.

What is the purpose behind preventing a recovery of damages for mental distress where there is a breach of an 'ordinary' contract?: One possibility, as discussed by Cockburn J in Hobbs v London and South Western Railway Co (1875) is that such loss arising from a breach of contract is beyond the contemplation of the parties to the contract. 2. such loss, in absence of real physical inconvenience, is 'purely sentimental'. It is not, in other words, a loss for which contract law will provide damages as a matter of principle reinforced by the decision of the House of Lords in Addis v Gramophone (1909). 3 compensation for mental distress is to award damages that are close to punitive; and damages for a breach of contract are not to be punitive. 4. by not allowing compensation for such loss, the law denies recovery of a form of loss which may be difficult to quantify when the contract is entered into.

51.

How can Farley v Skinner (2001) be reconciled with Watts v Morrow [1991]? both cases, the purchasers proceeded to buy the home based on the surveyor's report. Both reports were negligently prepared and failed to reveal important aspects of the house In Watts v Morrow, the Court of Appeal disallowed the trial judge's award of damages for 'distress and inconvenience'. In Farley v Skinner, however, the House of Lords allowed damages for non-pecuniary loss.: One important factual difference is that in the latter case, Farley had asked the surveyor to investigate the possibility of aircraft noise and as a result of this request, the surveyor included the element within his report. In Farley v Skinner, Lord Steyn distinguished Bingham LJ's decision in Watts v Morrow by saying that his 'observations' were 'never intended to state more than broad principles' Steyn stated that in Watts claim was for damages for inconvenience and discomfort resulting from a breach of contract: it was not a claim for damages resulting from the breach of a specific undertaking 'to investigate a matter important for the buyer's peace of mind'. The House of Lords, in Farley v Skinner, was also concerned that their decision was consistent with the earlier House of Lords' decision in Ruxley Electronics v Forsyth (1995).

52.

Liquidated damages Dunlop Pneumatic Tyre v New Garage and Motor (1915) defines tests that are considered even in modern cases when the court is asked to rule on penalty charges. They are; 1) If it is "extravagant and unconscionable" i.e. that the cost incurred by the business because of the breach is lower than what the consumer is being expected to pay because of the breach. 2) It is also a penalty where the consumer is to pay a larger sum due to failure to pay a smaller sum.: a 'liquidated damages' clause is enforceable provided that the amount is a genuine pre-estimate of the damage and not unconscionable. law views a clause which provides an excessive agreed sum to the injured party as invalid because the sum is 'penal'. difference between what the parties to a contract have called a provision (as a matter of fact) and how a court will categorise a provision (as a matter of law).

53.

Bridge v. Campbell Discount Co. Ltd. (1962) In this case a customer bought a car under a hire purchase agreement. He paid the initial and first payments and then cancelled the agreement. The company tried to recover the sums specified in the contract for canceling the agreement,: Bridge v. Campbell Discount Co. Ltd. (1962) but the courts held that the sums payable were excessive and constituted a penalty clause. It was, therefore, unenforceable

54.

claim for damages framed as breach of condition. Lombard North Central v Butterworth (1987) The claimant was to pay by 20 instalments every 3 months for a computer . A term of the lease agreement provided that punctual payment was required and breach of this term would entitle the lessor to terminate the agreement. The defendant got into arrears with the instalments and the claimant took possession of the computer and sold it on for 175. The claimant sued the defendant claiming arrears and all future payments amounting to 6,869 in total: Lombard North Central v Butterworth (1987) The term relating to prompt payment was a condition. The parties by their agreement had demonstrated that prompt payment was an essential term and the consequence of breach was clearly set out. Nicholls LJ stated that even one late payment would entitle the lessor to terminate irrespective of the effect of the breach.

55.

evading penalty clause 3 devices:: The penalty clause rule does not apply to a clause which accelerates an existing liability. 2. Because the penalty clause rule only applies to breaches of contract, the parties can legitimately stipulate that an amount shall be payable on an event which is not a breach of contract. 3. The parties can stipulate that a term is a condition which is of the essence of the contract with the effect that breach of the term allows the injured party to terminate the contract and claim damages. (Lombard North Central)

56.

Angelic Star 1988 acceleration of future liability: decided that "a clause which provided that in the event of any breach of contract a long term loan would immediately become payable and that interest thereon for the full term would not only be payable but would be payable at once would constitute a penalty as being a payment of money stipulated as in terrorem of the offending party." HOWEVER in this case loan + other monies due (not including future interest) was NOT a penalty clause so the sum WAS due.

57.

evading penalty clause 3 device payability on an event which is not a breach of contract. Alder v Moore 1961 footballer has insurance with clause to to obtain 500 but he agrees that if he infringes the rule that he will not play in the future, the sum must be returned.: receives 500, breaches contract (returns to football) sued for return of 500. CA held that penalty clause not applicable, he had not agreed NOT to play football again.

58.

Financings Ltd v Baldock 1963 HP agreement, D stops making payment. there is a clause which was determined to be a penalty clause which was unenforceable: As there had been no repudiation of the hire-purchase agreement by the defendant, the plaintiffs could recover only the damages suffered by them for his breaches of the agreement prior to the date of its termination