Topic Six

[A]

[B]

Remedies for Breach of Contracts

Introduction
Common law remedies under the common law
Equitable remedies under the law of equity based on the idea of justice.
Common law remedies - damages

How are damages assessed?

To compensate the innocent party for his loss due to the breach of contract. He is to
be put in the same situation as if the contract has not been breached.

Are there different types of damages for breach of contract?

Yes, there are. 4 major types:
(i) nominal damages
(ii) damages for the reasonably foreseeable losses (see also section 53 of the Sale of
Goods Ordinance) (not, damages for all the incurred losses under the Misrepresentation
Ordinance),
(iii) damages for the losses that are not reasonably foreseeable but are known by the
parties, and,
(iv) damages for mental distress.
(i) Nominal damages
No loss - nominal damages
Chinluck Properties Ltd v Casil Clearing Ltd [2007] 1 HKC 231: the defendant failed to
provide the full loan but the land development project failed because of the Asian
Financial Crises and not because of this. The court only awarded $100 to the plaintiff.
(ii)-(iii) damages for reasonably foreseeable / known losses

Expectation losses (loss of profits), also called the loss of bargain

Hadley v Baxendale (1854) 9 Ex 341

A ran a mill for business purposes. A machine in the mill broke down and had to be
repaired.
B agreed to deliver this machine to C (As business partner). C had agreed to make a
new machine for A but A did not tell B about this.
Due to late delivery, A could not have a new machine to be used in his mill on time.
A demanded B to compensate him the loss of profits.
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Held: As A had not told B what C would do with the machine that had broken down, B
could not reasonably foresee As loss of profits.
Victoria Laundry (Windor) v Newman Industries [1949] 2 KB 528

A agreed to deliver a boiler to B, a laundry and dyer. A knew that B wanted the boiler
for business purposes though not the exact details.
In the course of delivery, A damaged the boiler. As a result, B lost profits from
ordinary customers as well as a dyeing contract with the government. B demanded A
to compensate it for all these losses.

Held: B could recover the profits that it could have made from ordinary customers since
the profits that it could have made from ordinary customers were reasonably foreseeable.
However, B could not recover all the profits that it could have made from the government
since the business activity with the government was not the ordinary business of a
laundry.
The Heron II [1969] 1 AC 350

A agreed to deliver Bs sugar cargoes to a sugar market.

Due to late delivery, A could only sell the sugar at a lower price.

Held: The difference in price was recoverable as fluctuation of the market price was
reasonably foreseeable.
Chan v Cheerrich Ltd. [2001] HKEC 133

A and B sold their house to C. A and B then bought 2 flats from D as their new home.
C could not complete the purchase on the required completion date. Thus, A and B
did not have enough money to pay the deposit to D.
A and B cancelled the agreement with D but had to pay compensation to it.
A and B re-sold their house to E at a lower price and demanded C to compensate
them the difference in the price and the compensation which they made to D.

Held: The difference in the price was recoverable but the compensation to D was not
recoverable as it was beyond what could have been reasonably foreseeable by C.
In Chen v Lord Energy Ltd [2002] 1 HKLRD 495, the court held that it was normally not
reasonably foreseeable that a buyer would buy a flat for resale. So the buyer had to make
known to the seller of this intention if he (the buyer) wanted to sue the seller for profits in
case the seller breached the contract.

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Reliance losses (expenses)

Reasonable expenses incurred in preparing for the contract can be recovered: McRae v
Commonwealth Disposals Commission (1950) 84 CLR 377. In Anglia TV v Reed
[1971] 3 All ER 690, an actor did not appear in a film as agreed. He was ordered by the
court to compensate the television corporation for its costs in preparing for the film.
(iv) Damages for mental distress
In Jarvis v Swan Tour (1972) 3 WLR 954, the promises of a tour agency in the contract
were not fulfilled. The court held that the customer was entitled to have an amount
(more than a nominal one) to compensate his mental distress as the purpose of the
relevant contract was to provide for enjoyment.
Does the innocent party have to reduce his loss?
Wayfoong Credit Ltd. v Cheung [1980] HKLY 504

A buyer defaulted on a contract to buy the sellers car.

The seller sent tenders to car dealers whom he had dealt with before. It was later sold
at a low price.

Held: The seller had not taken reasonable steps to reduce his loss. He should have
done more to sell the car at a better price, e.g. by inviting tenders from people other than
the above or holding an auction, etc. The award of damages had to be reduced.
Assume a buyer has breached a contract by failing to pay for the land. The seller (the
innocent party) has to sell the land at the date of the breach of contract or within a
reasonable time to reduce his losses. The amount of damages is to be the difference
between the contract price (i.e. the price for the land) and a fair market price for the land.
If the market price is falling the seller can defer resale for more time (First Shanghai
Enterprises Ltd v Dahlia Properties Ltd [2003] HKEC 507). In case the market price is
good the seller should resell the land within 3 months at most or the court would reduce
the damages (Win Profit Corp Ltd v World Orient Investment Ltd [2012] 2 HKLRD
1053).
* If the market price is higher than the contract price, the seller (the innocent party in this
case) can still recover nominal damages or, in case he seeks a lawyer to help him taking
legal action against the buyer (the guilty party), his lawyers cost being the reasonably
foreseeable losses.
Can the parties specify a compensation amount in their contract?
Depends on whether the amount is one of liquidated damages () or a
penalty ().

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Liquidated damages are amounts genuinely pre-estimated (even though it might

turn out to be more than the real losses) - effective
A penalty is an excessive compensation amount which aims to deter the other
party from breaching the contract. If the amount is a penalty, the court will
disregard it and estimate the real amount of damages: Dunlop Pneumatic Tyre Co.
Ltd. v New Garage and Motor Co. Ltd. [1915] AC 79

Philips Hong Kong Ltd. v Attorney General of Hong Kong [1993] 1 HKLR 269: a
compensation sum to be paid for delay of the construction project at a reasonable daily
rate was held to be liquidated damages even though the application of this formula could
result in a larger compensation sum.
Sung v Wong [1997] HKLY 487: a forfeitable deposit amounting to 80% of the purchase
price for a flat was held to be a penalty whereas a forfeitable deposit amounting to 10%
of the purchase price for a flat was acceptable.
Polyset Ltd. v Panhandat Ltd. [2000] 4 HKC 203: a deposit amounting to more than 10%
of the purchase price for a flat could be liquidated damages at a time when the market
price of flats fluctuated.
Shum v Caesar Beauty Centre Ltd. [2003] 3 HKC 235: a non-refundable sum of $48,060
being the full advance payment for 267 facial treatments was held to be a penalty since
this sum was out of proportion with the loss of profits of the beauty centre if the plaintiff
did not turn up for facial treatment.
[C]

Equitable remedies

What are the equitable remedies for breach of contract?

3 types: (i)
(ii)
(iii)

rescission,
specific performance () and
injunction ( / commonly called ).

We have already studied the principles relating to rescission which is also available in
cases involving misrepresentation (see topic 4 materials).
Under the Sale of Goods Ordinance, there are further rules as to whether the buyer may
or may not be able to reject the goods (rescission) in case the seller breaches the contract
as shown in the following table:-

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Non-delivery
late delivery

and Serious
defective
deliveries of goods
delivered
by
instalments
under
entire
contracts
(section 33)*
Damages
Damages in respect
of the particular
defective deliveries
Rescission of the Rescission of all the
lately
delivered goods
goods

Wrong
quantity Mixed
(section 32)
(section 32)

Damages

goods

Damages

Rescission of all the Rescission of all the

goods or the goods goods or the wrong
in excess
goods
Acceptance of the
goods and payment
at the contract rate

* There have been serious defective deliveries of goods delivered by instalments under
non-severable contracts if there has been a high % of the number of defective deliveries:
e.g. where more than 50% of the deliveries are defective (Munro (Robert A) & Co. Ltd. v
Meyer [1930] 2 KB 312) but not where only 5% of the deliveries are defective unless the
guilty party may likely continue to make defective deliveries (Maple Flock Co. Ltd. v
Universal Furniture Products (Wembley) Ltd. [1934] 1 KB 148).
What is specific performance?
An order of specific performance compels the defaulting party to perform the contract. It
will not be awarded in situations including the following:

The subject matter of the contract is general in nature (most cases)

Sky Petroleum Ltd v VIP Petroleum Ltd. [1974] 1 All ER 954: specific performance
order applicable to a contract involving supply of oil at a time when oil was lacking.
Wellfit Investments Ltd. v Poly Commence Ltd [1996] HKLY 654: specific performance
order applicable to a contract involving the sale of a flat which is unique in nature. In
addition, an award of damages only would deprive the plaintiff of the option of its resale
in future for a better price.
* Note where the sale of land contract provides for reasonable compensation in the event
of its breach and the disallowance of any further action, a specific performance order
would not normally be awarded: Lee v Choi [1991] HKLY 165.

Where the contract requires personal service

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Where the contract requires constant supervision of the courts (e.g. Co-operative
Insurance Society Ltd. v Argyll Stores (Holdings) Ltd. [1998] AC 1: a tenancy
agreement requiring the defendants to keep its shop open during normal business
hours could not be specifically performed).

Where the plaintiff has delayed in making a specific performance application.

What is injunction?
An order of injunction restrains the defaulting party from breaching the contract. It
would not be awarded in the same situations as stated above.
Warner Brothers Pictures Inc. v Nelson [1937] 1 KB 209: an entertainment company
could get an injunction to restrain its actress to work for others as an actress during the
employment period. The actress would not be compelled by the injunction order to
continue providing personal service to the company as she could work in other
occupations during the employment period.
Page One Records Ltd. v Britton [1967] 3 All ER 822: a manager could not get an
injunction to restrain his singers, during his appointment period, to appoint another
manager as this would compel the singers to continue providing personal service to him.
Beacon College Ltd v Yiu [2001] 3 HKLRD 558: a private school can get an injunction
to restrain its teacher to work for other private schools during his employment period.
The teacher would not be compelled by the injunction order to continue providing
personal service to the centre as he could teach in government schools / governmentaided schools during the employment period.
* Note that this is different from a restraint of trade clause which forbids an employee to
compete with the employer after the termination of his employment contract. This clause
is valid if it is reasonable.

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Suggested Questions
1.

On one occasion, May agreed to buy a flat from James. Under the agreement
May had to provide a deposit amounting to 50% of the purchase price to James
and this sum was to be forfeited in case May defaulted on the agreement. Later,
May defaulted on the agreement. James sold the flat to another buyer at a price
which amounted to 93% of the purchase price to be paid by May. James has since
refused to return the deposit to May.
Discuss the legal positions between May and James. What additional information
do you think you will need in answering this question?

2.

Wallis ordered 60 copies of Harry Porters novels from Havana to be delivered on

1 November. Havana knew that Wallis was a book seller.
(a)
(b)

Assume that 70 copies of Harry Porters novels arrived on 1 November.

Assume that 10 of the delivered books were not Harry Porters novels.

Discuss the legal position of Wallis and Havana.

3.

Howard ordered 60 copies of Harry Porters novels from Veda to be delivered in 3

instalments (20 in each instalment). She made one payment for all the books.
Veda made a defective delivery in respect of the 1st instalment to Howard. Veda
told Howard that she would never do the same again. Veda knew Howard was a
book seller.
Discuss the legal position of Howard and Veda.

4.

Winnie was a singer working for Philips entertainment company. She wanted to
terminate her contract with Philip and work for Pauls employment company.
Philip would like to stop her from leaving his company until her employment
contract ended.
Discuss the legal position of Winnie and Philip.

Suggested Answers
Q1

May defaulted on the agreement - a breach of contract.

The forfeitable deposit (50% of the purchase price) a penalty or a sum of
liquidated damages
Definition of both terms
Is 50% a reasonable pre-estimated figure?
Sung v Wong
If the sum was a penalty, the court would determine the real loss

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James sold to another one and suffered a loss of 7% of profits

Was James loss of profits reasonably foreseeable by May? Or, could this be known
to May?
Chan v Cheerrich Ltd.
Had James taken reasonable step to reduce his loss?
Wayfoong Credit Ltd. v Cheung
Unknown information: what was the market price at the relevant time?

Q2
(a) More Harry Porters novels arrived than expected.

Breach of contract
The rule under the Sale of Goods Ordinance as to the situation where the wrong
quantity of goods has been delivered

(b) The Harry Porters novels were mixed with other books.

Breach of contract.
The rule under the Sale of Goods Ordinance as to the situation where the goods are
mixed with other goods
Damages for reasonably foreseeable losses?

Q3

Breach of contract by making a defective delivery in respect of an entire contract

(one payment for all the deliveries)?
Under the Sale of Goods Ordinance, where the goods are to be delivered to the
buyers in instalments in accordance with an entire contract - damages for the
particular defective deliveries and rejection of all the goods depending on whether
there have been serious defective deliveries.
Relevant factors: (a) the % of the number of defective deliveries and (b) the
likelihood of the seller in continuing to make defective deliveries
Maple Flock Co. Ltd. v Universal Furniture Products (Wembley) Ltd. and Munro
(Robert A) & Co. Ltd. v Meyer.
Veda said that she would not make any defective delivery again but there had been
one defective delivery out of 3 instalments. So?
Damages for reasonably foreseeable losses?

Q4

Injunction - not to be awarded if it would result in performance of personal service

for Philips company.
This case is not like Warner Brothers Pictures Inc. v Nelson.
However, breach of contract committed by Winnie.
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Damages to be paid to Philips company.

Readings
D.K. Srivastava, cap.4 (pp.222-238 of the 2014 edition).
Anne Carver, cap.14.
Acknowledgment
The writing of this topic is based on the following materials: K. Arjunan & A. Majid, Business Law in Hong Kong (Hong Kong: LexisNexis, 2 nd ed.,
2009)
D.K. Srivastava, Contract Law, D.K. Srivastava, ed., Business Law in Hong Kong
(Hong Kong: Sweet & Maxwell Asia, 3rd ed., 2012)
Andy Chiu et al, Introduction to Hong Kong Business Law (Singapore: Prentice Hall,
2001)
Betty Ho, Hong Kong Contract Law (Hong Kong: Butterworths, 2nd ed., 1994)
Charu Sharma, Sale of Goods, D.K. Srivastava, ed., Business Law in Hong Kong (Hong
Kong: Sweet & Maxwell Asia, 3rd ed., 2012)
Anne Carver, Hong Kong Business Law (Hong Kong: Longman, 5th ed., 2001)
Kwok-ming Cheung, Sale of Goods (Hong Kong: Commercial Press (HK) Ltd., 1990)

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