Damages Notes

Measure of damages & the kind of damages which the plaintiff is entitled to recover for are
the key issues.

Measure of Damages

1. Restitution interest the right to restoration of a valuable benefit conferred on the other
party, the object being to prevent unjust enrichment (the market value of what was actually
delivered from what was actually delivered).
2. A reliance interest the right to compensation for loss due to steps taken by the innocent
party in reliance upon the existence of the contract (what was paid minus what was
received).
3. An expectation interest the right to compensation for the loss of the bargain, the object
being to financially restore the innocent party to the position which he or she would have
occupied if the contract had been performed

Newmans Tours Ltd v Ranier Investments Ltd [1992] CA summarised by Fisher J (originally
in Fuller and Perdues article).

You cannot sue for both expectation and reliance losses (i.e. where it is necessary to expend
money in reliance on a contract in order to earn the profits).

General Principles

Expectation Measure

Wertheim v Chicoutimi Pulp Co [1911] AC 301 (PC)

The plainti should be placed in the same position as he would have been in if the
contract had been performed.

Hawkins v McGee SC New Hampshire [1929]

The dierence between what was promised and what was received.

There are limits on the rule that expectation damages are awarded these seek to keep the
measure of damages within reasonable bounds.

1. Breach Date Rule

Golden Strait Corpn v NYKK [2007] UKHL

Facts

The shipowners chartered their vessel to the charterers for seven years.

Contained a clause which provided for a right to cancel should war break out.

 On 14th of December 2001, the charterers repudiated the charter, but war only broke out
on the 20th of March 2003.

The charterers argued they would have exercised their clause 33 right to bring the charter
to an end in March 2003 so damages should only be assessed up to that point.

The chance of war breaking out was a possibility when the contract was repudiated.

Held

The victim of the breach should be placed, so far as damages can do it, in the position he
would have been in had the contract been performed. The assessment at the date of
breach can usually achieve that result, but not always.

Where the contract is for the supply of goods over some specified period, the rule may be
less apt.

The owner was only entitled to claim damages up to the point where the contract would
have been cancelled.

If there were a real possibility that an event would happen terminating the contract (or
reducing the contractual benefit), then damages might need to reflect that by being
reduced proportionately.

2. Remoteness

The plaintiff cannot recover all losses caused by the defendant.

Hadley v Baxendale Did those damages arise as a natural consequence of the breach or were
those damages within the reasonable contemplation of BOTH parties at the time they ENTERED
into the contract?

What does arise naturally mean?

Loss of profits arising from the breach of a trading contract at least between experienced
parties will more often than not fall under the first branch.

Per Balfour BT v Scottish Power, it was made clear that how far a party may be expected to
know about the practices and exigencies of the others trade will depend upon the nature of that
trade.

What does reasonable contemplation mean?

Note: per Victoria Laundry, there can be two sets of profits (i.e. ordinary and
special).

Asquith LJ in Victoria Laundry test of reasonable foreseeability (Swain not convinced but that is
the consensus). It is enough if he could foresee that it was likely to result.
The Heron II The question is not whether the damage SHOULD have been foreseen by the
defendant, but whether the probability of its occurrence should have been within the
reasonable contemplation of both parties at the time when the contract was made, having
regard to their knowledge at that time. Lord Reid preferred the use of not unlikely or quite
likely to happen. Note that liable to result seems to have secured the most general assent.

Swain has adopted the formula that it is whether the losses are within the reasonable
contemplation (not straightforward foreseeability) of the parties as a serious possibility or very
likely to result from that breach of contract.

Is reasonable contemplation still enough?

Transfield Shipping Lord Roger applied the orthodox test.

Non-orthodox approach says that reasonable contemplation is not always enough even if
damages are within reasonable contemplation, damages can only be recovered if the defendant
has assumed responsibility for those damages.

Problems: seems as though he (Lord Hoffman) was trying to reflect the commercial realities of the
charter market.

3. Mitigation

General Rules

1. P must take all reasonable steps to minimise their loss

2. P must not unreasonably incur expenses subsequent to the breach
3. Consider whether P benefited from the breach take that into account

P must take all reasonable steps to minimise their loss

Derbyshire v Warren [1963] CA a duty to mitigate exists

Payzu Ltd v Saunders [1919] KB

Facts

The defendants agreed to sell the plaintis some silk. Payment was to be made in
instalments, but delivery was not on the same schedule.

The plaintis missed a payment due to some confusion. The defendants refused to make
any further deliveries lest the plaintis paid cash with each order.

Plaintis refused and claimed damages for the dierence between the market prices in
February (which had increased) and the contract prices.

Held

McCardie J in the CA: you must look at the actual circumstances of the case to see
whether one party is relieved from its future performance by the conduct of the other.

The question is what a prudent person ought reasonably to do in order to mitigate his loss
arising from a breach of contract.

Extraordinary results might arise if the plaintis could reject the defendants oer and incur
a substantial measure of loss which could have been avoided.

Plaintis can be awarded damages for business inconvenience, though.

HOL what is reasonable to do in mitigation is a question of fact in each case. There

may be circumstances where it would be unreasonable to expect the plainti to consider
any oer made in view of the treatment they received from the defendant.

Burrows, Finn & Todd: the burden of proving such failure [of mitigation] rests on the
defendant. This is not a light burden.

P must not unreasonably incur expenses subsequent to the breach

Banco de Portugal v Waterloo & Sons [1932] HOL

The law is satisfied if the party placed in a dicult position by reason of the breach of a duty
owed to him has acted reasonably in the adoption of remedial measures and he will not be held
disentitled to recover the cost of such measures merely because the party in breach can suggest
that other measures less burdensome to him might have been taken be sensitive to the fact
that they are not the party who breached.

The plaintiff obtains a benefit by the breach

British Westinghouse v Underground Electric Railways [1912] HOL

Facts

Appellants agreed to deliver and erect 8 steam turbines to the respondents

The machines were defective

The respondents nonetheless accepted the machines and used them whilst always
reserving their right to damages

The appellants removed one of the machines and endeavoured to bring it into conformity
with the terms of the contract, but failed.

The respondents bought new machines and claimed damages for (a) the estimate of the
loss caused by the excessive coal consumption over 20 years; or (b) the cost of installing
the new machines

Held

Two general principles a person should be put, so far as money can do it, in a situation
as if the contract had been performed; and

 There is a duty on the plainti to take 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.

When in the course of his business P has taken action arising out of the transaction, which
has diminished his loss, the eect in actual diminution of the loss he has suered may be
taken into account even where there was no duty to act.

A jury may look at the whole of the facts and ascertain the result in estimating the quantum
of damage they need to balance loss and gain.

Here, the new machines did not constitute part of an independent and disconnected
transaction.

Burrows, Finn & Todd: the law does not allow a plainti to recover damages to
compensate for a loss which would not have been suered if he or she had taken
reasonable steps to mitigate the loss.

4. Non-Pecuniary Losses can you claim for losses that dont

involve money? (e.g. distress)

Mere Annoyance and Inconvenience

Hamlin v The Great Northern Railway Co [1856] Exch

Facts

The defendants were the owners of a railway. The plainti was received by the defendants
as a passenger to be carried from London to Hull.

The train did not arrive on time. The plainti was unable to carry out his aairs and
business as a tailor.

Held

The plainti is entitled to recover whatever damages naturally result from the breach of
contract, but not damages for the disappointment of the mind occasioned by the breach
of contract.

Falko v James McEwan & Co Ltd [1977] SCV

Facts

M.Co contracted with F a householder to supply and install an oil heater in Fs home
for an agreed amount.

An electrician was engaged. He informed F that they needed a new powerpoint at an

additional cost to F.

Held

The contract was an ordinary commercial contract for breach of which F was not entitled
to recover damages for inconvenience and mental distress.

Every purchaser who is disappointed does not have an action for disappointment or
inconvenience.

It is only in a proper case that such compensation is available (see Jarvis).

Mental Distress

Addis v Gramophone Company Limited [1909] HOL

Facts

P had been illegally dismissed from his employment.

Whether the harsh and humiliating way he was dismissed including the pain he
presumably experienced should warrant damages in and of itself.

Held

Exemplary damages ought not to be recoverable in such an action as this [Lord Atkinson].

Bloxham v Robinson [1996] CA

Held

The court held that the respondent, as the contract breaker, was not liable for any
emotional stress, anguish, etc which his breach of contract might have caused the
innocent party.

In commercial cases, an award for injury to feelings is prima facie inappropriate.

Exception Employment Contracts

Whelan v Waitaki Meat Ltd NZCA

Argued that Addis was outdated and as it dealt with a commercial context, it had to be viewed
accordingly. The plaintiff received damages for distress.

Note: where parties are in a commercial relationship, the chance of recovering is low (too remote
cant really be said that it flows naturally or that the parties contemplated it beforehand).
Footnote: Section 123(c)(i) of the Employment Relationships Act 2000 now specifically allows the
court to grant damages for humiliation and injury to feelings.

Exception Object of Contract

Jarvis v Swan Tours Ltd

Facts

Jarvis booked a holiday. It was a skiing holiday.

He didnt get all of the things that the brochure promised far from it.

Held

In a proper case damages for mental distress can be recovered in contract one such
case is a contract for a holiday, or any other contract to provide entertainment and
enjoyment. If the contracting party breaks his contract, damages can be given for the
disappointment etc caused by the breach.

The right measure of damages is to compensate him for the loss of entertainment and
enjoyment which he was promised and which he did not get.

Physical Damage

Hobbs v The London and South Western Railway Co [1875] QB

Facts

P took his family on the midnight train. It did not go where they wanted it to go.

They could not get accomodation. His wife caught a cold.

Held

P was entitled to damages for the inconvenience suered as a result of the walk home, but
the illness and its consequences were too remote from the breach of contract.

You need PHYSICAL INCONVENIENCE. Where mental distress arises from that, you can
seemingly recover.

Loss of Amenity (quantifying the loss of a bargain measure of

damages)
Ruxley Electronics & Construction Ltd v Forsyth Laddingford Enclosures Ltd [1995] HOL

Facts

P contracted to build a swimming pool that was to be 7 feet 6 inches deep. The completed
pool was only 6 feet deep.

There was no adverse eect on the value of the property.

Held

Where expenditure is out of proportion to the benefit obtained the appropriate measure of
damages is not the cost of reinstatement but the diminution in the value of the work
occasioned by the breach.

In some cases, the loss cannot be fairly measured except by reference to the cost of
repairing the deficiency; in others particularly where the contract is designed to fulfil a
commercial purpose the loss will often consist only of the monetary detriment brought
about by the breach. THESE REMEDIES ARE NOT EXHAUSTIVE THE LAW MUST
CATER TO THOSE OCCASIONS WHERE THE VALUE OF THE PROMISE TO THE
PROMISEE EXCEEDS THE FINANCIAL ENHANCEMENT OF HIS POSITION.

The test of reasonableness plays a central part in determining the basis of recovery it
would equally be unreasonable to deny all recovery for such a loss.

It is first necessary to ascertain the loss the plainti has suered. If he has suered no
loss, he can recover no more than nominal damages.

In building cases, the pecuniary loss is almost always measured in one of two ways: the
dierence in the value of the works done or the cost of reinstatement (though the principle
that a plainti cannot always insist on being placed in the same physical position as if the
contract had been performed, where to do so would be unreasonable, is not confined to
building cases).

Intention may also be relevant to a claim for damages based on cost of reinstatement.
Where a plainti is contending for a high cost of damages, the court must decide whether
in the circumstances that is reasonable one factor to consider is the genuineness of the
plaintis desire to pursue the course which involves the higher cost.

5. Gain Based Damages Blake Damages

Attorney-General v Blake [2001] HOL

Damages in contract were not confined to compensatory damages and could be awarded
based on stripping the breaching party of a gain, in the same way equity awards an account of
profits where a party makes a fiduciary gain at the expense of a trust.

Two special factors in this case:

1) Plainti had an interest in ensuring that D performed their contract. Only in giving gain based
remedy could that performance be secured.

2) The undertaking under the ocial secrets act of confidentiality was very similar to a duty that
would be imposed upon a fiduciary and whilst Blake was not a fiduciary vis a vis the government,
they were in an analogous position.

Lord Hobhouse DISSENTED (CORRECT IN SWAINs VIEW) this was just a public policy
decision. Diculty with making a decision on this basis and undermining the core principle of
damages is knowing where the principle will stop. If you apply here and can get gain based
damages, where will the line be drawn in the future. Majority stressed this case was exceptional.

AG for England and Wales and R (NZCA) the CA didnt rule out that Blake might be possible
in NZ. Yet in the same case, it was also the case that there was a duty of confidentiality in the
contract concerned (arguably analogous to fiduciary duty and not a straightforward example of
simple breach of contract).

Certainty can you claim damages for the loss of chance to profit?

Chaplin v Hicks

Facts

The defendant established a beauty competition in the newspaper. The plainti was picked
as part of a larger pool to be whittled down to a smaller pool but missed her interview.

There was a chance that she would have gained monetarily.

It was said that the plaintis chance of winning a prize turned on too many contingencies
as to be assessable.

Held

The fact that a lack of certainty exists is not enough to preclude the awarding of damages
it is for the jury to estimate.

Where by a contract a man has a right to belong to a limited class of competitors, he is

possessed of something of value.

Reliance Damages as an Alternative

Pre-contractual Reliance

Anglia Television Ltd v Reed [1968] EWCA

Facts

Anglia Television found the actor they wanted for a series. He agreed to be available for
the production of the show.

He subsequently repudiated his contract.

Anglia sued for the wasted expenditure (they couldnt sue for loss of profits didnt know
what they would be).

Held

If a plainti claims for wasted expenditure, he is not limited to the expenditure incurred
after the contract was concluded. He can claim also for expenditure incurred before the
contract provided it would reasonably be in the contemplation of the parties as likely to be
wasted if the contract was broken.

Post-contract reliance and bad bargains

McRae v Commonwealth Disposals Commission(ASK SWAIN)

Facts

The Commission sold McRae the shipwreck of a tanker. They had made a mistake. There
was no tanker to sell.

The McRae brothers had incurred expenses in terms of the salvage operation and sued
the Commission.

Held

The plaintis can argue: (1) this expense was incurred; (2) it was incurred because they
were promised the tanker was there. They therefore have a prima facie case, and the
burden shifts to the Commission to establish that, if there had been a tanker, the expense
incurred equally would have been wasted.

The court did not allow the plaintis to claim for ordinary necessities (i.e. equipment on
the ship/reconditioning work done before the contract).

They allowed claims for travelling expenses and wages.

Burrows, Finn & Todd: the contract may be speculative but the plaintiff may still have relied upon
the defendant honouring the contract and incurred expenditure which was wasted as a result.

ALSO if you expend more than you would have PROFITED from the agreement, then you
cannot recover for the loss which would have been suffered anyway (C&P Haulage v Middleton).

Burden is on the defendant to show that the venture would have been unprofitable (CCC Films Ltd
v Impact Quadrant Films [1985] QB).

C&P Haulage v Middleton [1983] NZCA

 The CA said that the plainti cannot be put in a better financial position by award of reliance
damages than if the contract had been performed.

The plaintiffs loss did not flow from the breach of contract, but him going and doing the repairs
when he was not meant to.

6. Liquidated Damages/Penalty Clauses

Kemble v Farren [1829]

Penalties are unenforceable liquidated damages are enforceable.

Dunlop Pneumatic Tyre Company v New Garage and Motor Company [1914] HOL

Facts

The appellants entered into a contract with the respondents under which they supplied
them with their goods, which consisted mainly of motor-tyre covers and tubes.

The agreement contained a clause referring to liquidated damages.

Held

A party using the term penalty or liquidated damages may prima facie be supposed to
be what they say, but that is not conclusive.

The essence of liquidated damages is a genuine pre-estimate of damage

The question whether a clause is a penalty or liquidated damages is a question of

construction to be decided upon the terms and inherent circumstances of each particular
contract, judged of as at the time of MAKING the contract not at the time of the breach.

1. It will be held to be a penalty if the sum stipulated is for extravagant and unconscionable in
amount in comparison with the greatest loss which could follow from the breach

2. It will be a penalty if the breach consists only in not paying a sum of money, and the sum
stipulated is a sum greater than that which ought to have been paid

3. There is a presumption that it is a penalty when a single lump sum is made payable by way
of compensation, on the occurrence of one or more or all several events, some serious
but some trifling.

4. It is no obstacle to a sum being a genuine pre-estimate of damage that the consequences

of the breach are such as to make pre-estimation almost impossible.

Robophone Facilities v Blank EWCA

Facts

 The case involved a telephone recording machine which was let for a fixed term of seven
years.

P say the machine cost them 105 pounds to manufacture. They were to deliver it to the
plainti.

Eleven days before it was due, the customer cancelled the agreement.

s10 of the agreement provided that if the agreement was terminated for any reason
whatsoever, then the customer should pay all rentals accrued by way of liquidated
damages a sum equal to 50 percent of the total of the rentals which would subsequently
have become payable.

Held

Lord Denning [DISSENTING] Clause 11 was unfair given the agreement had lasted for
ten days. It ignores two important considerations which are essential in any measurement
of the owners loss: the compensation was to be paid immediately instead of over seven
years; and the plaintis still had the machine. The clause was a penalty clause.

Lord Diplock [MAJORITY] Parties to a contract may expressly stipulate not only what
will be their primary obligations and rights under a contract (those which are discharged by
performance) but also their secondary obligations and rights (those which arise upon non-
performance of any primary obligation).

The court should not be quick to brand something a penalty clause.

If the contract contains an express undertaking by the defendant to be responsible for all
actual loss to the plainti occasioned by the breach, whatever the loss may be, it would
not aect the defendants liability for the loss actually sustained by the plainti that the
defendant did not know of the special circumstances which were likely to cause any
enhancement of the plaintis loss.

Cavendish Square Holding BV v Makdessi [2015] UKSC

Facts

Mr Makdessi sold a controlling part of his marketing company to Cavendish.

The sale and purchase agreement contained a restrictive covenant preventing Makdessi
from engaging in competing activities, breach of which entitled Cavendish to withhold the
final two instalments of the purchase price, and to acquire Makdessis remaining stake in
the company at a reduced price.

Held

The scope of the rule is confined to secondary obligations triggered by breach of contract. It
applies only to the remedies available for breach of a partys primary obligations, not to the
primary obligations themselves.

The traditional test of whether the provision is a genuine pre-estimate of loss is rejected, in
favour of a rule which now applies where the consequence of a breach of contract is out of all
proportion to the legitimate interests of the party, i.e. a party can, in some circumstances,
enforce a consequence for non-performance which goes beyond simply being compensated
for losses, where that partys wider legitimate interests justify such compensation.

 In a negotiated contract between properly advised parties of comparable bargaining power,

the strong initial presumption must be that the parties themselves are the best judges of what
is legitimate in a provision dealing with the consequences of breach.

Swain: The important factor is whether its legitimate in a wider sense that such a sum
becomes payable on breach.

"Thus, where a contract contains an obligation on one party to perform an act, and also
provides that, if he does not perform it, he will pay the other party a specified sum of money,
the obligation to pay the specified sum is a secondary obligation which is capable of being a
penalty; but if the contract does not impose (expressly or impliedly) an obligation to perform
the act, but simply provides that, if one party does not perform, he will pay the other party a
specified sum, the obligation to pay the specified sum is a conditional primary obligation and
cannot be a penalty.

Further, although the payment of money is the classic obligation under a penalty clause, the
Supreme Court says there is no reason the rule should not apply to an obligation to transfer
assets (either for nothing or at an undervalue). Lord Mance and Lord Hodge also consider that
the rule applies equally to clauses withholding payments on breach, and could apply
alongside relief against forfeiture. Lord Neuberger and Lord Sumption leave that latter
question open.

Associated Distributors Limited v Hall

Facts

The plaintis operated a hire-purchase business. The defendant hired a tandem bicycle
under a hire-purchase agreement.

Clause 5 of the agreement provided that the agreement could be terminated at any time by
the returning of the goods.

The hirer returned the bicycle after having paid only one instalment the plaintis claimed
a sum in court.

Held

It was not necessary to decide whether the sum payable was a penalty or liquidated
damages, because the hirer terminated the hiring and in doing so exercised a valid option.
There was no breach of contract.

Forfeiture Clauses

A payment by initial instalment and a payment by deposit are as a matter of law

DIFFERENT transactions.

Of the former, the law says that the instalment must be returned when I return the goods
to you unless there is a forfeiture clause.

Whether a deposit or payment by instalment is a matter for INTERPRETATION.

Galbraith v Mitchenall Estates Ltd

Facts

P hired a caravan from the defendants.

P assumed it was a hire-purchase agreement, but it was actually a simple hire agreement.
There was no wrongdoing on behalf of the defendants.

The plainti never read the document.

P sought to reclaim the first payment.

Held

No such equity exists unless there has been unconscionable conduct at the time the
contract was entered into. There is nothing wrong with a vendor who is not open to
criticism in other respects insisting upon his contractual right to retain instalments of
purchase money.

It is for the legislature to deal with the hire-purchase and simple hire distinction.

In Galbraith, it was said that you do not simply apply the standard penalty doctrine to an
instalment that is forfeited you look at the situation surrounding the way the contract
was entered into.

Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] PC

Facts

The purchaser at an auction had been obliged under the terms of the auction contract to
pay a deposit of 25%. He failed to complete, and the vendor took the deposit by way of
forfeit.

The standard deposit payable would be 10%. The Court of Appeal of Jamaica ordered the
return of the excess above 15%.

Held

The special treatment aorded to deposits is capable of being abused in order to escape
the penalty rule (deposits generally dont fall within the rule).

In order to be reasonable a true deposit must be objectively operating as earnest money

and not as a penalty. What is reasonable cannot be what the common practices are.

Given the customary deposit is 10%, a vendor who seeks more must show special
circumstances which justify such a deposit.

The size of the relevant deposit was not reasonable. It was to be repaid in full because
if the defendants cannot establish that the whole sum was truly a deposit, then they have
not contracted for a true deposit at all.