Editorial Committee of the Cambridge Law Journal

Principle and Pragmatism in the Law of DamagesAuthor(s): Andrew TettenbornSource: The Cambridge Law Journal, Vol. 50, No. 1 (Mar., 1991), pp. 36-38Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4507490 .

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36 The Cambridge Law Journal [1991]

PRINCIPLE AND PRAGMATISM IN THE LAW OF DAMAGES

hME was, when calculating damages in sale of goods cases largely involved learning a few rules of thumb, and then wielding a pocket calculator. For better or worse, this is now unfashionable: these days, courts simply incline to ask what, assuming he acted reasonably, the plaintiff has lost as a result of the defendant's breach of duty. Two recent decisions nicely illustrate this tendency.

In Shearson Lehman v. Maclaine Watson (No. 2) [1990] 3 All E.R. 723, buyers wrongfully failed to accept some 8,000 tonnes of tin following the collapse of the International Tin Council, and with it the price of tin. As it was admitted that there was an available market for tin at the relevant time, the measure of damages was prima facie the difference between the contract price and the market price: Sale of Goods Act 1979, s. 50(3). But there the difficulty arose: what was the market price? 8,000 tonnes is a colossal amount of tin; unloaded on the market in one day, it would artificially depress prices still further. The buyers therefore argued for the market price to be set by reference to a notional sale over a few days to eliminate thls distortion. The sellers resisted this: the buyers, they said, had made their bed and had to lie on it; and besides, to hypothesise a sale over any extended period would defeat the object of s. 50(3), which was to promote certainty and exclude from consideration possible subsequent changes in the market.

Webster J. held for the buyers. The proper criterion for determin- ing the market price, he said, was as follows: (i) if the seller actalally sold on the crucial day, the price he sold at was the correct figure, provided it was fair; (ii) if he did not, the price that he could reasonably have got if he had sold in a commercially reasonable manner, if necessary over a few days, but discounting any subsequent market fluctuations.

Apart from this being a commercially sensible solution (no-one in his senses puts vast quantities of a commodity on to the market in a single day), two comments are appropriate. First, it is suggested that this decision goes some way towards imposing a general duty to mitigate on plaintiffs in sale of goods cases, such as already exists in the rest of the law of contract. To fix the market price under s. 50(3) at what a seller can get if he sells in a reasonable way is to say, albeit circuitously, that the seller must take reasonable steps to reduce his loss. The only limit on this duty seems to be that he is not bound to wait until the market improves: but qaaere whether this would not be the rule even independently of the statute. (Cf. the mortgagee or receiver exercising a power of sale; he must get a reasonable price, but is nevertheless entitled to sell immediately, whatever the state of the market- c.g*, Tse Kwong Lam v. Won Chit Sen [1983] 1 W.L.R. 1349, 1355).

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C.L.J. Case and Comment

37 Secondly, if this is so it must be open to some doubt whether the concept of the "available market" in ss. 50 and 51 of the Sale of Goods Act, and the special rule applicable where there is one, now serves much purpose. If a seller faced with wrongful non-acceptance is bound to act reasonably in the circumstances, he is clearly bound and entitled to sell on the market if there is one: if there is not, he must do the best he can. Technical argument over whether there is an "available market" under s. 50(3) complicates the issue unnecessanly, particularly since (a) authority on when it exists is scanty-see, e.g., Atiyah, Sale of Goods, 8th ed., pp. 475476; (b) one can often in any case reach the same result whether or not it does (as in, e.g., Charter v. Sullivan [1957] 2 Q.B. 117, 128 per Jenkins L.J.).

In Shearson Lehman the principle that the plaintiff must act reasonably went to reduce his recovery. Conversely, in Naughton v. O'Callaghan [1990] 3 All E.R. 191, conversely, a generous attitude to consequential loss was used to increase recovery. Mr. Naughton bought from a Mr. O'Callaghan a racehorse called Fondu, represented indeed, warranteto have a given pedigree. The price was 26,000 gns. In fact it had been misdescribed; its provenance was different, less suited to racing ln England, and had this been known it would only have fetched some 23,500 gns. The animal performed disastrously; in three races it trailed in near the end of the field, and after this dismal record its resale value was £1,500. At this point Mr. Naughton found out about the misdescription, and successfully sued Mr. O'Callaghan for damages, both for breach of contract and under the Misrepresentation Act. But what was the measure: was it the difference between the sale price and (1) 23,500 gns, the "value" of the beast at the time of sale, or (2) £1,500, its value when the facts were discovered?

Waller J. decided that (2) was correct, whatever the basis of the claim. Under the 1967 Act, he reasoned, the measure was simply loss resulting; there was no justification for adhering slavishly to values at the time of sale and ignoring subsequent depreciation, unless (1) the depreciation was due to a fall in the market generally; or (2) it occurred after the truth came to light, in which case it would result not from the misrepresentation but from the buyer's own act in not re-selling immediately and cutting his losses. Neither exception applied here.

Breach of warranty was more difficult, since s. 53(3) of the Sale of Goods Act did prima facie compute damages by the difference in values at the time of sale. But his Lordship observed that this measure was only prima facie, and here declined to apply it. First, he argued, the modern tendency was to view damages in the round as compensation for the plaintiff s actual loss, rather than applying rigid rules. Secondly, he viewed s. 53(3) as more applicable to items such as shares and bonds, where subsequent depreciation was more likely

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38 The Cambridge Law Journal [1991]

to be due to market changes and other extraneous events. With other

kinds of property, bought for use rather than speculation, and where

subsequent loss in value had, or might have, a connection with the

very breach of warranty sued on, the prima facie rule was unjust and

should not be applied. In view of these considerations, Waller J.

followed the lead of Lord Wilberforce in Johnson v. Agnew [1980] A.C. 367, 400, and awarded a sum sufficient to compensate Mr.

Naughton for the actual loss he had suffered. Having done this, he

then went on to award, on similar principles, a further sum to cover

Fondu's training and keep between the sale and the discovery of the

mistake, refusing for these purposes to speculate whether those

expenses might have been wasted anyway on another unsuccessful

horse.

The message from both cases to the student (and practitioner) is

the same; these days, in sale of goods as elsewhere, there is no

substitute for asking (1) what has the plaintiff actually lost? (2) Has

he acted reasonably in losing it? He may perhaps take solace from

the fact that, provided one is properly clued-up, neither question is

likely to prove excessively difficult.

Andrew Tettenborn.

38 The Cambridge Law Journal [1991]

to be due to market changes and other extraneous events. With other

kinds of property, bought for use rather than speculation, and where

subsequent loss in value had, or might have, a connection with the

very breach of warranty sued on, the prima facie rule was unjust and

should not be applied. In view of these considerations, Waller J.

followed the lead of Lord Wilberforce in Johnson v. Agnew [1980] A.C. 367, 400, and awarded a sum sufficient to compensate Mr.

Naughton for the actual loss he had suffered. Having done this, he

then went on to award, on similar principles, a further sum to cover

Fondu's training and keep between the sale and the discovery of the

mistake, refusing for these purposes to speculate whether those

expenses might have been wasted anyway on another unsuccessful

horse.

The message from both cases to the student (and practitioner) is

the same; these days, in sale of goods as elsewhere, there is no

substitute for asking (1) what has the plaintiff actually lost? (2) Has

he acted reasonably in losing it? He may perhaps take solace from

the fact that, provided one is properly clued-up, neither question is

likely to prove excessively difficult.

Andrew Tettenborn.

ACQUIRING AN INTEREST IN ANOTHER S PROPERTY

In Lloyd's Bank p.l.c. v. Rosset [1990] 2 W.L.R. 867, the House of

Lords has clarified the circumstances in which a person may claim

an equitable interest in property, legal title to which is vested in

another. In 1982, Mr. Rosset purchased a semi-derelict farmhouse

as a matrimonial home for himself and his wife and he was registered as sole legal owner. The purchase money was provided by the

husband, partly from monies inherited under a trust fund and partly

by means of an overdraft with the plaintiff bank. The wife made no

financial contribution to either the initial purchase price or the cost

ofthe renovations, although she did undertake some ofthe restoration work herself. After the marriage had failed and when the bank sought to enforce its security, the wife claimed an equitable interest in the

property by way of a constructive trust, such interest being binding on the bank as an overriding interest under the Land Registration Act 1925, s. 70(l)(g). Following Abbey National Building Society v.

Cann [1990] 2 W.L.R. 832, the court held that the relevant time for

assessing whether a purchaser was bound by an overriding interest

under section 70(l)(g) was the time of creation of the purchaser's

right and not the time of its registration. However, this could help Mrs. Rosset only if she did indeed have an equitable interest.

ACQUIRING AN INTEREST IN ANOTHER S PROPERTY

In Lloyd's Bank p.l.c. v. Rosset [1990] 2 W.L.R. 867, the House of

Lords has clarified the circumstances in which a person may claim

an equitable interest in property, legal title to which is vested in

another. In 1982, Mr. Rosset purchased a semi-derelict farmhouse

as a matrimonial home for himself and his wife and he was registered as sole legal owner. The purchase money was provided by the

husband, partly from monies inherited under a trust fund and partly

by means of an overdraft with the plaintiff bank. The wife made no

financial contribution to either the initial purchase price or the cost

ofthe renovations, although she did undertake some ofthe restoration work herself. After the marriage had failed and when the bank sought to enforce its security, the wife claimed an equitable interest in the

property by way of a constructive trust, such interest being binding on the bank as an overriding interest under the Land Registration Act 1925, s. 70(l)(g). Following Abbey National Building Society v.

Cann [1990] 2 W.L.R. 832, the court held that the relevant time for

assessing whether a purchaser was bound by an overriding interest

under section 70(l)(g) was the time of creation of the purchaser's

right and not the time of its registration. However, this could help Mrs. Rosset only if she did indeed have an equitable interest.

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