UCL FACULTY OF LAWS

LAW OF CONTRACT 2009/10

DR PRINCE SAPRAI

REMEDIES FOR BREACH OF CONTRACT PART 1 DAMAGES

General Reading: E McKendrick, Contract Law: Text, Cases and Materials (3rd edn OUP, Oxford 2008) pp 829-889

Essential Further Reading is * in the Handout

Learning Outcomes: Identify the different kinds of interests damages can protect Understand that expectation damages are the primary remedy for breach See how the courts choose between different measures of expectation

damages, in particular diminution of value and cost of cure Identify the principles that govern the award of non-pecuniary damages See when claims for reliance damages are available

Red = My notesBlack = Handout

1 Introduction

Remedies for breach:

Damages Restitution Specific remedies:

o action for the agreed sumo agreed damageso specific performance or injunction

Primary remedy for breach is damages.

3 interests (*See Fuller and Perdue “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52 and 373):

Expectation (as if the contract were performed) Reliance (as if the contract was never entered) Restitution (giving back or giving up)

Where good bargain C better off claiming expectation damages.

Where bad bargain C better off claiming reliance or restitution.

Protecting the expectation interest is contract law’s primary concern.

2 Expectation Damages

2.1 Compensatory

Robinson v Harman (1848) 1 Ex 850, 855‘… 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’.

Leads to:

Nominal damages

C not safe from a bad bargain No recover of D’s profits from breach (unless exceptional case, see AG v Blake [2000]

3 WLR 625 (HL)) No punishment (Addis v Gramophone Co Ltd [1909] AC 488 (HL))

2 stage assessment: a. Prima facie measure determined (see 2.2 below)b. Limiting factors (see next lecture)

2.2 Measuring Loss

GH Treitel, The Law of Contract (11 th edn Sweet & Maxwell, London 2003) 940‘A contract can… give rise to two quite separate expectations: that of receiving the promised performance and that of being able to put it to some particular use’.

Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 71 (CA)

The Promised Performance

Diminution in value (compare performance given to market value of promised performance)

Cost of cure (cost of paying for a substitute)

Can lead to divergent results:

Tito v Waddell (no 2) [1977] Ch 106 (Ch) Peevyhouse v Garland Co Ltd 382 P. 2d 109

Diminution in value or cost of cure?

S 18 Landlord and Tenant Act 1927

S 53(3) Sale of Goods Act 1979

Buildings contracts (Mertens v Home Freeholds [1921] 2 KB 526 (KB))

Radford v de Froberville [1977] 1 WLR 1262 (Ch)

2.3 Loss of Amenity

*Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL)

‘A failure to achieve the precise contractual objective does not necessarily result in the loss which is occasioned by a total failure…’(357).

Available in circumstances where ‘the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure’. (360)

Loss of amenity ‘is incapable of precise valuation in terms of money, exactly because it represents a personal, subjective and non-monetary gain…’ (360-361).

Cf the US case Jacob & Youngs v Kent 230 NY 239; 129 NE 889 (1921) (no pecuniary OR non-pecuniary loss)

2.4 Non-Pecuniary Loss

2.4.1 Generally Damages Unavailable

Robinson v Harman (1848) 1 Ex 850 Addis v Gramophone Co Ltd [1909] AC 488 (HL) Johnson v Gore Wood & Co (no 1) [2001] 2 WLR 72 (HL) Farley v Skinner (No 2) [2001] 3 WLR 899 (HL)

‘The general principle is that compensation is only awarded for financial losses resulting from breach… “a contract breaker is not in general liable for any distress,

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frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party”’.

2.4.2 Exceptions

2.4.2.1 Ruxley

2.4.2.2 Contracts for Enjoyment or Damages for Distress

Jarvis v Swan’s Tours Ltd [1973] QB 233 (QB) Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 (CA) Diesen v Samson 1971 SLT (Sh Ct) 49Lamm v Shingleton 231 NC 10; 55 SE 2d 810 (1949)

Watts v Morrow [1991] 1 WLR 1421 (CA) (sole object of contract must be to avoid distress) Knott v Bolton (1995) 45 Con LR 127 (CA) Farley v Skinner (No 2) [2001] 3 WLR 899 (HL) (sufficient if pleasure is ‘a distinct and important’ contractual obligation (my emphasis)).

Farley wished to sue for his no-pecuniary loss (bought a house with a navigation beacon nearby). He claimed that he navigation beacon interfered with his intention of achieving quiet peaceful weekends away. The Watts v Morrow rule would suggest that as another reason for buying the house - an economic one. However, the court decided in favour of Farley – ‘it is sufficient if the contractual agreement is a distinct obligation.’ This widened the situations in which relief for non-pecuniary losses is available. This case saw the courts dispense with the predominant reason test. Here, it merely had to be a considerable discomfort.

Exceptions:i) If there are two businesses one cannot sue the other for non-pecuniary breachii) The breach has to be very important to the claimantiii) The non-pecuniary loss must have been caused by the defendant and the defendant must have been clearly aware of the claimant’s non-pecuniary interest. iv) In general, the courts make very low levels of damages for non-pecuniary breach (£10k is top end of scale)v) Such damages are only available where other damages aren’t available. [E.g. Farley – Farley had brought the house so he could not now remove the navigation beacon and there had been no diminish in value so he couldn’t sue for pecuniary losses]

2.4.2.3 Distress as a Result of Physical Injury, Inconvenience or Discomfort

When the breach of a contract makes one party worse off/ more unhappy. This may be physical inconvenience, injury or discomfort.

Godley v Perry [1960] 1 WLR 9 Hobbs v L&S Railway Co (1875) LR 10 QB 111 (QB)

Railway company takes a family to the wrong station. Family then had to walk 4 miles home on a rainy night. Family could sure for damages.

Farley v Skinner (No 2) [2001] 3 WLR 899 (HL) (includes aircraft noise, but not mere disappointment)

Mr Farley wanted the house for quiet peaceful weekends. This had been frustrated. Second ground: The inconvenience and distress that the airport noise was causing Mr Farley was a second ground for non-pecuniary breach and therefore justified the £10k of damages.

In general it is very hard to claim for non-pecuniary losses

2.4.2.4 Loss of Performance to Third Party

Third Party’s Loss

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Promisor breaches contract and doesn’t compare the benefit on the third party. Are damages available as against the promisor, where the promisee themselves has not suffered any loss themselves? – (but instead by third party)

General rule: No because the promisee won’t have suffered any loss as it is suffered by the third party.

Exception: The promisee can now sue the promisor for damages to a third party, but the damages must be held in trust by the promisee for the third party. This is known as the Albazero exception. However, what about the non-pecuniary loss of the promisee – that the promisor has not done as they’ve promised to do? (see Linden Gardens)

Contracts (Rights of Third Parties) Act 1999 Albacruz v Albazero [1977] AC 774 (HL) Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL)

A promisee may be able to sue for their non-pecuniary loss when the promisor has failed in their obligations to a third party.

Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68 (CA)

Promisee’s Loss

*Read Lord Griffiths’ judgement in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL) *Alfred McAlpine Construction Ltd v Panatown Ltd (No 1) [2001] 1 AC 518 (HL)

Linden Gardens rejected. Promisee (Panatown) engaged in a contact with promisor (Alfred McAlpine Construction) to construct a building on a third party’s (UIPL) land. There was an agreement between the promisor and the third party that the promisor would pay for any of the third party’s financial losses if there was a breach on the part of the promisor – this is called a duty of care deed. McAlpine breached their contract by doing defective work. As a result Panatown wanted to sue McAlpine. H of L denied the promisee’s claim on the grounds that Panatown had suffered no loss themselves. The Albazero exception – cannot be relied upon because although the third party had suffered a loss, they could take care of their own loss through the duty of care deed. Therefore, if the third party have their own remedy the promisee cannot claim damages if there are no losses to themselves.

Dissenting judgments: Panatown’s claim should be granted. Linden Garden’s judgment. Performance interests had not been satisfied, therefore Panatown should be entitled to non-pecuniary damages due to this failure. The loss of satisfaction on imparting a benefit on a third party is the non-pecuniary damage. This loss is a non-pecuniary interest that Panatown should be able to claim for. Panatown may be entitled to damages but due to reasonableness (see earlier lecture) these damages should be reduced.

3 Reliance Damages

Generally, Claimant can choose either expectation or reliance damages (CCC Films (London) Ltd v Impact Quadrant Films [1985] QB 16 (QB)).

Reliance losses aim to put the claimant back in the position that they would be in had they never joined the contract. E.g. buying a car - £500 for car, £50 for MOT, £100 for road tax – reliance losses would be £650 as this would be putting the claimant back into the position that they were in before the contract. This type of damages is only preferable to expectation damages when the claimant has entered into a bad bargain (however, see below).

Exceptions (to the choice between expectation and reliance damages):

Bad bargain (C & P Haulage v Middleton [1983] 1 WLR 1461 (CA))

The claimant cannot use reliance damages in cases of a bad bargain

C&P Haulage: Claimant ejected from the premises (not proper termination of contract). Wanted to claim expenses incurred in kitting out the premises. The contract prevented the lessee from removing any improvements made at the end of the lease. Had the contract been terminated correctly (10 weeks later) the claimant would have suffered exactly the same loss, therefore, they could not use reliance damages to escape a bad contract.

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Expectation damages speculative (Anglia TV v Reed [1972] 1 QB 60 (QB); McRae v Commonwealth Disposals Commission (1951) 84 CLR 377))

Where expectation damages are too speculative, the promisee has to claim reliance losses.

Anglia TV v Reed: Reed had contracted to star in a film that Anglia TV were going to put on. Reed backed out at the last minute – Anglia had to abandon as they could not find a replacement for Reed in time. Anglia wished to claim expectation damages. Court: Anglia cannot claim expectation damages because the profit that the film would have made is too speculative. Instead Anglia had to rely on their reliance losses – the cost of getting the film ready to go – costumes, marketing etc.

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