#15533 - Remedies - GDL Contract Law

Contract Law: Remedies

Structure

• Parties

• Contract: B2B or B2C/Sale of goods or services?

• Term

  • Express

  • Implied terms:

  • If B2B for service, implied term: s13 SGSA 1982 ‘reasonable care & skill’.

• Breach

• Category (condition or warranty)

  • Goes to root of contract condition (Poussard v Spier).

  • Does not ‘go to root warranty (Bettini v Gye)

  • Eg S13 SGSA 1982 always = innominate term, go to Hong Kong Fir.

  • Innominate term: warranty if does not deprive innocent party ‘of substantially the whole benefit’ of the contract (Hong Kong Fir), looking at consequences of wrong.

• Remedy?

  • If breach of condition (or breach if innominate term with serious consequences) right of election, can terminate and claim damages.

  • Might be right of election: immediate right of election (Hochster v De La Tour) to either terminate + sue for damages immediately

  • [breach of warranty = damages only]

• Is there a liq dam clause? Is it a penalty (El Makdessi).

• If no liq dam clause, or struck out as penalty unliquidiated damages:

• [Election]

• Damages

• Expectation

  • Cost of cure

  • Diminution in value

  • Loss of amenity

  • Also: loss of change/reputation

• OR Reliance (if expectation too speculative)

• Restitution (very rare)

• [mental distress]

• Limiting factors

• Causation

• Remoteness

• Mitigation

• Contrib Neg

In the case of Anticipatory Breach

• Right of election, accrues immediately (Hochster v De La Tour). Can either:

  • Terminate & sue for damages immediately.

    • Must notify breaching party of decision to terminate (Vitol v Norelf, The Santa Clara).

  • OR affirm contract and sue for full contract price (White & Carter v McGregor). Limitations:

    • Party affirming must have ‘legit interest’

    • Must not need other party’s cooperation (White & Carter; Hounslow LBC v Twickenham).

• Affirmation not available if needs cooperation of breaching party (Hounslow LBC v Twickenham).

Agreed Damages Clause

• Purpose of damages in law of contract: compensate C for loss suffered; not punitive. If no loss suffered, damages recoverable only nominal.

• (1) Incorporated?

  • (1) By signature (L’Estrange v Graucob)

  • (2) By ‘reasonable’ notice—Parker v SE Railway:

    • must be either (a) actual notice or

    • (b) constructive notice (i.e. ‘reasoanble steps’ to bring to other’s notice).

    • Onerous clauses red hand rule, must be explicitly drawn attention to (Thornton v Shoe-Lane Parking; Inferfoto v Stilleto).

  • (3) Course of dealings, if;

    • (a) consistent, McCutcheon v MacBrayne.

    • + (b) regular (Hollier v Rambler).

• (2) Construction—valid LCD or penalty? (Makdessi)

• Either penalty clause (struck out, as penal); or valid liquidated damages clause.

• Old law, Dunlop Pneumatic Tyre v New Garage: penalty clause where more than a ‘genuine pre-estimate of loss’. If ‘genuine pre-estimate’ liq damages clause.

• Current test, Cavendish v El Makdessi (2015, SC); and ParkingEye Limited v Beavis:

  • (1) Is the clause a primary or secondary obligation if primary, not a penalty clause: primary if furthers commercial objective of contract; secondary if triggered by breach of contract to compensate.

  • (2) If secondary, clause is valid liq dam if:

  • (a) clearly protects a legitimate business interest (in the particular commercial context)

  • and (b) imposes a proportionate detriment to protect the legit interest (i.e. not extravagant, exorbitant or unconscionable in comparison to the interest being protected).

  • [[so acknowledges that a party can sometimes have a legit interest in enforcing performance which goes beyond simply being compensated for losses]].

  • On facts of Cavendish: not a penalty clause-in the commercial context, the issue of ‘goodwill’ was paramount. The amount claimed, although greater in terms of market value of the shares, was reflective of the loss of goodwill in the company.

  • ParkingEye Limited (2015, SC): re parking charge of 85 above 2 hour limit. HELD: not a penalty, ParkingEye had a ‘legit interest’ in charging motorists for period beyond 2 hours; interested related to the landowner, who authorised ParkingEye.

• (3) Statutory controls? UCTA does not apply, because not an exemption clause

Unliquidated damages

• Unliquidated dams where either (1) no liquidated dam clause in contract; OR (2) clause struck out as penalty clause.

• First state Compensatory principle of contract damages (Robinson v Harman) = compensation not punishment;

• Damages neither punish nor enrich(The Golden Victory, HL; Bunge SA v Nidera, SC).

• C has an ‘unfettered choice’ between reliance and expectation (Anglia TV v Reed, Denning LJ)

Expectation interest

• Robinson v Harman: to put wronged party ‘in the same situation ... as if the contract had been performed’.

• Normally: cost of cure and diminution in value produce same result, only need to ask: what position would C have been in if contract performed (Robinson).

• Ruxley v Forsyth, 3 mechanisms re expectation interest: (1) cost of cure; (2) difference in value; (3) cost of amenity.

• (1) Cost of cure--Usual method for defective works (Birse Construction v Eastern Telegraph): usual method for contracts involving defective works—cost of remedial work required to put C in position had contract been properly performed.

  • [[normally use this method for defective works, unless good reasons not to, eg Ruxley, where disproportionate see Birse Construction and McGlinn below]].

• (2) Diminution in value: approach if cost of cure is disproportionate.

• (3) Loss of amenity, third option (where cost of cure and diminution in value not the same), Ruxley Electronics v Forsyth:

  • Swimming pool in garden; was slightly less deep than contracted for (6 feet instead of 7 feet 6 inches).

  • Contract price: 17,797.

  • Cost of cure huge (21,560); but difference in value = 0.

  • Court considered, factors re using loss of amenity measure:

    • (1) intention, Forsyth didn’t intend to rebuild the pool;

    • (2) disproportionate cost of cure, exceeded the contract price;

    • (3) but no diminution in value

    • (4) pool could still be used for intended purpose;

    • So cost of cure was disproportionate.

  • HL: went with loss of amenity, for loss of enjoyment, consumer surplus, 2,500.

  • (Regus v Epcot Solutions): No ‘loss of amenity’ in commercial contracts, only for consumer surplus would be ‘unusual, if not impossible’.

  • Farley v Skinner (No 2)---loss of amenity possible where an important object of contract is to give pleasure/relaxation/peace of mind:

  • Skinner instructed by F to survey a property; was near Gatwick; reported unlikely property would suffer much from noise; so F purchased, subsequent mental distress, lots of noise.

  • Courts couldn’t calculate difference in value; cost of cure (relocating Gatwick?!) was impossible awarded loss of amenity, for loss of enjoyment of the land.

• Application of Ruxley principles to cost of cure defective construction cases—even if cost of cure correct measure, no cost of cure if no intention or if ‘unreasonable’. Starting point, defective works—cost of cure (Birse), BUT:

  • (a) No cost of cure if no intention to remedy Birse Construction v Eastern Telegraph:

  • Alleged defects re building of a college. Court (from Ruxley) looked at intention—no intention to rebuild/repair the defects so unreasonable/disproportionate to award cost of cure; no loss of amenity because D had taken no to rectify any of the defects; only gave nominal payment (of 2).

  • (b) NO cost of cure if ‘unreasonable’ McGlinn v Waltham Contractors

  • M contracts W to build a mansion; M has problems with aesthetic aspects, knocks it down, sues W for cost of rebuilding.

  • HELD: C must act reasonably; he sought to recover full cost of rebuilding.

  • HELD: although this was a case in which correct measure was cost of cure (rather than dim in value)—he was only entitled to the repair cost which would have accrued if building had not been knocked down—he had not acted reasonably in demolishing demolition & rebuilding costs out of proportion.

  • awarded some money re anything defective structurally, but not for cost of reconstruction, C had acted unreasonably.

  • Simply aesthetic defect (McGlinn v Waltham): If defect is of aesthetic, rather than structural, nature may be unreasonable to recover cost of cure, instead loss of amenity awarded (might be nominal).

Reliance interest

• Backward-looking: puts C in position as if C had not contracted.

• Reliance losses are incurred prior to breach, not as consequence of breach: so not those losses incurred remedying defective performance.

• C has an ‘unfettered choice’ between reliance and expectation (Anglia TV v Reed, Denning LJ)

• Reliance where expectation damages too speculative (McRae v Commonwealth Disposals): speculative nature of salvage expedition—only reliance available, too speculative for expectation loss to be calcualted (had purchased a shipwrecked oil tanker to salvage; breach of contract, the tanker didn’t exist). (‘It is impossible to value a non-existent thing’).

  • Anglia TV v Reed: only making pilot episode of TV show, expectation too speculative.

• Note; there can be no reliance damages if there is no pre-breach expenses.

• Pre-contractual expenses might be awarded, reliance interest even before contract was made (Anglia TV v Reed: could claim pre-contractual expenses, made before contract with Reed—because was an experienced actor, would have known when pulling out that Anglia TV would incur those loses).

• But C cannot escape a bad bargain (C&P Haulage v Middleton): C cannot recover reliance loss if escaping a bad bargain, i.e. if have entered a loss-making contract, so D;s breach isn’t the cause of their loss, the entering of the contract is. (it’s partly a causation issue).

  • Mamola Challenger: burden...