#3506 - Breach And Damages - Contract Law

Breach & Damages

Breach

• A party w/out lawful excuse:

1. fails/refuses to perform

2. performs defectively

3. incapacitates himself from performing

• to be established on balance of probabilities

• Whether there’s breach depends on precise construction of terms (no universal principle displacing analysis!)

• burden of proof on the party claiming breach + fault isn’t always necessary BUT

• it’s not repudiation for a party to put forward his genuine interpretation of what contract requires

• where he performs in a manner inconsistent w/terms, the fact that he acted in good faith isn’t a defence

• Consequences of breach

• No automatic end to the contractgives innocent partyoptions:

• Depends on facts but 3 principal consequences:

1. recover damages for loss suffered b/c of breach

• unless liability for breach excluded –s3 UCTA

• available regardless of whether a condition, warranty or innominate term

2. party in breach may be unable to enforce innocent party’s obligations under contract

• independent obligations = doesn’t entitle C to abandon performance b/c of breach

• dependent obligations = C must generally be ready to perform b/f he can maintain action

3. may entitle the innocent party to terminate further performance

1. breach of warranty –no termination but damages

2. breach of condition – termination

• breach doesn’t have to produce serious consequences which go to the root of the contract" or be "fundamental” – enough that parties classified it as condition & intended it to be it + used the word in technical sense ((The MihalisAngelos)

3. breach of innominate term- if consequences are sufficiently serious, C can terminate

• what matters is seriousness of breach, not necessarily terminology Hong Kong Shipping v Kawasaki [1962]

• Prospective nature of breach

• Contract ‘rescinded for breach’ = set aside prospectively (Johnson v Agnew; Photo Production) term intended to regulate consequences must be taken into consideration by court

• C has a right of election: terminate or affirm

• Ccan chooseto:

1. terminate & claim damages = accept repudiation + notify the party in breach; effective acceptance

1. no particular form

2. clearly & unequivocally conveys that C is treating contract as having been breached

3. C doesn’t have to do it personally/through agent – sufficient that it comes to D’sattn

4. C doesn’t have to give the real/valid reason so as long as terms entitle him to terminate – can do so regardless of motive

• C who accepts further performance after breach may be held to have affirmed it& will only be able to claim damages, unless waives it (total waiver)

• once he exercised his right of election, decision can’t be revoked

2. affirm & claim damages contract is in force + both parties bound + right to terminate later, if breach continues

• don’t have to elect immediately - while deciding can maintain the contract + reserve right to treat it as repudiated if breach continues

• notionally, free to elect but might be restricted by requirement to take reasonable steps to mitigate his loss but C can’t recover full extent if didn’t take reasonable steps to mitigate his loss = not required to take any steps which a reasonable & prudent man wouldn’t ordinarily take in the course of business(British Westinghouse)

• Anticipatory Breach

• Definition:one party informs anotherb/f time fixed for performance that he won’t perform = entitles C to termination +claim for damages w/out having to wait for date when performance’s due (Hochester v De La Tour).

• Why implied term that neither party will, w/out just cause, repudiate b/f time fixed for performance

• Ccan elect to:

1. accept breach + terminate immediately + claim damages must:

1. give notice to D

2. not act inconsistently w/his decision

2. affirm + demand performance + accept breach if D continues not performing

1. affirmation won’t prevent C from accepting breach if D doesn’t subsequently perform

2. C, in addition to affirming, continue w/performance even though he knows they aren’t wanted

• 2 qualifications

1. where C can’t continue w/out D’s cooperation (dependent obligations) he must accept breach

2. if C has no legitimate interest (financial/other) in performance over damages, he shouldn’t be allowed to saddle D w/additional burden w/no benefit to himself (Lord Reid White and Carter)

• unreasonable behaviour v wholly unreasonable behaviour C must have acted wholly unreasonably for court to refuse to allow him to continue w/performance & claim the contract price.

Damages

• No punitive damages in contract (only tort)

• General rule: C can choose b/w measures of compensation, subject to exceptions:

1. can’t seek reliance loss in attempt to escape from consequences of bad bargain which isn’t allowed (C&P Paulage Co)

2. can either claim loss of profits OR wasted expenditure, not both (Anglia TV v Reed)

3. D can seek to prove contract was loss making as a defence (i.e. expenditure wouldn’t have been recouped anw) (Omak Maritime Ltd v Mamola Challenger Shipping Co)

• Types

1. Performance (expectation) Interest

• Put C in a position as if contract had been performed (Robinson v Harman)

• Methods used to fulfil it

• Cost of cure

• Diminution in value

• Loss of amenity(Ruxley v Forsyth –enjoyment OK) – even where no economic loss

• Date for assessment is usually @ time of breach BUT can be set later to calculate compensation accurately (The Golden Victory); e.g. future events

2. Reliance Interest

• Beneficial where:

1. C can’t prove what his consequential loss would have been (i.e. quantify w/any degree of precision) (McRae v Commonwealth Disposals)

• But courts are v. reluctant where assessment is hard(Chaplin v Hicks – beauty competition, 25% chance win)

2. C seeks to recover damages of pre-contractual expenditure can recover, provided expenditure was:

1. within reasonable contemplation of the parties

2. likely to be wasted with D’s breach

• Can’t claim reliance interest where:

1. C has simply entered into a bad bargain

2. it would reverse the contractual allocation of risk (C&P Haulage)

• Friedmann: not a contractual interest b/c parties don’t enter into contract simply w/view to recover detrimental expenditure

3. Restitutionary remedy

• General rule: can only claim where shows D was enriched unjustly at C’s expense

• Can’t claim unless contract

1. has been set aside

2. is otherwise ineffective

• Claim available on 2 grounds:

1. The basis upon which C has conferred the benefit on D has failed b/c of D’s breach

• the very basis on which he conferred a benefit on D has failed b/c of D’s breach – only total failure of consideration (White Arrow Express) +fundamental breach will suffice

• where failure of consideration is partial (regardless of how small a part C has received) no claim for restitution

2. D has obtained an unjust benefit in the form of profit he wouldn’t have otherwise made (AG v Blake)

4. C has no direct financial interest in performance/contract is for TP’s benefit

• Generally: C can claim compensation for own losses only

• C can’t sue & recover for substantial damages if he didn’t incur loss (Panatown v McAlpine)

• Broad” approach (Panatown) – determine what interest A had in provision of service to TP (Lord BW)

5. Non-Financial Losses

• Physical injury from breachcan recover, subject to remoteness

• Mental distressconsumer surplus (excess utility/subjective value obtained from a good over & above utility associated with the market price measure it in terms of maximum amount consumer would pay for particular purchase – the difference b/w lower price he pays and highest he’s prepared to pay) (Ruxley)

• Can award damages for distress, frustration, anxiety,displeasure, grief only if (Farley v Skinner):

1. non pecuniary loss is important to C; and

2. C clearly communicated this importance to D could use liquidated damages clause to do this

• Damages for mental distress after disastrous holiday arranged by travel agency (Jarvis v Swan Tours) Farley v Skinner(airport noise case) advanced the law – both parties knew breached term was important + doesn’t have to be the purpose of contract

• liberal approach in identifying ‘inconvenience’

• test subjective

• Milner v Carnival plc (trading as Cunard) [2010] –physical inconvenience & discomfort requires physical discomfort + mental distress & disappointmentcompare expectations against reality

• Restriction

1. Causation

• Independent TP act could break the chain unless D promised to guard against it (Monarch Steamship)

2. Contributory Negligence

• Damages are not reduced unless C’s conduct

1. breaks the chain of causation

2. constitutes failure in C’s duty to mitigate his loss

3. amounts to breach of contract

• Law Reform (Cont. Negligence) Act 1945

3. Remoteness

• C can only recover(Hadley v Baxendale)

1. damages arising naturally from breach in the usual course of things

• “naturally” = serious possibility, real danger, substantial possibility (Heron II)

2. damages which may reasonably be supposed to have been in contemplation of parties

• D must know of special circs + some suggestions C must establish D had agreed to assume liability for exceptional loss

• Effect is to encourage parties to disclose exceptional losses which may be incurred as a result of breach prior to entering into contract

• Natural v special losses (Victoria Laundry (Windsor)

• The only difference b/w losses in Victoria was extent, not type, and law doesn’t normally require it to be foreseen

• McKendrick: b/c parties enter into contract w/view to profiting, the type of loss will always be foreseen court should recognise the relevance of extent of economic loss b/c otherwise there’s no adequate control...