#14988 - Damages Introduction To Remedies - Contract Law

The principal determinant of the appropriate remedies for a breach of contract cannot be the parties’ intentions at the time that the contract was entered into, as often neither party has thought about or agreed with the other what should happen if one party breaches the contract.

Therefore, when asking what remedy is appropriate, we have to ask what remedy is appropriate to reflect the value of the interest we are protecting (such as the right to contractual performance, or the objects the claimant is trying to achieve by entering into the contract), and the severity of the defendant’s conduct.

We can group remedies into three categories:

1. Compensatory damages aim to award the claimant the loss that he has suffered as a result of the breach.

2. Non-compensatory damages have other aims, such as to reflect the bad conduct of the defendant.

3. Specific remedies, on the traditional view, directly enforce the defendant’s obligations: get him to deliver the goods he contracted to etc.

If you are given numbers in a problem question, work with what you have – don’t make up figures for, e.g. consumer surplus.

Questions about compensatory damages can be approached in six stages:

1. Has the claimant suffered any loss?

   1. Expectation measure

   2. Reliance measure

2. Has the claimant suffered an actionable type of loss?

   1. Financial loss

   2. Consumer surplus

   3. Distress caused by unwelcome sensory experience

   4. Distress caused by disappointment that the contact has been breached

   5. Is the breach itself a loss for which damages can be recovered?

3. Causation: did the breach cause the claimant’s loss?

4. Reasonable foreseeability: was the type of loss reasonably foreseeable?

5. Mitigation: has the claimant mitigated his loss?

6. Did the claimant’s fault contribute to the loss?

Damages for breach of contract convert the defendant’s primary obligation to perform into a secondary obligation to pay damages. They impose obligation on the parties that they had not agreed to or intended.

The following are some basic implications of the COMPENSATORY nature of damages for breach of contract:

The claimant must show not only that a breach of contract has occurred, but also that he has suffered loss as a result. The general rule is that the claimant can only recover for his own loss.

• Cf Alfred McAlpine Construction Ltd v Panatown Ltd [2000] 3 WLR 946 -> occasional circumstances that can claim damages for 3^rd party

The requirement of mitigation by the claimant will reduce the net loss

HL in Addis v Gramophone [1909] held that punitive damages cannot be recovered for a breach of contract.

• To punish someone, need the safeguards of criminal law – not appropriate for civil system

• Someone commits tort drops below standard of norms, breach of contract falls below standard of contract that was set by parties

Lavarack v Woods of Colchester [1967] 1 QB 278 -> damages doesn’t include what D would have done more eg throw in a bonus -> assess at the minimum standard

• Cf Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010] EWCA Civ 485 -> courts can normally work out on the balance of probabilities what D would have done

Difficulty of assessment is no bar to recovering compensatory damages. Even where all the claimant has lost is the chance to obtain a benefit (e.g. claimant is deprived of a chance to win a prize), the court will attempt to put a value on this, providing that the claimant can show that he has lost a real or substantial, not merely a speculative, chance (Chaplin v Hicks [1911]).

When ascertaining whether the claimant has suffered a loss, and if so, how much, damages will be assessed as at the date of the breach, unless this would be unjust, in which case the court can fix any other date that would be appropriate (Johnson v Agnew [1980]).

The aim of the expectation measure is to put the claimant in the position that he would have been in had the defendant performed his obligations under the contract, but would not have done anything he was not legally obliged to do (Lavarack v Woods [1967]).

• Robinson v Harman (1848) 1 Exch. 850, 855 per Parke B: “The rule of the common law is, that where a party sustains a 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.”

The expectation measure is the primary remedy for breach because it best signifies what is wrong about breaching a contract. By placing the claimant in the position he would have been in if the contract had been performed, it condemns the defendant for failing to carry out the obligations that he undertook. If the primary remedy was removing the profit that the defendant had made from breaching the contract, this would indicate that breaching a contract is wrong only because the defendant made a profit from it.

However, CA in Durham Tees v Bmibaby [2010] decided that the general rule in Lavarack does not hold true in a case where the defendant is under a single obligation (such as to operate two or more aircraft for ten years) but the contract gives him a discretion as to how to perform it (such as by not providing for the number of flights). The court should ask how the contract would have been performed had it not been breached, rather than asking what was the minimum level of performance that the claimant could get away with under the contract.

This is due to the practical problems in determining what the minimum level of performance would have been on the facts, compared with the easier task of determining how the contract would actually have been performed (using past performance as a guide).

This has the odd consequence that if the claimant manages to persuade the defendant to agree to include a term in the contract promising a minimum level of performance, the claimant will be worse off in the event of breach because he will be limited to claiming damages on the basis of minimum performance. Therefore, the approach taken in Bmibaby should be limited to situations where it is not possible for the court to work out in advance what the minimum level of performance would be for the remainder of the contract, rather than any situation where the parties have not provided for one.

We convert this ‘loss of bargain’ into a sum of money by using the following measures:

The difference between (i) the value of what was actually provided/performed and (ii) the value of what should have been provided/performed if the contract had been properly performed.

• Eg 1: Tenant promises in lease to keep premises in good repair. Tenant breaches this obligation, as a result of which the Landlord’s freehold interest in the premises is worth less. This is the measure of the Landlord’s damages (not the cost of doing the relevant repairs). See Landlord and Tenant Act 1927, s.18

• Eg 2: C contracts with D (a driveway company) to resurface C’s driveway. D’s price is 5000. D breaches the contract by failing to do the work at all. Other contractors charge 7000 for the same job (the “market value”). The difference in value measure is 2000.

• Comparing contract and tort – eg car bought for 5k warranted to have done 50000miles. But car in fact did 100000miles so actual value is 4k. If car only did 500000miles value us 12k

• Contract (GAINS IF THE CONTRACT HAD BEEN PERFORMED) -> Y can obtain the dimunition measure ie the value of the car if it had complied with the warranty -> 12k-4k=8k

• Tort -> Y can obtain the difference between the price paid and the actual value -> 5k-4k=1k

• Bad bargain -> if warranted value less than agreed price (bad bargain), diminution damages is zero so only receive nominal damages – but can recover 5k-4k=1k for tort which was committed independently from the breach of contract

This measure is perfectly satisfactory where (a) substitute performance can readily be obtained in the market and (b) the claimant’s reason for contracting is basically commercial – to make profit.

Therefore it makes sense that this rule is used as the prima facie measure throughout the Sale of Goods Act. Notice however that it is only prima facie - in certain circumstances it will not be the best assessment of what the claimant has actually lost, whereupon it will be displaced.

• S53 – buyer getting damages because seller breach warranty

• S53(3) -> is the diminution measure – difference between value got and value would have got