Remedies in contract law

In the event of a breach of contract the 3 categories of remedies available to an innocent party

• 1.Common law remedies- damage

• 2.Equitable remedies- SP, injunctions

• 3. Remedies agreed by parties

Common law remedy

• These are available to the innocent party as of right

• Award of damage is the usual remedy

• It is an award of money aims to compensate the innocent party for the financial loss he suffered as a result of breach

• General rule-innocent party is entitled to damages that put him in the position he would have been if the contract was performed

When contract is breached parties suffer

• 1. pecuniary loss – damages for financial loss includes physical harm to claimants / to his property /injury to economic position

• 2. non pecuniary loss- mental distress such as disappointment, hurt feelings or humiliation

Type of loss

1. pecuniary loss• damages for financial loss

includes physical harm to claimants / to his property /injury to economic position

• Contract damages usually aim to compensate for pecuniary loss

2. non pecuniary loss-• mental distress such as disappointment, hurt feelings

or humiliation• Traditionally not available for

this type of loss• Such damages available

under common law • Main policy consideration –

reduce unnecessary litigation- Hayes v Dodd

Non- pecuniary loss

• Leading authorityAddis v Gramophone Co Ltd (1909)Wrongfully sacked HL held can recover only loss of

salary and commission not injury to feelings

However

Recent cases have developed the principle –in limited no of situations , injury to feelings and loss of amenity will be compensated

Law on non pecuniary loss

• Earlier above was confined to contracts where whole object of the contract was pleasure, relaxation and peace of mind but recently HL has allowed non pecuniary damages to be claimed where major purpose of the contract was pleasure, relaxation and peace of mind

Important cases

Whole purpose • Javis v Swans Tours Ltd • ( solicitor- booked holiday-

house party)• Jackson v Horizon Holidays Ltd

( affirmed Javis)• Diesen v Samson ( wedding

photos)• Heywood v Wellers (stalking-

solicitors liable)• Rexley Electronics v Forsyth • ( swimming pool loss of amenity)

Major purpose• Farley v Skinner(country

side- Gatwick airport- aircraft noise- surveyor liable- loss of amenity 0

3rd head for non pecuniary loss

• In addition to the major and whole purpose criteria non – pecuniary losses are awards today under following as well

• Mental suffering caused by physical inconvenience

• Sidney Philips and sons ( defective house)• Bailey v Bullock ( solicitor negligent)

Limitations on award of damages

• 1 Causation• 2 Remoteness• 3 Mitigation

CAUSATION

• person is liable for losses caused by his breach• His breach need not be the SOLE cause but an

EFFECTIVE cause of claimant's loss• Intervening acts between the breach of contract

and loss incurred may break the chain• General rule where breach can be shown as an

actual cause of the loss the fact that there is another contributing cause will not break the chain

Causation cases

County Ltd v Girozentrale Securities ( stock brokers liable- many causes but this was

effective cause)Quinv Burch Bros D not liable for not providing step - ladder

Remoteness

• Some losses are clearly the result from D’s breach but are considered

• E.g. taxi driver booked to take passenger to the airport

• Rules concerning remoteness were originally laid down in Hadley v Baxendale

Hadley v Baxendale (1854 )

• A mill equipment a shaft was sent away for repair was not delivered on the agreed day. Mill could not work without it so stood idle for that period. Mill owners attempted sue for loss of profit they would have made if the shaft was delivered on the agreed day

2 situations laid down by court to check whether D is liable for the breach

1. loss which would arise naturally according to the usual course of things’ from their breach

2. loss as may reasonably be supposed to have been in the contemplation of the parties at the time when they made contract t as the probable result of the breach of it

• both heads failed in the case

• The approach in Hadley V Baxendale was affirmed in Victoria Laundry (1949)

• Discussed again in Heron ii (1969)• Both cases discussed abnormal losses

Other cases on remoteness

• Statef- Huttenes v Paloma• Vacwell engineering co. ltd• Wroth v Tyler• Brown v KMR services ltd• Balfour Beattie

Mitigation

• Claimant are under a duty to mitigate their losses and cant recover damages for losses which could have been avoided taking reasonable steps

• Pilkington v wood • Brace v Calder• British Westing House Electric Co Ltd

Calculating loss

• Once established that loss is one for which D is liable the court must calculate the sum of damages

• There are 2 ways to calculate1. Loss of expectation2. reliance loss

Loss of expectation

• Here the court aims to put Claimant in the position he would have been if the contract has been performed

• This is the difference in value between the promised performance and the actual performance

• Expectation loss provide an incentive to performance a contract so the parties will be discouraged not performing the contract

Reliance loss

• Damages seek to put the claimant in the position he was in before the contract was made

• Damages will be given for actual wasted expenditure and other losses incurred due to the breach ( normal test in tort)

• Anglia TV v Reed – RL can include money spent before the contract was made

Choosing between EL andRL

• Claimant can decide whether to base claim on EL or RL

• Lord Denning said in Anglia claimant cant claim for both as there is the risk of compensating twice for the same loss

• However if there is no overlapping then claimant can

• In practice LE is the usual basis of compensating in contract law (although it is fair to compensate for actual loss)

Limitations on the claimant's choice between EL and RL

• There are 2 main restrictions on claimant choice

1. The bad bargain rule2. Speculative damage rule

Bad bargain rule

• If the claimant would have made a loss from the contract then he is entitled to nominal damages and will not be entitled to claim their expenses under RL

• In C and P Haulage v Middleton (fixtures and fittings) Plaintiff was only entailed for nominal damages

Speculative rule

• R L basis must be used when it is virtually impossible to calculate what profit claimant would have made if the contract was performed

• In practice courts are unwilling to conclude that damages are speculative

• MaRae v Commonwealth Disposal Commission (salvage ship) was able to recover the wasted cost on the basis of RL

• Sapwell v Bass- damages too speculative( stallion)

Quantifying the expectation loss

• Contract damages aim to put the non breaching party in the position he would have been had the contract being performed

• Calculating damages the focus is on C’s loss• C can’t recover more than their actual loss• If C suffers no loss he will only get nominal damages• Award of damages can include compensation for a loss of

profit which would have been made but for the breach of contract damages are to compensate the difference in value between the promised performance and actual performance

Quantum merit

• Where work has been done or goods supplied but no payment has been received and cannot be obtained under a contract, an action ‘quantum merit’ is available.

• C can claim for a reasonable price for performance and not compensate for loss

• Quantum merit based on extra goods or work done only be allowed if the D had the choice of accepting them or rejecting

Quantum merit

• Where there is a precise promise of remuneration quantum merit cannot be used to alter the price, even if extra work is done

• Exceptions:i. Incapacityii. Wrongful prevention of performance ( fails to finish as

a result of the other party’s breach)iii. Agreed partial performanceiv. Contract is void

Equitable remedies

• Equitable remedies will be granted where common law remedies are inadequate

• These are provided at the discretion of the court taking in to account the actions of both parties and the overall justice

• There are 2 types; injunction and specific performance

Specific performance

• An order of specific performance is a court order compelling someone to perform their obligations under a contract.

• This will compel the party in breach to perform.

• Specific performance only rarely applies and the making of such an order is limited to the foll. restrictions:

SP - restrictions• Damages must be inadequate• Specific performance is only granted where damages

alone would be an inadequate remedy, and could be granted along with damages

• It is not ordered where the claimant could easily purchase replacement goods or performance.

• Where the goods that are the subject of the contract are in some way unique then SP can be available, e.g.: contracts for the sale of land ( as each piece of land is unique)

• Where damages are only nominal, specific performance could be granted to avoid one party being unjustly enriched

• Beswick V Beswick

SP restrictions

• Hardship to the defendant• Since SP is a discretionary remedy, will not be applied

where it could cause the claimant great hardship or unfairness

• Patel V Ali • Contracts made unfairly• Equity also allows the courts to refuse SP of a contract

which has been obtained by unfair means, even if they do not amount to the sort of vitiating factor which would invalidate the contract.

• Walters V Morgan

SP restrictions

• Contracts unsuitable for SP• Some types of contracts by their nature are

unsuitable to be subject to an order of SP• 1. Contracts involving personal services

(SP would infringe personal freedom)

• 2. Contracts that involve continuous duties (impractical for the courts to supervise proper performance and failure to perform would mean contempt of court, thus give rise to a series of contempt actions arising from a long term contract )

Contracts unsuitable for SPCases– Ryan V Mutual Tontine Association– Posner V Scott Lewis– Co op Insurance Society V Argyll Ltd.

• SP will not be applied to a contract which is vague as to the performance required, nor to a promise which is only supported by nominal consideration in a deed.

• It is not used where the contract allows the party concerned to terminate it

• An order of SP is also subject to the test of mutuality. E.g. SP never ordered where the claimant is a minor as it cannot be ordered against a minor.

• SP is usually ordered where substitute performance cannot be bought

Injunction• An injunction normally orders the D to not do a

particular thing.• Where the action has already taken place the courts

may make a mandatory injunction, which orders the D to restore the situation that existed before the D’s breach. To decide on a mandatory injunction:

o the courts would apply the convenience testo Nature of the breach & circumstanceso If D’s loss in the event of restoration outweighs the

claimants gain

Remedies agreed by the parties

• Liquidated damages – where a contract specifies the amount of damages to be paid in the event of the breach and this amount is a genuine attempt to work out the loss in the event of a breach

• Penalty clauses – these are invalid as such that they penalize the party in breach, instead damages would be awarded.

Limitations of remedies

Interests protected – Law only focuses on financial loss to the party concerned. It ignores mental distress, anxiety, sheer inconvenience which a contract may cause.

Contract law has to recognize that customers tend to contract for reasons other than for financial profit so that remedies which focus entirely on their loss of economic bargain are inadequate.E.g. • loss of customers over long term or inconvenience caused by suppliers failure to

deliver to a small business• Environmentalist paying to not have the trees cut down. Will receive the

damages but no damages could restore her to the position she would be in if the contract was performed

Limitations of remedies

Practicalities: • Entirely impractical for the claimant to make a

claim as the costs/ time and effort involved in litigation are out of proportion to the amount that can be claimed.

• Breaches of contract are encouraged. • In many cases the injured party does not know

they have a right to claim.

Limitations of remedies

• Limitation periods• Damages and profit:• Attorney General V Blake – working against the

creation of wealth• According to the theory of efficient breach the

D would only be required to compensate the claimant for their loss and not be punished for non performance ( profit made by breach not confiscated)