Solicitors Qualifying Examination

Remedies | Contract Law – SQE1 & SQE2 Examinations – solicitorsqualifyingexamination.net

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

 

Remedies
For this question, establish:
Terms
• D expressly/impliedly agreed to… for [consideration].
Breach
• Give evidence of breach.
Categorisation
• Statutory categorisation under SGA / SGSA (IT)?
• Classification by parties, although not decisive
• Consider the parties’ intentions at the time of contracting
• Time clause – not automatically of the essence, (Bunge v Tradax), but may
be made of the essence
• ‘Root of the contract’ (Poussard v Spiers)
• IT – ‘deprive the party of substantially the whole benefit of the contract’
(HK Fir v Kawasaki)
• Actual breach, or anticipatory breach?
o Where it is an anticipatory breach of a condition, the right of
election arises immediately (Hochster v De la Tour)
• As the term is likely a condition, C will have a right of election and a claim
to damages
o Either: C should therefore:
§ Repudiate the contract, as:
• There is no commercial sense in exercising the right
to affirm by paying and then seeking this payment
later in damages
• There is no ‘legitimate interest’ in affirming (The
Alaskan Trader)
• In spite of a LI in affirming, this requires the cooperation of the other party, and thus affirmation is
not possible (Hounslow v Twickenham)
§ Accept the breach (past breach) / affirm (anticipatory
breach), and waive right to repudiate + damages
• If warranty = damages only
• Damages for breach seek to compensate C for damage, injury or loss caused by the
breach
• Where there is no loss, nominal damages are awarded as a token amount to
acknowledge the BoC where no other remedy is available
© Liam Porritt 2020 2
Liquidated damages clauses
• There is a clause [insert detail, e.g. requiring D to pay £X a day while in
breach].
o Normally C will be restricted to the agreed value, even if its losses are higher
• We thus consider whether the courts are likely to enforce this clause as a
valid liquidated damages clause, or to strike it down as a penalty
o Prevents the undermining of the compensatory purpose of the enforcement of
contractual obligations + abuse of dominant position
Incorporation
• Assume valid incorporation of the clause.
Valid liquidated damages clause OR penalty?
• Previous test from Dunlop Pneumatic Tyre Co v New Garage and Motor Co – genuine preestimate of loss or payment which was extravagant and unconscionable and designed to
act as a deterrent ‘in terrorem’ of the breaching party
• We apply the test from Cavendish v Makdessi, as clarified by the High
Court in Vivienne Westwood v CSD:
1. Is the clause a primary or secondary obligation? If primary, it will not
engage the penalty rule.
a. A clause will be primary if it is part of the primary obligations in
the commercial context of the contract, i.e. furthers the commercial
objective of the contract.
b. A clause will be secondary if it is an obligation triggered by
breach of contract to compensate the innocent party.
o Makdessi – Cavendish’s rights against M = part of a price
adjustment mechanism, intended to reflect the lower value of the
company to Cavendish if M competed = primary obligation
o Note that parties seeking to circumvent the law on penalties may
draft provisions as primary rather than secondary obligations
(Holyoake v Candy – redemption fees on early payment, extension
fees ≠ operating on BoC, so primary and not penalties)
§ Bonus for delivery on time = primary obligation
§ Payment for delay = secondary obligation
© Liam Porritt 2020 3
2. If secondary, to be valid: (1) there must be a legitimate interest of the
innocent party in the performance of the primary obligation; and (2)
detriment not out of all proportion to this interest ~ here, can use
notions of “extravagant” and “unconscionable” (per Dunlop)
o BoP is on person alleging the clause is a penalty
o It is a heavy burden, especially where the clause is freely
negotiated between parties of equal bargaining power (with
professional advisors) (Vivienne Westwood)
• Cavendish Square Holdings BV v Talal El Makdessi – complex as Lordships had
different nuances to arguments
o Sale of stake in advertising company by Makdessi to Cavendish, with deferred
consideration in installments
o Makdessi retained 20% stake (with Cavendish having an option to purchase) +
non-executive directorship
o Restrictive covenant against Makdessi competing broken – default clauses: not
entitled to further installments ($44m) + option exercised at value excluding
value of goodwill of business (> $10m)
o Damages actually caused = $500,000 to company, not to Cavendish personally
o A liquidated damages clause worth over $50m was deemed not to
be out of all proportion with actually losses of $500k, on the
strength of Cavendish’s legitimate interest in Makdessi not
competing with the company => even if the liquidated damages
are ‘extravagant’ (per Dunlop), this is no longer decisive.
ParkingEye Limited v Beavis
• ParkingEye managed car park for riverside retail park
• Signs displayed with £85 charge for overstaying 2-hour limit
• Secondary obligation triggered by breach ~ penalty rule applies
• However, ParkingEye had a legitimate interest in using charges as a
means of influencing the conduct of motorists to ensure they did not
overstay ~ £85 not out of all proportion to that interest
CONCLUDE
• If valid, the amount due for breach arises as a debt under the contract
without C needing to establish a case for damages
• If not valid, we must go on to assess unliquidated damages.
© Liam Porritt 2020 4
The basis of assessment of unliquidated damages
• Courts assess unliquidated damages on the basis that damages should
only be compensatory
‘The Reliance Interest in Contract Damages’ (1936), Fuller and Perdue
1. ‘Reliance interest’ – covers out-of-pocket expenses, = same position post-breach as
they were pre-contract
2. ‘Expectation interest’ – covers innocent party’s loss of profit = same position postbreach as they would have been had the contract been performed
• C has an unfettered choice when electing whether to pursue the
expectation, reliance or restitution measure of damages (Anglia TV v
Reed).
The expectation interest
• The expectation measure seeks, so far as money can do it, to place the
innocent party in the same position as if the contract had been
performed (Robinson v Harman)
• We thus apply the compensatory principle, i.e. in assessing damages,
the court must take account of the effect of subsequent events on C’s
loss (Bunge SA v Nidera BV) to calculate the expectation loss, subtracting
the actual profit from the profit that would have been made, had there
been performance:
• APPLY – Expected position = ; Actual position = ; Expectation loss here = .
• NB Treat distinct losses separately, e.g. loss from relaunch party vs loss
from potential future contract
• However, C ‘ought not to be allowed to recover a windfall’, where a
loss would have been made anyway (Plantation Holdings (FZ) LLC v Dubai
Islamic Bank PLJSC)
o Damages of $2bn sought by developer on basis of breach by bank – wrongfully
took possession of land
o However, development was inevitably going to fail, i.e. bank would have been
entitled to take possession of land + developer would have incurred loss
o No obligation on bank to compensate beyond nominal damages
Damages for loss of chance
• Recoverable if (Chaplin v Hicks):
o Lost chance is quantifiable in monetary terms; and
o There was a real and substantial chance that the opportunity
might have come to fruition
• Chaplin: entrance into a competition, going into final with 4 contestants,
but only told about this at a very late stage, so was unable to attend =
awarded damages for loss of chance to win the competition
© Liam Porritt 2020 5
There are three alternative mechanisms: cost of cure, diminution in value and
loss of amenity – apply only in ‘defective work’ cases
1. Robinson v Harman – default measure of losses => expectation
2. Where there is a difference between the cost of cure and diminution in
value, we must consider: CoC + DiV + loss of amenity…
3. Cost of cure
• General rule: calculating the expectation interest in contracts involving
defective works (e.g. building not built to specification) is cost of cure
(Birse Construction Ltd v Eastern Telegraph Co Ltd)
o Cost of substitute or remedial work to put C in position, as if
contract had been properly performed
• C must act reasonably in relation to the defective works (McGlinn v
Waltham Contractors), i.e. per Ruxley, where CoC not out of all proportion
to the benefit of remedying
o Demolition + rebuilding to cure defective works ≠ reasonable, as
decision based on aesthetic considerations, so awarded cost which
would have been incurred in remedying the defects in the original
building
• Lack of intention to carry out remedial works is a relevant consideration
here, as if there is no intention to remedy, there is no monetary loss
except the difference in value (if any) (Ruxley Electronics and Construction
Ltd v Forsyth) => HOWEVER, per McGlinn, this alone is insufficient where
aesthetic
o Pool of wrong depth: 6ft, but supposed to be 7ft6; had no affect on
ability to dive, so unreasonable to insist on cost of cure (greater
than expense of original work)
4. Diminution in value
• Difference in value between the performance received and that promised
in the contract
• Where no diminution in value, it is not correct to automatically award the
cost of cure as an alternative, since it is not right to remedy the injustice
of awarding too little by unjustly awarding too much (per Lord Mustill in
Ruxley Electronics v Forsyth)
© Liam Porritt 2020 6
5. Loss of amenity / mental distress
• In general, damages will not be awarded in relation to mental distress, anguish or
annoyance caused by BoC (Addis v Gramophone Co Ltd)
o Damages for distress and injury to feelings resulting from manner of dismissal
are unavailable in contract law (Johnson v Unisys Ltd)
• Exception: ability of C to recover damages for disappointment where contract’s whole
purpose is the provision of pleasure, relaxation and peace of mind (Jarvis v Swans Tours
Ltd)
• Extending the ratio of Jarvis v Swans Tours, where cost of cure
unreasonable and no diminution in value, a breach of performance
resulting in loss of satisfaction of a personal preference or a pleasurable
amenity may result in modest damages (Ruxley Electronics v Forsyth)
• For this to apply, a major object of the contract must be to provide
pleasure, relaxation and peace of mind. Per Lord Hutton in Farley v
Skinner (No 2), this requires that:
1. The matter is important to C – ensuring no aircraft noise
important to C
2. C made clear to D that the matter is of importance to him – was
made known to D
3. The action to be taken is made a specific term of the contract – D
was specifically asked to pay special attention to this and it was at
the heart of why the survey was to be undertaken
• Extent of damages is modest:
o Ruxley – £2,500 for loss of amenity
o Farley v Skinner – £10,000 for unexpected aircraft noise = “on high
side”
• ‘Unusual, if not impossible’ for damages to be awarded for loss of amenity
in a commercial setting (Regus (UK) Ltd v Epcot Solutions Ltd)
© Liam Porritt 2020 7
The reliance interest
• C has an unfettered choice when electing whether to pursue the reliance
or the expectation measure of damages, but may only pursue one (Anglia
Television Ltd v Reed)
• Where expectation damages are highly speculative, C will be limited to
his reliance loss (McRae v Commonwealth Disposals Commission)
o Salvage expedition = impossible for C to quantify expectations with
any degree of precision
• Reliance losses are incurred prior to breach + seek to put the innocent
party in the same position post-breach as they were in pre-contract (i.e.
losses incurred remedying defective performance are not reliance losses)
• Expenses wasted by reason of D’s refusal to perform that were incurred
before the contract was made are recoverable (Anglia Television Ltd v
Reed)
o Refusal of actor to perform = cancel film; expectation losses too
speculative, so awarded damages in respect of expenses of £2,750
• The innocent party cannot claim its reliance interest in order to escape a
bad bargain (i.e. to get itself into a netter position than if the contract had
been performed (The Mamola Challenger)).
• To reduce the extent of damages payable, the defendant must show on the
balance of probabilities that the claimant would not have made back
those expenses had the contract been properly performed (C & P
Haulage v Middleton).
o Middleton rented garage, with agreement that fixtures put into premises by
Middleton were to be left on premises
o M claimed damages for money spent when ejected from garage
o Agreement could have been lawfully terminated 10 weeks after this, and in
these 10 weeks D had returned to own garage, paying no rent + suffered no loss
o There is no claim for loss of expectation – as no loss of profit
o The claim for expenses incurred (i.e. to be returned to the pre-contractual state)
is rejected, as these would not have been recovered whether or not the breach
occurred
o Damages limited to nominal amount
• Recoverable amount will be the amount the court deems D would have
been able to recover had the breach not happened
© Liam Porritt 2020 8
The restitution interest
• In general, the gain to a defendant from a BoC is irrelevant to the
quantification of damages.
• Where the contract-maker has been unjustly enriched, this may form
basis of a claim for an account of profits, where, per Attorney-General v
Blake:
o C has a legitimate interest in depriving D of profit (e.g. interest in
not allowing a former intelligence agent to divulge official
information in A-G v Blake); and
o Other remedies (compensatory damages, specific performance,
injunction) are inadequate
• An ‘Efficient breach’, whereby D breaches contract in order to enter into a
more profitable contract, is very unlikely to involve a sufficiently
exceptional legitimate interest, akin to the national security interest in
Blake, to merit restitutionary damages (Experience Hendrix).
• Additionally, it is likely that other remedies, notably damages covering
the expectation loss, will be deemed sufficient (The ‘Sine Nomine’).
• Thus, while it is possible the courts’ would follow the liberal approach of
Esso v Niad, it seems very likely to employ the more recent, highly
restrictive approach (WWF v WWF), and refuse to award an account of
profits.
• Esso Petroleum Co Ltd v Niad Ltd – liberal approach to restitutionary damages
o Pricewatch scheme = reduced petrol to franchise partners by Esso in return for
information re: petrol prices + agreement not to sell above a price set by Esso
o Niad sold above price set
o Esso could not establish losses were caused by breach by Niad, so Esso sought
an account of profits
o Here, compensatory damages inadequate as unable to show causation +
legitimate interest in preventing profit from breach, which would undermine
whole scheme
• Doubted by subsequent cases…
• AB Corporation v CD Company (The ‘Sine Nomine’)
o Owners of ship took it back from charterers (BoC) in order to charter it to
others
o Original charterers not able to recover profits made by owners on second
chartering ~ damages adequate and charterers lacked legitimate interest in
preventing owners from retaining profits, even where breach is deliberate
• Experience Hendrix LLC v PPX Enterprises Inc
o D agreed not to grant further licences for recordings by Jimi Hendrix
o D issued licences
o Here, deemed not to be exceptional, as distinguished from Blake on grounds that
national security was much more sensitive, and so the ‘legitimate interest’ of the
State in preventing breaches by former spies was not paralleled in this case
• WWF World Wide Fund for Nature and another v World Wrestling Federation
Entertainment Inc
o Exceptional nature of Blake remedy emphasised
o Claim for restitutionary damages in respect of profits by Wrestling WWF in
breach of agreement rejected
© Liam Porritt 2020 9
Damages for mental distress
• See above.
Damages for loss of reputation
• In general, damages will not be awarded for loss of reputation
• However, in Malik v BCCI – employee of BCCI who could not find employment because he
had worked for BCCI could claim damages for financial loss of unemployment = breach
of implied term in employment contract that employer under an obligation to carry out
work in an honest way
Damages on behalf of another
• Non-owner of property can recover substantial damages for breach of contract in
relation to that property (St Martin’s Property Corp Ltd and another v Sir Robert McAlpine
& Sons Ltd)
• Limited to a degree in Alfred McAlpine Construction Ltd v Panatown Ltd – a “duty of care”
deed in the contract operates to oust the principle in Linden Gardens because the injured
party should instead sue on the basis of the deed, rather than have another party sue on
their behalf
• (See ch 8 – Privity)
© Liam Porritt 2020 10
Causation
1. As to factual causation, it is arguable that D’s breach in fact caused the
loss suffered by C.
2. To establish legal causation, C must show on a commonsense basis that
D’s breach was a ‘dominant’ or ‘effective’ cause of the loss (Galoo Ltd v
Bright Grahame Murray)
Ø Novus actus interveniens – if NAI was ‘likely to happen’, it will not
break the chain of causation (Monarch Steamship Co Ltd v A/B
Karlshamns Oljefabriker)
o Lambert v Lewis – it is ‘not likely’ that a motorist, who
knows that a trailer coupling is defective, will continue to
use it; therefore, accident caused by this, not by the fact it
was defective when sold
© Liam Porritt 2020 11
Remoteness of damage in contract
In assessing whether the damages are too remote to be claimed, we apply the
Hadley v Baxendale test, considering what was in the contemplation of the
parties at the time of contracting (Jackson v RBS).
1. The losses will not be too remote if they are of a type ordinarily and
naturally arising from the breach, i.e. that may be imputed into the
knowledge of the parties according to the usual course of things.
o In Victoria Laundry v Newman, a 5-month delay in the delivery of boilers
to a laundry naturally resulted in a loss of profit that would have been
made from use of the boilers. This was thus recoverable under this limb.
o In Hadley, transport delays causing a delay in manufacturing a
replacement mill shaft did not naturally cause loss, as normally a spare
would be available.
o Where losses are incurred through a liquidated damages clause with
another party, this is not naturally arising, as there may not have been an
additional contract, the party under the contract may not have suffered
any loss but for this clause, and LDCs are not present in all contracts.
2. It will also not be too remote where it may reasonably be supposed to
have been in the contemplation of both parties when contracting, as the
‘not unlikely’ (per Lord Reid in The Heron II) result of the breach. Given D
had (no) actual knowledge of [particular circumstances]…
o When contracting in Hadley, D did not know the mill would not be able to
function without the particular shaft of which manufacture was delayed,
so the loss was not in their reasonable contemplation
o In Victoria, loss of dyeing contracts with the Ministry of Supply due to a
delay was not in D’s reasonable contemplation, for lack of knowledge of
the contracts when contracting
o In Balfour Beatty v Scottish Power, the reconstruction of an aqueduct due
to a 30-minute power supply failure was not within Scottish Power’s
reasonable contemplation, as they were not expected to know the
technical details of concrete construction
o LDC in another contract: also unlikely that a court will deem the clause to
have been within the parties’ reasonable contemplation, unless they have
notice.
© Liam Porritt 2020 12
• Koufos v C Czarnikow Ltd, The Heron II – HoL: remoteness test in contract is narrower
than in tort
o Charter of ship for transport of sugar
o 9-day delay due to deviations in BoC
o Lower value of sugar due to delays
o Ship owner did not know of charterer’s intention, but was aware that there was
a market for sugar at Basrah
o LoP recoverable as, on knowledge of shipowner when contract was made, sale
of sugar at Basrah was highly probable, so could be regarded as arising in the
usual course of things
o In contract, a higher degree of likelihood of loss occurring is required under the
reasonable contemplation test ~ loss must appear to D as “not unlikely” or as
having a “very substantial degree of probability” of occurring (per Lord
Reid’s formulation, approved by Chitty on Contract Law)
• H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd
o For physical damage, once a type of loss is within the
reasonable contemplation of the parties, all losses of that class
are recoverable
o Pigs getting ill and dying reasonably within their contemplation if D failed to
install a ventilated food hopper, the rarity of the particular disease was
irrelevant
o NB: distinct approach to in Victoria Laundry, as there it was financial loss
Test where commercial context renders Hadley problematic
• Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia, The Achilleas
o Late return of a ship resulting in a reduced rate for the duration of the
subsequent charter for Mercator = claim by M for the loss suffered throughout
the whole of the subsequent charter
o CoA: awarded damages for loss during whole of subsequent charter – fell within
first limb (normal loss)
o HoL: overturned and Lord Hoffmann suggested that the key question was
whether D had objectively ‘assumed responsibility’ for the loss in accordance
with common practice in the industry: here, common practice was not that a
party could pay for losses for late redelivery for the full term of the subsequent
charter
• This has not been followed as a general rule and Hadley v Baxendale remains the normal
test for remoteness.
• HOWEVER, this should be used where, in specific industries (Supershield Ltd v Siemens
Building Technologies), on examining the commercial context and accepted practices, it
becomes clear that Hadley would not ‘reflect the expectation or intention reasonably
imputed to the parties’ (John Grimes v Gubbins)
© Liam Porritt 2020 13
Mitigation
• Where one party suffers loss resulting from the other party’s BoC, the
injured party should take ‘reasonable steps’ to minimise the effect of
the breach, and losses attributed to a failure to do so are not recoverable
(British Westinghouse v Underground Rail)
• ‘Reasonable steps’ a question of fact
• Pilkington v Wood – no expectation that C should embark on ‘a
complicated and difficult piece of litigation’ to minimise effects of breach
• Banco de Portugal v Waterlow & Sons – Lord Macmillan: in considering C’s
obligation to mitigate, the courts take an approach that favours the
claimant: the injured party’s actions ‘ought not to be weighed in nice
scales at the instance of the party whose breach of contract has
occasioned the difficulty’.
• However, per Payzu v Saunders, it may be deemed that C had an obligation
to accept D’s offer of performance, where it is the best substitute
performance available.
o D agreed to sell 200 pieces of silk
o First consignment of goods delivered + delay to payment (caused by lost
cheque) led to D refusing to deliver = repudiatory breach
o D offered to continue to supply C under a new contract with same terms, except
payment in cash on delivery
o C refused + sought damages for rise in market price of silk, which they paid
instead of accepting D’s offer
• ASSESS WHETHER BEST SUBSTITUTE PERFORMANCE FINANCIALLY.
• Here, the facts are akin to / may be distinguished from Payzu, in which
there was an obligation to accept an offer that only differed from the
original agreement in its mode of payment, as opposed to accepting more
expensive offers.
• Payzu: damages confined to losses that would have been incurred if they
had accepted this offer (i.e. a month’s credit, as originally supplied)
© Liam Porritt 2020 14
No duty to mitigate
• There is no duty to mitigate a claim for payment of a debt, including
liquidated damages, as these amounts are payable as a contractual right
rather than as damages
o The paying party could theoretically affirm (although subject to
the two requirements below), and make payment, but there is no
commercial sense in this
• I.e. There is no duty not to perform one’s side of the contract in order to
bring about a debt claim, where the paying party wrongfully repudiated
the contract (White & Carter v McGregor)
o Anticipatory breach through cancellation of advertisements on bin
lids = no requirement on White & Carter to terminate / mitigate,
and so they exercised their right of election in affirming the
contract and were entitled to damages for the breach
o There is an interest in acting as such, as had they terminated, they
would have been required to try to relet the advertising space (i.e.
to mitigate)
• However, can only affirm where:
1. The co-operation (even passive) of the other party is not required
to fulfill the innocent party’s obligations under the contract
(Hounslow London Borough Council v Twickenham Garden
Developments Ltd)
2. The innocent party has a ‘legitimate interest’ in affirming (The
Alaskan Trader), with the burden on the contract breaker to show
no legitimate interest (The Dynamic)
C benefiting from an act of mitigation
• Where C benefits from the act of mitigating the loss, in general such
benefits will be accounted for and thus reduce damages (British
Westinghouse Electric and Manufacturing Co v Underground Electric Rail
Co)
• However, considering mitigation as an element of legal causation, where
benefit is derived from business decisions made independently from
any act of mitigation, the Court may intervene to hold that the steps
should be disregarded such that D is still held responsible for the full
extent of the loss on the contract between the parties (the New Flamenco)
o BoC: return of ship two years early and claim for loss of profit for
remaining two years
o Owner soon sold ship and D disputed claim for charter profit due
to $17m made on early sale of the vessel
o SC: sale provoked/permitted by breach, but not caused by it or an
act of mitigation ~ only the rehire of the vessel would have been
mitigation; realisation of capital value is not mitigation, as it is a
risk taken by C, in respect of which it bears the risk and reward
© Liam Porritt 2020 15
Contributory Negligence
• Where C’s fault is insufficient to break the chain of causation, reduction of
damages for contributory negligence is only available where D’s liability
in contract is the same as his liability in the tort of negligence, which
arises independently of the contract (Vesta v Butcher)
o Note: it is not available where D’s liability arises from a contractual
obligation to take care, but there would be no common law duty of
care independently of contract
Specific performance
• Equitable remedy requiring D to carry out his contractual obligations, available where
no common-law or statutory remedy is adequate
• Available for contract for the sale/lease of land + something rare
• Discretionary, on the basis of well-established principles:
o No where damages liquidated demand adequate (Adderley v Dixon)
o Must have clean hands (Coatsworth v Johnson)
o Delay defeats equities, so reasonable promptness, otherwise laches = withhold
equitable remedy (Eads v Williams)
o Not where undue hardship for D (Patel v Ali)
o No consideration = not specifically enforceable
o No SP for breach of contract of personal services, e.g. contract of employment
(De Francesco v Barnum)
o Not where constant supervision of the court needed (Co-operative Insurance v
Argyll Stores)
o Where contract voidable at the option of one party, cannot get SP against the
other
• PC (Sang Lee v Wing Kwai):
o First, consider clean hands of applicant
o Then, consider whether SP appropriate in circumstances, including misconduct
by D
Injunction
• May grant injunction to retrain breach of negative term, even where SP not available in
respect of positive obligations, e.g. employment contract (Evening Standard v Henderson)
• Terms (e.g. non-competes) may be construed reasonably to give reasonable protection
to C and no more (William Robinson & Co v Heuer)

Share:

Leave a Reply

%d bloggers like this: