⇒ Damages is the primary standard remedy at contract law

⇒ The victim of a breach has several choices at common law to compensate their loss:

• Not perform his own obligations (if concurrent)
• For example, if you go to a shop and buy some shoes, you only get those shoes if you pay the money for them. So, the obligation for the shop assistant to give you the shoes is concurrent with you paying the money
• Terminate and claim damages if there is a serious breach (e.g. a breach of an innominate term that goes to the core of the contract)
• Claim for damages
• Restitutionary claim (money the defendant gained from the breach)

⇒ A victim of a breach has also got choices that are only available in equity to compensate their loss:

• Specific performance → where the court will force the defendant, instead of rewarding damages, to do what he had contractually agreed to do
• Injunction → Injunction is an order by the court that the D should either do (mandatory injunction) or refrain from doing something (prohibitory injunction)

⇒ The mormal remedy is damages i.e. to financially compensate the claimant, not punish the defendant (Robinson v Harman 1848)

⇒ Damages are always available as soon as there is a breach

⇒ If no loss is caused by the breach of contract, only nominal damages can be recovered

• So, damages will only be awarded if the breach actually causes a loss
• Nominal damages = a small amount of damages

(a) PROTECT EXPECTATION INTEREST

⇒ Everybody enters into contracts with an expectation the contract will bring them some benefit

⇒ The aim of the compensation is to protect the victim's expectation interest – so the court will compensate the loss of the expectation that they were putting into the contract

⇒ Robinson v Harman (1848) defines this principle: it is about putting the victim in the position they would have been had the contract been performed (restitutio in integrum)

• This is different to tort where the parties are put into the position they were in BEFORE the tort occurred
• In contractual damages the court looks to the future and placing the parties in the position they would have been in if the contract ha been properly performed

⇒ There are a wide variety of damages to be claimed:

• Economic losses (most common remedy for the victim of a breach!)
• Lost expenses (expenses incurred in preparation for the contract)
• Damage to property
• Personal injuries
• Consequential losses
• Non-economic losses: injured feeling, distress etc.

(b) NO EXEMPLARY/PUNITIVE DAMAGES

⇒ Contract law damages are compensatory so there are NO exemplary/punitive damages in contract claims (in tort, both of these ARE available on specific grounds): Addis v Gramophone (1909)

⇒ It used to be the case that even if the contract breaker makes a profit out of his breach only compensation would be available: Tito v Wadell No2 (1977)

• However, we have moved on from this position and this is no longer true - see (c) below

(c) PROFITS OF CONTRACT BREAKER

⇒ So it used to be the case that it was impossible to claim as damages the profits the contract breaker makes as a result of breaching the contract: Surrey CC v Bredero Homes Ltd (1993): in other words, it used to be the case that if the victim had suffered no loss then they would be entitled to NO damages

⇒ HOWEVER, compare this case with with Wrotham Park Estate v Parkside Homes (1974): the court mentioned the possibility of claiming the profit of the contract breaker on the basis of the hypothetical release of the contract → see the case facts to understand this further

⇒ It is difficult to know exactly when a victim can claim profits of the contract breaker (see AG v Blake, Nicholls LJ)

• In AG v Blake, Nicholls LJ said Surrey CC v Bredero Homes Ltd (1993) and Wrotham Park Estate v Parkside Homes (1974) were difficult to reconcile because the decision in Wrotham could also, technically, have been implemented in Surrey
• Nicholls LJ said the reasoning in Wrotham was a better decision, but was reluctant to overrule Surrey case
• In Surrey – compensation was refused because there was no loss
• In Wrotham – it is possible, using the rights of the owner of the estate to show that they had suffered a loss because it would have been possible for the defendant to negotiate out of the covenant by putting the price up to 5%
• In Attorney General v Blake (1998) (see the case facts here) Lord Woolf said said that exceptionally, even though the primary aim is to award damages as compensation, it may be possible for the V to claim as damages a portion of the profit that the contract breaker makes
• So, AG v Blake changes the principle that the only purpose of damages in contract law is purely compensatory.

⇒ Three different interests are protected by damages: the expectation interest, reliance interest, and restitutionary interest

⇒ The expectation interest (the most prevalent one!)

• Most parties enter a contract with a view of making a profit, therefore the most prevalent measure of damages is to award as damages the lost profit the party was expecting to make

⇒ The reliance interest

• I.e. Compensate the victim for losses already incurred (e.g. wasted cost of transport)
• In other words, the expenses which have been incurred in preparation for the contract can be awarded as compensation when there is a breach

⇒ The restitutionary interest: any pre-payment can be recovered

⇒ You CANNOT claim for all three because they overlap to a certain extent

⇒ The Heron II (1969) per Lord Upjohn: calculating damages is ‘not an exact science’

⇒ Damages are available to everyone even if the amount is difficult to assess: Chaplin v Hicks (1911)

• Here, the claimant was awarded damages for loss of chance to win a competition

⇒ The burden of proof is on the victim. In other words, the victim must prove they suffered a loss. If there is no proof of loss then they are entitled to NO damages

(a) If expectation loss is impossible to prove, the reliance loss (costs incurred in preparation for performance of the contract) is going to be the main basis in a claim for damages: Anglia Television v Reed (1972)

⇒ However there are some limits to the possibility of the victim to claim reliance loss:

• The bad bargain rule: Because the aim of damages is to compensate the victim you cannot use the reliance loss to try and recoup some of the bad bargains you have made (E.g. if performance of the contract was not going to be as profitable as first thought you cannot be rewarded reliance loss) e.g. CCC Films (London) v Impact Quadrant Films (Ltd) (1985)
• If the claim is too speculative you cannot claim reliance loss: so where there is an opinion given based on incomplete information rather than actual knowledge you cannot claim reliance loss e.g. McRae v Commonwealth Disposals Commission (1950)

(b) Causation

⇒ The second element to prove a claim, beside the need to show what you have lost (be it expectation or reliance loss), the loss MUST be caused by the breach

⇒ So, if there are other reasons why the victim made a loss the contracting party is only responsible for his responsibilities: Primavera v Allied Dunbar Assurance Plc (2002)

(c) Contributory Negligence

⇒ The other limit to how much a victim can claim is contributory negligence

• It is possible the victim/claimant may of contributed him/herself to the loss they suffered. If this is so, they are entitled to less damages

⇒ Contributory negligence is available very widely in tort, but is NOT only available in tort as seen in Forsikringsaktieselskapet Vesta v Butcher (1986): contributory negligence can be claimed (by the defendant) as a defence to a claim for damages (by the claimant) if there is a concurrent tortious duty of care. That is, where the breach of contreact consisted of negligent performance, in a situation where there was also a tortious duty of care

⇒ Contributory negligence is NOT available for breach of a strict duty: Barclays Bank Plc v Fairclough Building Ltd (1995)

• A strict obligation is an obligation to do something very clearly
• In this case, the obligation of Fairclough to get rid of the asbestos was a strict obligation and not an obligation to take care, so there was no contributory negligence

⇒ Remoteness also limits the amount of compensatory damages available for a wrong

⇒ In other words, it means that if a loss is "too remote" from the breach then money cannot be claimed

• For example, say you contract to buy a car for £15,000 with a dealer. You know someone is happy to pay you £50,000 for this car, but the dealer does not know this. For some reason, the dealer does not go through with the sale. If you had got the car you could have made a £35,000 profit, so could you claim £35,000 from the dealer in lost profit? Probably not as the loss is too remote

⇒ See, for example, Hadley v Baxendale (1854)

• The court did not award the entirety of the damages that the claimant was claiming because it was held the loss that they had suffered was too remote
• The court made a clear the test of remoteness of damages → they said that claims for damages can only be made where damages:
• (a) Arise naturally from the breach, so will be compensated AND
• (b) The losses that may reasonably be supposed to have been within the reasonable contemplation of the parties will be rewarded

⇒ Remoteness of damages is evaluated at the time of contracting: Jackson v RBS (2005)

• So when deciding what is within the contemplation of the parties, this is assessed at the time of contracting. In other words, if it is within the reasonable contemplation that X will happen, and it does happen, then the claimant may get damages for that

⇒ What is the degree of probability with which the losses must be foreseeable?

⇒ In Victoria Laundry (Windsors)Ltd v Newman Industries ltd (1949) the defendant was said to be liable for such "loss actually resulting as was at the time of the contract reasonably foreseeable from the breach"

• So the House of Lords held that the way to assess the degree of foreseeability of the consequences of a breach is similar to tort
• This approach was criticised in The Heron II (1969), where it was felt a stricter approach was necessary

⇒ In The Heron II (1969) the House of Lords held that the defendant is only liable for those losses which he foresaw or could have foreseen at the time the contract was being made as not unlikely to result from the breach of contract - this approach is stricter than tort!

• So unlike the Victoria Laundry case the House of Lords here took foreseeability to mean what is not unlikely to result
• In ther words, the court here (criticising the approach of the Court of Appeal in Victoria Laundry) said it is not possible in contract to have the same foreseeability test as in tort (As Asquith LJ suggested there was)

⇒ Foreseeability need only be of the type of damage and NOT its extent: Parson (Livestock) Ltd v Uttley Ingham & Co Ltd (1978)

• The majority said if the type of loss is within the contemplation of the parties, the extent need not be within the contemplation of the parties

⇒ The duty to mitigate is potentially another limit to the principle whereby the victim of a breach will be compensated for the full amount of loss that they suffered

⇒ In English law, as soon as there is a breach the victim of a breach has a duty to mitigate the loss that he/she suffers

• For example, if you enter into a contract for someone to supply something to you and they fail to do so, you have a duty to lower the amount of loss that you are going to suffer by trying to find an alternate supply for the good/service that the party in breach had agreed to supply

⇒ British Westinghouse Electric and Manufacturing Co Ltd (1912): ‘Mitigation imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps’ (Per Lord Haldane)

• So as soon as there is a breach the victim must take steps to remedy that breach. And the language that is used is that it is a duty to take all reasonable steps on the victim to mitigate the loss
• This is important because if the victim does not do anything and, as a result, increases the cost the courts are only going to award damages (what the victim would have got) if they had mitigated the loss

⇒ (a) So there are no damages if losses are avoided though mitigation (British Westinghouse Electric and Manufacturing Co Ltd (2001)) or (b) could have been avoided by mitigation

⇒ (c) If, through mitigation, the losses increased the victim can claim for the losses of the mitigation so long as they took all reasonable steps e.g. Banco de Portugal v Waterlow and Sons Ltd (1932)

⇒ The rule = damages are assessed at the date of the breach

⇒ BUT in Johnson v Agnew (1980) it was said that this is “(…) not an absolute rule, if to follow it would give rise to injustice, the court has power to fix such other dates as may be appropriate in the circumstances”

• In this case damages were not assessed at the date of the breach but at the time specific performance was aborted

⇒ At what point are damages assessed when there is an anticipatory breach (i.e. the party in breach telling the other party, in advance of the time of performance, that come the time of performance they will not be able to perform the contract):

• If the breach is accepted the duty to mitigate arises at once. Damages are assessed according to when victim could have reasonably arranged for alternative contract.
• If the victim misses opportunity to mitigate, the damages are going to be lowered: Kaines (UK) Ltd v Osterriechische Warrenhandelgesellschaft (1993)

⇒ In other words, what can damages be claimed for?

(a) Cost of replacement

(b) Lost profits or consequential loss

⇒ In other words, compensating the expectation loss, which is usually a lost profit because most parties enter contracts to make a profit

⇒ The burden of proof is on the victim to establish how much profit they would have made and therefore how much loss/damages the court should award: Georges Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd (1983)

(c) Damage to property

⇒ See, for example, Parson (Livestock) Ltd v Uttley Ingham & Co Ltd (1978) → the pigs in the case were property so that was valid head of damage

(d) Personal Injury

⇒ Personal injury is also a head of damage if someone, through a breach of contract, causes the victim to suffer a personal injury e.g. Godley v Perry (1960)

(e) Damage to commercial reputation

⇒ See, for example, Malik v BCCI (1998) → the court said that the BCCI, due to being involved in corruption, had acted in breach of the employer duty of trust which had a negative effect on the employee’s commercial reputation. Malik was therefore awarded some financial compensation

(f) Emotional distress

(i) The general rule is that there are NO damage available for emotional distress: Addis v Gramophone (1909)

⇒ Should Addis be overturned?

• We have moved on from Addis but is not overturned
• The compromise has been found by finding exceptions to the rule
• There are now some cases which allow emotional distress

⇒ The case of Bliss v SE Thames RHA (1987) recognises some exceptions to the general rule seen in Addis v Gramophone (1909)

• Judge Dylan said it is possible to recover loss in cases of emotional damage where the contract, which has been broken, was itself a contract to provide piece of mind or freedom from distress.

(ii) Non pecuniary damages can be claimed if the aim of contract is to provide:

⇒ Enjoyment: Jarvis v Swans Tours (1973)

⇒ Peace of mind: Hamilton Jones v David & Snape (a firm) (2004)

⇒ Or where breach caused physical inconvenience

(ii) The sole aim of the contract need not be to provide peace of mind: Farley v Skinner No 2 (2001)

• This case expands the scope of the exception of the rule of Addis

⇒ Loss can be quantified by:

• The difference in value: the difference between what was promised and the actual performance
• The cost of cure: what can be done to put the matter right and remedy the defective performance

Difference in value

⇒ The market rule

• S 50(3) and s 51(3) Sale of Goods Act 1979: ‘where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the current price of the goods at the time when they ought to have been delivered or (if no time was fixed) at the time of refusal to deliver’
• For example, you want to buy a washing machine from someone, so you both agree to have it delivered next week but they later say they cannot deliver. There is a market for washing machines therefore anything can be substituted for something else. The market rule is the default position, as defined by the Sale of Goods Act, for most sale of goods in a contract
• So if the seller refuses to deliver the washing machine on time, you will be able to have any washing machine you find as damages for the difference in price you had to pay AND
• Vice versa, if you are the one who does not want the washing machine the seller will use the market rule too
• But, it is only a prima facie rule = so is only a default position and wont always apply because the parties may have used a different measure

⇒ Damages for lost profit v duty to mitigate

• Thompson v Robinson (Gunmakers) Ltd (1955) shows that the market rule does not always apply. This case involved the sale of a car, which was readily available and its supply exceeded its demand. The buyers suddenly said they didn’t want the car anymore, so the seller sued him for lost profit. As supply was clearly greater than demand, the seller successfully showed that not selling to the defendant was a lost sale so was entitled to lost profit. However, where the demand is greater than the supply the claim will not succeed (Charter v Sullivan (1957))

⇒ Only a prima facie rule: Lazenby Garages v Wright (1976)

• The market rule requires a market – if I am buying a van Gogh painting there is no market because there will only be ONE of that specific painting, for example

⇒ The rule: a contractor can recover damages only in respect of his own losses

⇒ Exception: where A makes a contract with B for the benefit of C, A may be entitled to recover damages in respect of losses suffered by C

• Only applies to very specific situations: Woodar Investments Devt Ltd v Wimpey (1980): ‘an example of a type of contract (…) persons contracting for family holidays, ordering meals in restaurants for a party, hiring a taxi for a group, calling for special treatment’.