Different remedies to breach of contract have different aims relating to the interest that the remedy serves to the claimant.
Expectation:
It is in C’s interest to be put in a position had the contract been performed.
The claimant ‘is, so far as money can do it, to be placed in the same situation … as if the contract had been performed’ [1]
English contract law generally aims to remedy breach by the claimant’s expectation and this is the courts most preferred option.
Methods of Remedy:
In many cases, both methods will produce the same outcome.
Cost of Cure:
The cost of cure provides the claimant with the amount of money that would allow them to remedy the problem. EG: purchase an identical alternative.
Difference in Value:
This determines how much worse off the claimant is from the breach and making the defendant pay the difference.
Reasonableness Test:
The cost of cure is only awarded where it is reasonable to do so.
In Ruxley v Forsyth, F contracted R to build a swimming pool. It was not built as deep as promised, so clear breach of contract. C claimed for £21,560 as this would be the cost to cure the problem, but R argued they should only have to pay for the difference in value to the property. This would be nothing (£0) as F has not practically lost out by having a shallower pool. The court ruled that the cost of cure can only be used when reasonable and that, in this case, it was not.
Intention of C:
If the claimant intends to actually remedy the issue, they are more likely to be able to receive the cost of cure. However, there is no requirement that the claimant actually does seek to cure the issue. For this reason, the courts are wary to provide this remedy.
Proportionality:
Determining whether awarding C the cost of cure would be disproportionate to the benefit of fixing the issue can help determine whether it is reasonable to fix it.
Valuing Loss:
The cost of cure is fixed by the market value and therefore objective, while the difference in value is arguably subjective to the claimant since the market value and the claimant’s valuation of difference may not align.
When companies contract together, they do not have this subjective issue as their main commodity is profits.
In Ruxley v Forsyth, the court compromised between both parties and awarded £2500 to reflect the claimant’s ‘consumer surplus’. [2] The value compensated reflects how the breach personally affected F, not the difference in market value.
Types of Expectation Losses:
Inherent Loss:
An inherent loss is a loss is suffered simply by virtue that the contract was broken.
Consequential Loss:
Consequential losses are losses beyond or in addition to simple inherent loss. EG: lost profits.
Limits to Recovering Consequential Losses:
Mitigation:
The claimant cannot claim for consequential losses when their post-breach actions have caused the loss as the claimant under a duty to take reasonable steps to minimise their losses.
If the claimant does not take reasonable steps, they can only recover losses to the value of what they would have suffered if they had taken such steps. The claimant cannot simply allow losses to add up.
Remoteness:
Claims cannot be lodged for unforeseen losses.
In Hadley v Baxendale, H runs a mill. A piece of machinery breaks, and he contracts B to replace the broken part. B takes a long time to fix the machine and H sues for loss of profits. The court decides that C can recover for losses foreseeable from the nature of the contract or from further losses foreseeable because of information D has about C. [3] In this case, B did not foresee H’s loss of profits, so is not liable.
In Victoria v Newman, N was meant to deliver a boiler to V. The delivery was 5 months late, and V suffered losses because their laundry couldn’t facilitate at a high enough capacity and lost a potential government contract. V sued for both the ordinary and extraordinary loss of profits. N only had to pay ordinary loss of profits, as it is unlikely they were aware of the extraordinary government contract.
In ‘The Achilleas’, T chartered a ship from M. M had contracted for another charter after T returned the ship. T returned the ship late. Both parties came to different amounts of what was owed. The House of Lords held that T was not liable to pay the higher rate.
Justification:
It would not be fair to make defendants pay for losses they could not foresee.
The claimant chose to contract with the defendant, so it is their responsibility to choose someone who will be quick and reliable enough for their needs.
The defendant would’ve had the freedom to reject the offer if they had known that they would be liable for unforeseen losses. This would make contracting extremely hard as parties would be reluctant to enter agreements with one another.
Kinds of Recoverable Loss:
Financial:
The law readily compensates for financial losses. EG: balance sheet, asset losses etc.
Non-Financial:
The law also compensates for other types of losses, but this has not historically always been the case. EG: physical injury, distress / upset caused to C relating to enjoyment / peace of mind etc.
Claimants are only entitled to nominal damages. (Bingham in White)
In Farley v Skinner, F instructed S to perform a survey on a property he was to purchase. He specifically requested to know whether he would be affected by aircraft noise. S’s report said it would not, but when F bought the property, he did notice the noise. This did not affect the property value, just F’s pleasurable amenity. Awarded £10,000 for discomfort. Possibly only applicable to building works. [4]
Reliance:
It is in the claimant’s interest to not being worse off by entering a contract. Therefore, the claimant should be put in as good a position as if the contract had not been entered into, making sure the claimant has not lost out.
Reliance Losses:
Claimants can recover money / assets spend in performance, or in preparation for performance of the contract. This is because it wouldn’t have been spent if the contract wasn’t entered into.
Opportunity costs are also recoverable. EG: because of things that the claimant did not do because he was under contract.
Limits:
Reliance losses can be claimed up to the value that could be claimed under expectation losses. This is to prevent the claimant from being allowed to escape a bad bargain, which would be unfair to the defendant.
The burden of proof is on the claimant to show reliance losses. Where the reliance losses exceed expectation losses, the burden shifts to the defendant. The defendant has to show where the cap should be.
In Anglia TV v Reed, A hire R as an actor. R backs out before production, breaking contract. Show cancelled as a result. Hard for A or R to quantify what the show’s revenue would have been, so neither could show expectation losses.
Profits and Restitution:
The aim here is to remove any profits the defendant made from their breach.
Efficient Breach:
Efficient breach is where a defendant breaks a contract to make a larger profit elsewhere. As long as the defendant duly compensates the claimant for the breach, the breach is justified.
The claimant must have a legitimate interest in stopping the defendant’s profits to recover.
In AG v Blake, B is a double agent Russian spy. B goes to publish a memoir of his life as a spy; UK government want to stop him. The House of Lords ruled that expectation remedies would be inadequate and that C had an interest in stopping D. Restitutionary damages awarded.
In Rowland v Divall, R bought a (stolen) car from D. R painted it, used it and later sold it for a profit. The car was stolen, impounded by the police and returned to the original owner. R returned the money to his customer and brought a claim against D. As D did not own the car’s title, ownership remained with the original owner.
Resources:
References:
[1] Robinson v Harman (1848) 1 Ex Rep 850 (Parke B) [2] Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8, [1996] AC 344 (Mustill B) [3] Hadley & Anor v Baxendale & Ors [1854] EWHC J70 (Alderson B) [4] Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8, [1996] AC 344
Cases Mentioned:
Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8, [1996] AC 344
Hadley & Anor v Baxendale & Ors [1854] EWHC J70
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA)
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, [2009] 1 AC 61
Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732
Anglia Television Ltd v Reed [1972] 1 QB 60
Attorney General v Blake [2000] UKHL 45, [2001] 1 AC 268
Rowland v Divall [1923] 2 KB 500
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