Remedies: contract

(LAW549)
DR. NORAZLINA ABDUL AZIZ
  Redress for a wrong, to put right, to set
right, to rectify, to retrieve, to put in order, to
straighten out, to resolve, to correct, to
What is repair, to mend.
remedy?  A way of solving a problem or ordering
someone to make a payment for harm or
damage they have caused, using a decision
made in a law court.
  Compensation
Objective/
 Specific relief
Function of
 Restitution
Remedy?
 Redress a wrong (rather than to punish)
 Ability to recognise which
remedy is appropriate
Ability to determine the
The skill that likelihood of success
you have to Ability to seek/choose between
acquire: alternative remedies
Understanding of how to
calculate damages
 Statutory/legal rights
Breach of v. Equitable rights
rights under
Contract or
Tort
Judicial v.
Non-judicial
Legal
Damages
Rights
 Specific
Equitable
Performance &
Rights
Injunction
 Functions

Damages in
Contract
Fundamentals

Basic Principles
 • Developed by the common law
Money courts. If breach is proved,
compensation damages will be awarded by the
courts to the aggrieved party.
DAMAGES:
the meaning
Right to the • a remedy for every breach,
innocent party whether the nature of the breach
to claim is serious or not.
  1)To compensate the aggrieved party by placing
the aggrieved party as far as money can do it in the
same position as if the contract has been
performed/ if the contract had not been breached.
'restitution in integrum’- restoration to original
condition.
DAMAGES:
the objectives 2)To protect the innocent party’s reliance
interest/loss
 Compensatory • not to benefit the Plaintiff .
in nature • See Tan Sri Khoo Teck Puat v Plenitude Holdings.

Some notes on Burden of • Always on the parties claiming the damages.

• See Tan Geok Khoon & Gerard Francis Robless v. Paya
proving Terubong Estate Sdn. Bhd [1988] 2 MLJ 672 .
Damages damage • Bonham-Carter v. Hyde Park Hotel [1948] 64 T.L.R. 177

• Actual loss must be proved

Measure/ • documented proof the claimant has regarding financial
Quantum of loss. This can include actual records and document
proof of financial loss due to the breach.
Damage
 • Remoteness in damage
• Mitigation of Damage
Principles of
• Date of assessment
DAMAGES: Assessment
• Taxation of damages
2 points • Anticipatory breach

Types of • Pecuniary
losses • Non- pecuniary
 Remoteness

Mitigation

Damages:
Principles of
Principles of Assessment
Assessment Anticipatory
Date
Breach

Taxation
 Rule in Hadley v Baxendale
PRINCIPLE OF
• (1854) 9 Exch 341
ASSESSMENT
OF DAMAGE: Remoteness of Damage
Remoteness of
damage
Mitigation of Damage
  FACTS:
 The claimant, Hadley, owned a mill featuring a broken crankshaft.
Hadley v The claimant engaged Baxendale, the defendant, to transport the
crankshaft to the location at which it would be repaired and then
Baxendale: subsequently transported it back. The defendant then made an
Whether the loss of error causing the crankshaft to be returned to the claimant a week
profits resultant from later than agreed, during which time the claimant’s mill was out of
the mill’s closure was operation. The claimant contended that the defendant had
too remote for the displayed professional negligence and attempted to claim the loss
claimant to be able to of profit resulting from the unexpected week-long closure. The
claim. defendant retorted that such an action was unreasonable as he
had not known that the delayed return of the crankshaft would
necessitate the mill’s closure and thus that the loss of profit failed
to satisfy the test of remoteness.
  As Baxendale had not reasonably foreseen the
consequences of delay and Hadley had not
Held: informed him of them, he was not liable for the
mill’s lost profits.
  Here, the loss of profits did not fall under the 1st
limb as normally mills would have spare shaft.
 Since the Defendant did not know that the
Plaintiffs did not have spare shaft, the losses did
not fall under 2nd limb.
 **In this case, the defendant had no means of
knowing that the plaintiff would lose profits if the
Grounds: shipment of the shaft was delayed since this
information (P had no spare shaft) was not
communicated directly to D). Therefore, the loss of
profits was not reasonably contemplated by both
the parties when they made the contract.
 Hence, the losses are not recoverable.(too remote)
HADLEY’S IN OUR CONTRACT LAW
Important loss is reasonably viewed to have
1st limb resulted naturally from the
principles:
breach, or
embedded in
s. 74(1) of the
Contracts Act Or which the parties knew, when
1950 2nd limb they made the contract, to be
likely to result from a breach of it
  Section 74 Contracts Act 1950 sets out the consequences of a
breach of contract:
 (1) when a contract has been broken, the party who suffers by the
breach is entitled to receive, from the party who has broken the
Remoteness of contract, compensation for any loss or damage caused to him
Damages in thereby,
 which naturally arose in the usual course of things from the
Malaysia. breach, or which the parties knew, when they made the contract,
to be likely to result from the breach of it.

Imputed Actual
 IMPUTED:
1st Limb of
KNOWLEDGE: Hadley
when the
defendant ACTUAL:
knew
2nd Limb of
Hadley
  Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd [1949] 2 KB 528
 Facts:Victoria Laundry Ltd (VLL) ordered a large boiler from
Hadley : the Newman Industries Ltd (NIL) in contemplation of some lucrative
dyeing contracts. NIL were aware of the nature of VLL’s business,
development and that it was intended for the boiler to be put to use as soon as
possible. The delivery of the boiler was delayed by five months
of it’s principle and VLL claimed for breach of contract.
in other cases.
 Held:NIL knew the boiler was required as soon as possible for
business purposes; they must have contemplated the use for
which the boiler was to be put. Damages would be awarded for
losses which could reasonably have been expected to be lost.
  Bee Chuan Rubber Factory Sdn Bhd v Loo
Sam Moi [1976]

 Facts: A contract to sell a piece of land and to build a house thereon.

Malaysian The Appellants delayed completion, but both parties by virtue of their
conduct acquiesced to this delay. Later, in August 1970, respondents
cases: gave the A, a month to complete the house. Completed in April 1975.
 Held: RM100 for every month (Sept 1970- April 1975). Damages
application of include reasonable cost of living accommodation or living elsewhere
and storing furniture.
1st Limb, sec.74  To recover that damages, the Plaintiff has to establish that the loss he
sustained was caused by the breach and arose naturally[imputed] as a
result of breach (the rent).

 See also Illustrations a, b,c, f, g, h to s 74(1)

Section 74:
Illustration
 Tham Cheow Toh v Associated Metal Smelters
[1972]
 -Facts: The D/A had agreed to sell a metal melting furnace to the P/R,
and giving an undertaking that the melting furnace would have a
temperature of not lower than 2,600 degrees F.
Malaysian  However, this specification was not fulfilled. P/R claimed damages
including the loss of profit . Held (Fed Court):
cases:  A would not normally be liable for the said payment of damages for
the loss of profit UNLESS there is evidence that the special object of
application of the furnace had been drawn to their attention and they had
contracted on the basis that delays in delivery would make them liable
for loss of profits.
2nd Limb,  Held: In this case, the court satisfied that the A knew the
requirement[actual] to deliver the furnace capable of producing the
sec.74 specified temperature and the urgency of delivery.
 P/R was awarded special damages (i.e. under 2nd Limb)

 See also Illustrations i, j, l to s 74(1)

  Whether details of such potential loss were made
known to the contract-breaker before or at the time of
the contract so that the contract-breaker can be said to
have taken the risk of such loss into the bargain of the
contract. Refer to the following cases:
Malaysian Toeh Kee Keong v Tambun Mining
Cases using Co Ltd [1969] 1 MLJ 171
sec. 74. Malaysian Rubber Development
Corp v Glove Seal Sdn Bhd [1994]
Eikobina Sdn Bhd v Mensa
Mercantile (Far East) Pte Ltd[1994]
 Imputed
Summary to -Hadley v.
principle (1) of Baxendale
assessment of -sec.74(1) of
damages: Contract Act
Remoteness 1950
Actual
MITIGATION OF LOSS
  Mitigation means reducing the risk of loss
from the occurrence of any undesirable
event(breach of contract). In general,
mitigation means minimizing degree of any
Meaning loss or harm.
 In an action for damages for breach of contract,
the Plaintiff has to show that it has taken
reasonable steps to mitigate its loss flowing
from a breach.
Khoo Than Shui v  the court held that damages are compensatory only and that one
who has suffered loss from a breach of contract must take any
Chan Chiau Hee reasonable steps that are available to him to mitigate the extent
[1976] 1 MLJ 25 of the damage caused by the breach.
  The duty to mitigate only comes about when there is a breach of
contract.
 British Westinghouse Electric & Manufacturing Co Ltd v
Underground Electric Railways Co of London Ltd case.
Principle of Section 74(3) CA 1950 –
Assessment of  Explanation:
Damages:  “in estimating the loss or damage arising from a breach of
Mitigation contract, the means which existed of remedying the
inconvenience caused by the nonperformance of the contract
must be taken into account.”
 Burden of proof – on D to prove that P has failed to mitigate
  Kabatasan Timber Extraction v Chong Fah
Shing [1969] 2 MLJ 6
 The Federal Court held that it was the duty of the respondent to
take reasonable steps to mitigate the damages caused by the
appellant when he failed to deliver logs to the mill but left them
some 500 feet away.
Cases on  The Federal Court, in this case, held that the party who has failed
Mitigation to mitigate the losses cannot later recover any such loss flowing
from his neglect.
 As in the instant case, there was no necessity for the respondent
to have gone to the expense and trouble to buy logs from
elsewhere when the logs were lying a few hundred feet away from
the sawmill and all that was required from the respondent was
additional expense for hauling them up to the designated sawmill.
 Malaysian Rubber Development Corp. v Glove
Seal Sdn Bhd (1994)
Facts: P was to supply D, 2 mil rubber gloves per month from Nov
1988- Oct 1989.D - Breach of contract. P claimed RM6,155, 159 for
loss of profits, interest, marketing costs, and losses incurred.
Held: High Ct awarded RM3, 102,926.95 for loss of profits and
RM108,434 for marketing costs. The D appealed. Allowed.
 In case of the sale of goods, the innocent party should act
immediately upon the breach, and buy or sell in the market, if
there is an available market. If none, he should act reasonably to
mitigate his loss. Reasonable? A qn of fact.
 Thus, the manufacturer(P) should have stopped manufacturing
the gloves when it became aware at the time of breach, esp. as
the P was aware at the time of the breach that there was an
excessive supply in the market and a declining market.
Principles of
Mitigating  The Plaintiff must take reasonable steps to mitigate his loss
and must not incur unreasonable expenses.
(when  Whether P has failed to mitigate the loss – a question of fact.
quantifying  3 rules: i) Avoidable losses

damages) ii) Avoided losses

iii) Money spent in mitigation
  P will not recover damages for losses it should have avoided
i) Avoidable
i.e. the plaintiff cannot recover damages for any losses which can be
losses avoided had he take any reasonable steps to avoid the losses
 Tansa Enterprise Sdn Bhd v Temenang Engineering Sdn Bhd
[1991]
- the defendant was alleged to have breached the contract to
supply common bricks to the plaintiff. As such, the plaintiff
claimed for the losses incurred due to the breach. However,
the court held that the common brick is available in the
open market at the material time and that they could have
bought it there. As such, the plaintiff could have mitigated
his loss.
 Nevertheless, in mitigating losses, the aggrieved party must ensure
that they did not put their commercial reputation or good public
relations at risk. They must also ensure that in doing so, it must not
cause them unreasonable expenses or involved them in complicated
litigation.
 Khoo Than Shui v Chan Chiau Hee [1976]
- the plaintiff and the defendant had entered into a verbal contract
where by the defendant agreed to tow the plaintiff's logs from Sungei
Sugut to his log pond at Sandakan. The defendant towed a total of 82
logs but only 11 logs were delivered. The plaintiff claimed damages for
the loss.
Held: it is a question of fact in each case whether the plaintiff has acted
as a reasonable man might have been expected to act.
TEST: ‘Whether a prudent man would have acted in the same way if the
original wrongful act has arisen through his own default?
* Nevertheless, he is not required to risk his commercial reputation or to
embark upon complicated litigation in order to mitigate his loss.
ii) Avoided losses

 If P avoids loss, damages are not recoverable for that loss.

 British Westinghouse Electric and Manufacturing Co Ltd v
Underground Electric Railways Co of London Ltd [1912] AC 673
- British Westinghouse supplied UER turbines which were
deficient in power. UER accepted and used the turbines but
reserved their right to claim damages. Later they replaced the
turbines with others(purchased a new one) which were far more
efficient than those supplied by BW would have been, even if
they had complied with the contract. UER claimed to recover the
cost of the substitute turbines as damages.
- They asserted the purchase was reasonable and prudent and,
therefore, the cost of purchasing them should be recoverable as
a direct consequence of the breach.
 HL held: in assessing the damages for the breach any loss
sustained by the plaintiffs, had to be balanced against any
gain to them arising directly out of the steps they had taken
to lessen the consequences of the breach.
 Although the plaintiffs had not been bound to buy the new
machines, having done so the consequential gain in profits.
 Any additional profits made because of acts done in mitigation
should be considered when quantifying damages. The savings
made by using the new turbines exceeded the cost of the old
turbines and as damages were a question of fact, the cost of the
new turbines were not recoverable.
Thus, it can be seen that as the UER had avoided loss by changing
their turbines and plus, they had acquired profit from such
move, the damages which are the losses they suffered from using
the turbines supplied by BW earlier are not recoverable.
  In mitigating or attempt to mitigate, the innocent party may
recover the amount of money he spent, provided the action
taken is reasonable.
 Hoffberger v Ascot International Bloodstock Bureau Ltd [1976]
Money - the defendants had breached their contract to buy a horse
for £ 6000. For one whole year, the plaintiff had kept the
spent for horse and the horse was ill. Only sold in 1974 when it
mitigation recovered at a much lower price i.e £ 1025 even though in
1973, the P could sold it for £4000 or £5000.
- The Court of Appeal allowed the plaintiff’s claims for both
loss of profit of £ 4975 and also for the expenses incurred in
keeping the horse for a year as according to the court, the
plaintiff had acted reasonably in mitigating his loss.
 CF Compania Financiera Soleada SAv HarmoorTanker Corp Inc
[1981]- (The Borag)
- the plaintiffs had taken out loan carrying a very high interest
rate to gain the release of the ship detained in breach
of contract.
- However, the court held that by doing
so, the plaintiffs had acted unreasonably and thus, the high
interest charges were irrevocable.
  Anticipatory breach is a situation where the defendant breached
the contract but he made known to the plaintiff of his intention
Mitigation and to do so. It is also known as repudiation.
Anticipatory  When such situation occurs, the plaintiff has a right to elect that is
whether to ignore the anticipatory breach or to accept the
breach repudiation.
 the plaintiff chooses to ignore the anticipatory breach, the
contract will remain intact and there is no breach of
contract.
 Not under a duty to mitigate at this time.
 In addition, remedy is not available to the plaintiff until the
time for performances arrives.
 If the plaintiff chooses to accept the repudiation, he can sue
the defendant at once for breach and seek immediate
damages.
 Additionally, the plaintiff is bound to mitigate the losses
incurred.
 White and Carter (Councils) Ltd v McGregor
- after the parties had entered into an advertisement
agreement, the defendant wrote to the plaintiff to cancel the
three-year contract. Nonetheless, the plaintiff refused to
cancel the agreement and as they had performed their part
of the contract, the P claimed for the full contract price.
 The defendant argued that the plaintiff should have reduced
its loss, accept the repudiation and sue for damages. The
House of Lords held that the plaintiff were entitled to carry
out the contract and claim the full contract price and further
added that they were not under an obligation to accept the
repudiation, mitigate and sue for damages.
 Teh Wan Seng &Sons Sdn Bhd v See Teow Chuan [1984]

 The plaintiff had entered into a tenancy agreement with the defendant. The
period of the agreement was for three years commencing from 12 October
1974 to 11 October 1977, at the monthly rate of $5928.75. On 11 February
1976, the defendant (tenant) wrote to the plaintiff telling their intention to
repudiate the contract and vacated the premises. However, the
plaintiff refused to accept the letter and continued to claim rental for the
premises.
 During this time, there was an offer made to the plaintiff to rent the
premises at $4000 per month but the plaintiff rejected this offer. In April 1977,
the plaintiff succeeded in finding another tenant to rent the premises at the
same rate as that paid by the defendant.
 The plaintiff then claimed for damages for the loss of rental from February
1976 until April 1977.
 The defendant(tenant) claimed that the plaintiff should only be entitled for
the difference between the original rental and the offered rental as the
plaintiff had failed to mitigate his losses by rejecting the $4000 per month
offer made earlier.
 On the other hand, the plaintiff claimed that by virtue of White and Carter
he was not obliged to mitigate unless there was a breach of contract and
further argued that
a breach had not yet occurred until he accepted D’s breach (when he
accepted a new tenant in April 1977)
 The court held: by virtue of White and Carter (Councils) Ltd, the
breach occurred when the plaintiff finally accepted the anticipatory
repudiation that was when the plaintiff finally took in a new tenant.
 As duty to mitigate losses can only arise if there is a breach of contract,
the plaintiff was under no obligation to mitigate it when the defendant
wrote him a letter of repudiation as there was no breach then.
 So, the court allowed the claim for damages for the loss of rental from
February 1976 to April 1977 and ruled that the plaintiff was not obliged
to mitigate as there was no actionable breach and that the plaintiff had
elected to ignore the anticipatory breach.
Ban Chuan Trading Co Sdn Bhd v Ng
Bak Guan [2004]
 - CA took a different view and held that the plaintiff should
mitigate his losses even in cases of anticipatory breach. This
is because, by looking at the judgment by Mokhtar Sidin JCA, he
required the plaintiff/tenant to accept the repudiation as soon as
possible and by doing so, it could minimize his losses.
Timing of  As a general rule, damages should be assessed as at the date
of breach. - Eikobina (M) Sdn Bhd v Mensa Mercantile (Far
Assessment of East) Pte Ltd [1994]
Damages  For foreign currency debts – at the date of judgment
(Miliangos v George Frank (Textiles) Ltd [1976]
 In appropriate cases (injustice), losses can be assessed as at
the date of trial – Johnson v Agnew [1980], Tan Ah Chim &
Sons v Ooi BeeTat [1993]