Unit 14 – Damages

Purpose of the Award of Damages

-In general, every breach of contract entitles the injured party to claim damages for the loss caused
by the breach
-Purpose: put the injured party back in the position they would have been in, as far as money can,
but for the breach of contract (compensate the injured party)

Robinson v Harman Purpose of Compensatory Damages

[1848] -Injured party may recover damages which would so far as possible place him in the
same position he would have been had the contract been performed.
-this included loss of profit from the property
Johnson v Agnew Damages normally assessed at the time of breach
[1980] -property values at the time of breach
The Golden Victory In exceptional circumstances, damages may be reduced
[2007] -between date of breach and date of trial, events occurred which would have inevitably
reduced damages payable
Bunge SA v Nidera Reaffirm Purpose of Damages Compensatory Only
BV [2015] -No actual loss
Surrey County Injured Party Who Suffers no Loss Not Entitled to Damages
Council v Bredero -no punitive damages in English contract law
Homes Ltd [1993] -injured party (council) suffered no loss from builder breaching contract and building
extra homes – therefore only entitled to nominal damages – even though defendant
profited from the breach
Morris Garner v Damages awarded Based on What Injured Party Lost
One Step (Support) -awarding claimant based on loss – non-competition clause breached and lost business
Ltd [2018] -reverses lower courts erroneous calculation of damages based on price to extinguish
the non-compete clause

Two Measures of Damages

 Expectation Loss – (performance interest) – put the injured party in the position as if the
contract had not been breached (usually the measure sought)
o Ambiguity: (1) Identification of the loss, (2) measurement of the loss (cost of cure v
diminution)
o What about non-financial benefits?
 Reliance Loss – compensate injured party for his detriment in relying on the defendant (loss
of expenditure)

Robinson v Harman Expectation Loss Rule

[1848] -General rule – protect claimant’s expectation interest
-Injured party may recover damages which would so far as possible place him in the
same position he would have been had the contract been performed.
-Contract creates an expectation of performance
Sale of Goods Act Measurement: Difference in Value (goods expected/goods received)
1979 -section 50 (damages for non-acceptance) and section 51 (damages for non-delivery)
lay default rules for damages based on the difference between contract price and market
price
Ruxley Electronics Measurement: Cost of Cure
& Construction Ltd Loss of Amenity Damages
v Forsyth [1996] -cost of cure available only if reasonable to do so, and reasonable to do so only if cost
were not out of proportion to the benefit obtained
-pool contract 6ft 7”, got 6”, cost of cure 21K – outweighed benefit
Watts v Morrow Cost of Cure Not Recoverable if there is a breach of a qualified contractual
[1991] obligation
-house worth $15K less than purchased (error in survey report), spend $34K to cure
-Claimants awarded difference in value of property (expectation loss rule), not cost of
cure
-cost of cure would be damages for breach of a warranty by the surveyor, and no such
warranty had been given
125 OBS (Nominees Cost of Cure – Court will look at appropriate cure, reject any unwarranted cost
1) v Lend Lease savings by the defendant
Construction -court rejected purported “cure” of bad glass of installing a net (vs replacing glass)
(Europe) Ltd
[2017]
Chaplin v Hicks Loss of a Chance can form basis for Loss of Expectation
[1911] -breach of contract – she was a finalist in the contest, lost a chance at a potentially
lucrative deal
C & P Haulage v Claimant will not receive damages when breach leaves him no worse off
Middleton [1983] It is not possible to compensate the claimant for having made a “bad bargain”
-Middleton was wrongfully evicted, however he was not entitled to recover cost of
improvements under the lease even if he was lawfully evicted
-only nominal damages
Aircraft Claimant will not receive damages when breach leaves him no worse off
Corporation v -Aircraft were not repaired (in breach), however lessor sold aircraft and suffered no
Scandinavian diminution in value
Airlines System -No loss = no damages
Denmark-Norway-
Sweden (SAS)
[2007]
McRae v Reliance Loss – Where Expectation of Profit is too Speculative
Commonwealth -claimant spent money purchasing rights to a salvageable ship, and incurred expenses,
Disposals but there was no ship there
Commission [AU, -too speculative to award expectation damages
1951] -reliance damages of the purchase price and wasted expenditure awarded
Anglia Television Reliance Loss – Pre-Contractual Expenditures Eligible
Ltd v Reed [1972] -Actor breached contract, unable to find replacement, project was abandoned
-TV company sued for pre-contractual reliance loss in addition to post-contractual
expenditures
-Pre-contract expenditures eligible as long as within the reasonable contemplation of
the parties as likely to be wasted if the contract were breached
Omak Maritime Ltd Reliance Loss is a Species of Expectation Loss
v Mamola -if there is no expectation loss (in this case, the claimants made a profit), then there can
Challenger Shipping be no award for reliance loss (wasted expenditures) since to do so would put them in a
Co. [2010] better position had there been no contract at all
CCC Films (London) Wasted Expenditure Claims – Buden of Proof on the Guilty Party
Ltd v Impact -Presumption in favour of the innocent party that he would have recovered his
Quadrant Films Ltd expenditures had the contract been fully performed
-It is therefore for the guilty party to bring evidence to rebut this presumption to
diminish or avoid wasted expenditure damages
Yam Seng Pte Ltd v If Expectation Cannot Be Calculated with certainty
International Trade -Rejected claims for loss of profits – impossible to calculate or predict what those would
Corporation Ltd be, even though the judge agreed there would be some
[2013] -awarded net expenditure damages

Restitutionary Damages
-Only available in limited circumstances
-Differs from others (1) calculated with respect to the defendant’s gain, rather than the claimant’s
loss; (2) Circumstances to claim are very narrowly prescribed
1. Total Failure of Consideration
2. Unjust Benefit

Whincup v Hughes Restitutionary Damages – Total Failure of Consideration

[1871] -If a sum is paid and injured party has received no part of the contractual performance
(total failure of consideration), then it can be recovered
-if any part of the contract is performed, the Restitutionary claim is barred
-on the fact s here, one year of work was performed (partial consideration) so it was
held that no money could be recoverable
-policy: then courts would have to sort out partial performance and payments
Stocznia Gdanska Total Failure of Consideration Test
SA v Latvian -test was not if the purchasers received anything; test was if the shipbuilders had
Shipping Co. [1998] performed any of their contractual duties
-therefore, to find if consideration, determine what shipbuilders were obligated to do
under the contract and compare to work done

Bowmakers Ltd v Illegality

Barnet Instruments -Not invoked, money recoverable because of property rights
Ltd [1945]
Patel v Mirza Illegality – Money Recoverable (Unjust Enrichment)
[2016] -Money is recoverable under an illegal contract
-overturned test in Tinsley v Milligan
Attorney-General v Unjust Benefit
Blake [2000] -In general, gains based damages not available for a breach of contract (Surrey County
Council v Bredero Homes Ltd [1993])
-However, in this case, House of Lords ordered court would order an account of profits
when neither equitable remedies nor financial damages would be sufficient
-developing area of law
-considerable uncertainty

Non-Pecuniary Loss
-traditionally, law prevented damages for hurt feelings or mental distress (Addis v
Gramophone Co Ltd. [1909])

Farley v Skinner Development of Law:

[2001] (1) Dispensed with “predominant object” test – held it sufficed that the term
broken was understood by both parties to be important
(2) Claimant entitled to recover damages as defendant’s breach resulted in
“inconvenience and discomfort”
-Surveyor knew importance of aircraft noise, breached term
-Did not affect property value, awarded $1oK damages
**See page 220 of  Provision for a non-pecuniary gain, such as pleasure, relaxation, state of mind
Study Guide for list  Avoidance of a non-pecuniary loss, such as mental distress
 Claimant suffers “physical inconvenience”
 Distress or discomfort suffered was directly consequential on physical
discomfort
 “Loss of Amenity” (Ruxley)

Two Devices limit Award of Damage: (1) Remoteness, (2) Mitigation

-Some uncertainty with remoteness

Hadley v Baxendale Remoteness Rule

[1854] -Loss of business damages were not reasonably foreseeable (second limb), damages not
awarded
-reasonable to assume business had a back up shaft
-Two limb test:
(1) Those damages which may be reasonably considered as arising naturally –
those damages which arise in the “usual course of things” as a probable
result of the breach
(2) If there are exceptional circumstances – consequences of breach would be
particularly severe – recoverable only if this knowledge was in the
reasonable contemplation of the parties at the time of contract – Most
likely way if this was explicitly communicated to the other party
South Australia First Limb test
Asset Management -this depends on the degree of knowledge the parties are presumed to possess and the
Co v York Montage scope of the contractual duty
Ltd [1997]
Victoria Laundry Second Limb – Normal v Abnormal Loss
(Windsor) Ltd v -Claimants entitled to loss of normal profits (reasonably foreseeable), but not special
Newman Industries profits from the highly lucrative dyeing contract, because it was too remote and not in
Ltd [1949] the reasonable contemplation of the parties
The Heron II [1969] Normal Loss/Loss Arising Naturally
-default position is that abnormal losses (not arising naturally from the breach) will be
abnormal and require actual knowledge of the special facts leading to that loss in order
to be recoverable
-Ship was late – price of sugar had fallen – claimants entitled to recover difference in
price, party knew they were sugar merchants and there was a sugar port there,
therefore it was “not unlikely” that the sugar would be sold right away
The Achillaes Responsibility in Contract Undertaken Voluntarily
[2008] -owners re-chartered vessel, previous charterers were 9 days late, re-charter negotiated
a discount because of delay
-Held: charterers had assumed responsibility for the 9-day delay, but had not assumed
responsibility for the follow-up charter because they could neither control that loss nor
 quantify it
-Used in difficult cases – was the second loss because of market conditions or normal
course of business? Held to be extraordinary and not claimable
British Duty to Mitigate – Two Elements to the Duty
Westinghouse -Claimants are under a duty to take all reasonable steps to mitigate the loss consequent
Electric Co Ltd v to the breach
Underground -claimant is barred from claiming any part of the damage due to neglect to take such
Electric Railways steps
Company of London -two elements to this duty:
Ltd [1912] (1) To minimize the loss/avoid increasing the loss; and
(2) To act reasonably to reduce it, including incurring reasonable expenditure
Payzu Ltd v Failure to mitigate – acceptance of defendant’s offer
Saunders [1919] Whether steps were reasonable is a question of fact in each case
-defendant engaged in repudiatory breach (failure to deliver) when claimant failed to
pay on time
-defendant made an offer to continue to contract if cash paid up front – Claimant refused
and sought breach of contract damages (price of good had increased)
-Held: claimants failed to mitigate the breach by not accepting cash offer; damages
confirmed to if they accepted cash offer
Banco de Portugal v Reasonable steps may increase the loss to the claimant
Waterlow & Sons -defendant printer supplied banknotes to criminals
Ltd [1932] -claimant undertook to exchange all printed notes in circulation, increasing cost
-defendant argued it was not liable for the cost of exchange
-Held: action was reasonable, so that cost was recoverable
Globalia Business Avoiding Loss and Accounting for Benefits
Travel SAU of Spain -Charterparty repudiated the charter 2 years early, in breach
v Fulton Shipping -Owner sold ship immediately for $23.7M (2007); value in 2009 was $7M
Inc. of Panama “The -Supreme Court held that the capital gain from early sale was NOT a mitigation of loss of
New Flamenco” income stream from the early repudiation
[2017] -early termination was not the cause of the sale (that was a business decision)

Liquidated Damages
-Liquidated damages clauses in contracts help reduce uncertainty and manage risk
-Liquidate damages clause: enforceable regardless of size of actual loss; Penalty clause only
enforceable up to actual loss

Dunlop Pneumatic Enforceability of Liquidated Damages Clause

Tyre v New Garage -enforceable provided amount is a “genuine pre-estimate of the damage and is not
and Motor Co. unconscionable”
[1915]
Cavendish Square Liquidated Damages Enforceable if it protects legitimate interest of innocent
Holdings BV v party
Makdessi [2015] -reformulates Dunlop rule
-defendant broke non-compete clause; liquidated damages amounted to $40MM
-contract freely negotiated between equals – strong presumption of enforceability
-amount reflected reduced price of business in a competitive environment – commercial
justification
ParkingEye Ltd v Penalty Rule in Consumer Contract
Beavis [2015] -Beavis argued $85 was a penalty not enforceable (out of proportion to actual loss,
which was nil)
-Held: claimant had a legitimate interest/commercial justification in the operation of the
car park, therefore enforceable
Evading the Penalty **See Page 225 of study guide
Clause Rule