Note for Week 9 – Remedies

Damages
Every breach of contract entitles the innocent party to claim damages.
Damages are compensatory in nature – serve to repair the actual loss.
Damages are not intended to punish contract breaker or to confer a large amount of money to
the aggrieved party
Compensation is normally achieved by placing the innocent party in the same position as if the
contract had been performed. Eg. For example A has to give B a bottle on Monday. A gives B
the bottle on Tuesday. B was asleep from Monday to Tuesday. No damages. Cause to put A to
the condition as if the contract had been peformed, there’s nothing that can be done.

Liquidated Damages (calculated damages)

Liquidated damages: damages that have been calculated before the contract is formed
Liquidated damages clause: clause that is triggered an obligation when contract is breached
Eg. “if you breach contract, you will pay this amount”

In order for liquidated damages clause to be upheld, the agreed sum must be genuine pre-
estimate of loss, and not punitive (aimed at penalizing the breaching party also known as
“penalty clause”).
If for example the actual loss is $1, but they really predicted the loss would be $1000. Then they
still have to pay $1000. The court cares only about the intention of the clause, whether to
punish to it was true-genuine estimate.

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 (HL)
4 tests in deciding whether a clause is liquidated damages clause or penaly clause:
1. If sum stipulated for is extravagant and unconscionable in amount in comparison with
the greatest loss that could conceivably be proved to have followed from the breach,
then penalty
2. If breach consists only in not paying a sum of money, and the sum stipulated is a sum
greater than the sum which ought to have been paid, then penalty. (not tested)
3. If a single lump sum is payable by compensation, on the occurrence of one or more or
all of several events, some of which may occasion serious and others but trifling
damage, then presume penalty
4. If consequences of the breach are such as to make precise pre-estimation almost
impossible, then it may well be true pre-estimate of damage
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (CA)
Facts: Interfoto, at Stiletto’s request, delivered 47 transparencies to Stiletto in a jiffy bag. That bag contained
a delivery note stating Interfoto’s standard terms and conditions, which Stiletto did not read. It stated, inter
alia, that if the transparencies are not returned on the agreed return date, they would be charge £5 per
transparency per day. Stiletto was 14 days late, and the bill came up to £3,783.50.
Per Dillon LJ: “strong case” that clause was void and unenforceable as a penalty clause
Considered evidence that a reasonable charge (based on the charge imposed by 10 other similar libraries)
was £3.50 per week
But point was not argued
Unliquidated Damages
Normal damages to compensate for any pecuniary (money) losses which have been incurred as
a result of the breach of contract

How to quantify loss?

There are 2 measures: expectation measure and reliance measure
The default is expectation measure, only when they cannot prove expectation measure then
they will use reliance

Limits to recovery for UNLIQUIDATED DAMAGES