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“In English Law, the aims of compensatory damages often inform the

claimant’s remedy”,

Critically analyse this statement.

In English Law, there exists two forms of damages that can be awarded to a claimant

for the loss which they have suffered1. On the surface, they can be categorised as

either compensatory or non-compensatory; the former are an award of a sum of

money with the aim to compensate the claimant for their loss in a contract; the latter

are an award of a sum of money to compensate for their contractual loss, but also to

compensate the claimant with regards to any misconduct on the behalf of the other

party.

The aims for compensatory damages in contract law do differ from those in tort law,

so contract will be discussed first. There are specific formulas for determining

whether an individual is entitled to damages, and with regards to compensatory

damages there are six core principles which should be examined 2. The first is

whether or not the claimant has suffered a loss; Alfred McAlpine Construction Ltd v

Panatown Ltd [2001]3 outlines that a claimant may only recover for their own loss, in

that vein, the amount of loss must be assessed – following Robinson v Harman

[1848]4, the aim is that the non-breaching party are put in the position they would

have been if the contract was performed as initially agree (whereas in tort, it would

be to put the claimant in the position they would be had the tort not been committed).
1
Clare Connellan, Global Damages Review, November 2019
2
Pearce, D. and Halson, R. (2007) Damages for breach of contract: compensation, restitution, and
vindication. Oxford Journal of Legal Studies. ISSN 1464-3820 (In Press)
3
Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518
4
Robinson v Harman [1848] 1 Ex 850
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In a breach of contract, there will either be the option to use the expectation

measure, or the reliance measure, the former being more favourable usually. This is

calculating the position the claimant would be in if the contract was completed

successfully, as stated before, by working out costs during breach and difference

between value of performance provided and value of performance that should have

been provided. The reliance measure aims to put the claimant in the position they

would be before the contract was made, more like tort damages, but it is determined

that the claimant should be expecting to profit from the contract so this is often not

favourable5.

The next step is determining whether the loss suffered is actionable; this may be due

to a straight financial loss as a result of the contract. Consumer surplus is a difficult

concept to rule on due to the difficulty in assessing the value of them; they are the

amount by which a consumer values the performance of a contract above its market

value. The case of Watts and Morrow [1991]6 discussed consumer surplus and

stated that damages cannot be awarded for distress caused by breach of contract,

so these particular consumer surpluses are not actionable. The rules regarding

claiming for consumer surplus were clarified in Farley v Skinner [2001]7.

Farley was awarded £10,000 worth of damages for “discomfort”. The judges in this

case came to the same decision, but under two different grounds:

5
Simone Degeling, James Edelman and James Goudkamp (eds), Torts in Commercial Law (Law
Book Co 2011) 367-390
6
Watts and Morrow [1991] 1 WLR 1421
7
Farley v Skinner [2001] UKHL 49
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1. “The concept of consumer surplus – peace and quiet were evidently important

to the claimant. It was not required to show that this was the sole object of the

contract.

2. Distress.”8

English courts can therefore be seen to be willing to accept consumer surplus as an

actionable loss, but only with caution and clarity that the consumer surplus was

important to the claimant. In these instances, the award for non-financial loss will be

small and the foreseeability of the loss will be difficult to prove. Because of how

tortious remedies work, they are said to be less generous that contractual remedies

– contracts work within a market and take into account loss looking forward, but

remedies in tort look backward at one’s initial position, for a sense of fairness, and

protects the status quo or “reliance interest” (how much one is out of pocket by a

defendant’s breach)9.

The next step is determine if the breach caused the loss by outlining and finding both

factual (using the “but for” test)10 and legal causation (requiring a breach to be the

direct cause of loss with no subsequent actions that break the chain of causation,

other than in the exceptions where an intervening act was reasonable etc.). Then,

determining whether the claimant contributed to the loss or not as stated in the Law

Reform (Contributory Negligence) Act 194511. Finally, one must consider any agreed

damages clauses (liquidated damages or penalty clauses) which pre-agree on

8
Farley v Skinner [2001] UKHL 49
9
D.W. Barnes, ‘The Net Expectation Interest in Contract Damages’ (1999) 49 Emory Law Journal
1137
10
Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
11
The Law Reform (Contributory Negligence) Act 1945
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appropriate damages should certain instances occur, and they provide certainty as

well as efficiency in contractual agreements.

Generally, the aims of compensatory damages and remedies as a whole is to relieve

the claimant, and not to punish the defendant, but the contract system operates in a

market and is based upon voluntarily assumed obligation whereas tort is based on

civil obligations created by law, and not the individuals or parties involved in the

situation. Therefore, oftentimes contractual damages are in a sense looking forward

and are intended to protect profit of a deal in an exchange. As mentioned before, tort

goes to protect a status quo and put the claimant in the position prior to the tort being

committed, as per Lord Blackburn in Livingston v Rawyards Coal Co. [1880]. 12

“That sum of money which will put the party who has been injured, or who has

suffered, in the same position as he would have been in if he had not

sustained the wrong for which he is now getting his compensation” 13

In reality, contractual remedies often end up entitling claimants to both gains

prevented and losses caused; this is summed up by expenses during the contract

that was not performed correctly and the difference between actual value and

expected value. It is not always so clear in tort. For the most part, the aims of

compensatory damages do inform the claimant of their remedy, but this is a much

clearer calculation in contract usually, because one can calculate the profit missed

and expenses. In tort, one could say that a value must be placed on restoring

fairness, and in general, putting the claimant in the position prior to the tort is

preferable, but there are exceptions and different calculations to determining liability,

such as the “Learned Hand test” per Judge Learned Hand in United States v Carroll
12
Livingston v Rawyards Coal Co. [1880] 5 App Cas 25
13
Livingston v Rawyards Coal Co. [1880] 5 App Cas 25
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Towing Co [1947]14, where liability is equal to Burden of Precautious Costs (B) <

Probability of Harm (P) x Injury Costs (I).

That is, Liability = B<PI (or PI>B).

This is not dissimilar to the legal test for determining breaches in negligence. Where

the defendant is made responsible for the costs they have caused, it may encourage

them to take further precautions to prevent those costs unless the costs of those

precautions outweigh the costs caused to the other party. There are also theories

such as; Calabresi’s market deterrence theory, imposing costs to encourage good

behaviours as an incentive15; Corrective Justice16; Aristotle’s Nichomachean Ethics17;

or even abolishing tort with a no-fault system.

Liability is very clear cut and obvious with regards to contracts; there is a breach in

the terms of a contract, and the amount of compensation can be calculated rather

easily. In tort, liability is not necessarily so obvious, and is up for debate – there is

the question of whether the claimant has had any involvement in the commission of

the tort before one even considers how much a claimant is entitled to – on a base

level, it is whatever the difference is between their current position and how they

were before the tort was committed.

Bibliography

14
United States v Carroll Towing Co [1947] 159 F 2d 169
15
Richard A. Posner, Guido Calabresi's 'The Costs of Accidents': A Reassessment, 64 Maryland Law
Review 12 (2005).
16
Martin H. Malin, The Distributive and Corrective Justice Concerns in the Debate over Employment
At-Will: Some Preliminary Thoughts, 68 Chi.-Kent L. Rev. 117 (1992).
17
Aristotle, Terence Irwin, Nicomachean Ethics
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Case Law:

Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518

Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428

Farley v Skinner [2001] UKHL 49

Livingston v Rawyards Coal Co. [1880] 5 App Cas 25

Robinson v Harman [1848] 1 Ex 850

United States v Carroll Towing Co [1947] 159 F 2d 169

Watts and Morrow [1991] 1 WLR 1421

Statute:

The Law Reform (Contributory Negligence) Act 1945

Books/Journals:

Aristotle, Terence Irwin, Nicomachean Ethics

Clare Connellan, Global Damages Review, November 2019

D.W. Barnes, The Net Expectation Interest in Contract Damages (1999) 49 Emory

Law Journal 1137

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Martin H. Malin, The Distributive and Corrective Justice Concerns in the Debate over

Employment At-Will: Some Preliminary Thoughts, 68 Chi.-Kent L. Rev. 117 (1992).

Pearce, D. and Halson, R. (2007) Damages for breach of contract: compensation,

restitution, and vindication. Oxford Journal of Legal Studies. ISSN 1464-3820 (In

Press

Richard A. Posner, Guido Calabresi's 'The Costs of Accidents': A Reassessment, 64

Maryland Law Review 12 (2005).

Simone Degeling, James Edelman and James Goudkamp (eds), Torts in

Commercial Law (Law Book Co 2011) 367-390