Remedies

1. Introduction

(1) Damages are generally compensatory, except for special circumstances, e.g. in Attorney-General v
Blake

(2) A net loss approach is adopted, i.e. the gains from the breach must be set off against his losses arsing
from the breach (after reasonable steps have been taken to mitigate losses); “balancing” or “setting off”
gains and losses (British Westinghouse Electric Co Ltd v Underground Electric Rys [1912] AC 673 (HL))

(3) Damages are hardly every a full recompense, since “it must be remembered that the rule s to
damages can in the nature of things only approximately just.” (Rodocanachi v Milburn (1886) 18 QBD 67;
cf. Wells v Wells [1999] 1 AC 345 (HL) where actuarial calculations were approved)

(4) General vs. Special damages

(5) Prospective losses

-- Damages for all prospective loss flowing from a single cause of action must be recovered once and for
all in one action

(6) Separate breaches?

(7) Continuing breach

-- With a continuing wrong, a fresh cause of action arises after recovery of damages in an earlier action;
the claimant can bring a second action.

“Where damages are to be assessed… in respect of any continuing cause of action, they shall be
assessed down to the time of the assessment.”

-- E.g. “a contract of service for a specified term might contain a stipulation that the employee should
not during the period of his service carry on or be concerned in any other business of the same kind as
the employer’s business. If the employee, in breach of such a stipulation, did proceed to carry out some
other business of the kind in question, the breach would, we think, clearly be a continuing one, in that
the employee would de die in diem be continuously in breach of the stipulation so long as the prohibited
business was carried on.” (National Coal Board v Galley [1958] 1 WLR 16 (CA))

(8) Difficulty of assessment

-- The claimant is still entitle to a claim in damages (Chaplin v Hicks [1911] 2 KB 786)

-- Where substantial loss is suffered but cannot be precisely quantified, damages will be assessed based
on the available evidence (Tai King Cotton Mill Ltd c Kamsing Knitting Factory [1979] AC 91)
-- If there is no market for the goods, the price at which they were re-sold may be taken as the best
evidence of their value

(9) Different methods of assessment for different contracts

Possible monetary remedies

(1) Liquidated damages

(2) Claims for an agreed sum

Jervis v Harris [1996] Ch 195 per Millett LJ:

“The law of contract draws a clear distinction between a claim for payment of the debt and a claim for
damages for breach of contract. … a debt is a definite sum of money fixed by the agreement of the
parties as payable by one party to the other in return for the performance of the specified obligation
by the other party or on the occurrence of some specified event or condition; whereas damages may
be claimed from a party who has broken his primary contractual obligation in some way other than by
failure to pay such a debt.”

Qualification

“The plaintiff who claims payment of a debt need not prove anything beyond the occurrence of the
event or condition on the occurrence of which the debt became due. He need prove no loss; the rules as
to remoteness of damage and mitigation of loss are irrelevant; and unless the event on which the
payment is due is a breach of some other contractual obligation owed by the one party to the other the
law on penalties do not apply to the agreed sum. It is no necessary that the amount of the debt should
be ascertained at the date of the contract; it is sufficient if it is ascertainable when payment is due.”

White & Carter v McGregor [1962] AC 413 (HL)

P entered into a contract with a garage owner for the advertisement of the D’s business (to appear on
litter bins) for 3 years. D sought to repudiate the contract. P chose to affirm the contract.

Lord Reid: “... it may well be that, if it can be shown that a person has no legitimate interest, financial
or otherwise, in performing the contract, rather than claiming damages, he ought not to be allowed
to saddle the other party with an additional burden with no benefit to himself.”

Lord Keith: “I find the argument advanced for the appellants a somewhat startling one. If it is right it
would seem that a man who has contracted to go to Hong Kong at his own expense and make a report,
in return for remuneration of £10,000, and who, before the date fixed for the start of the journey and
perhaps before he has incurred any expense, is informed by the other contracting party that he has
cancelled or repudiates the contract, is entitled to set off for Hong Kong and produce his report in order
to claim in debt the stipulated sum. Such a result is not, in my opinion, in accordance with principle or
authority, and cuts across the rule that where one party is in breach of contract, the other must take
steps to minimise the loss sustained by the breach.”
Ocean Marine Navigation Ltd v Koch Carbon Inc (The Dynamic) [2003] 2 Lloyd’s Rep 693 per Simon J:

“These cases establish the following exception to the general rule that the innocent party has an option
whether or not to accept a repudiation:

(i) The burden is on the contract-breaker to show that the innocent party has no legitimate
interest in performing the contract rather than claiming damages.

(ii) The burden is not discharged merely by showing that the benefit to the other party is small
in comparison to the loss to the contract-breaker

(iii) The exception to the general rule applies only in extreme cases: where damages would be
an adequate remedy and where an election to keep the contract above would be
unreasonable.”

Gator Shipping Corp v Trans-Asiatic Oil SA (The Odenfeld) [1978] 2 Lloyds Rep 357

Clea Shipping v Bulk Oil International [1984] 1 All ER 129

-- Does not require the cooperation of the wrongdoer (defendant)

Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233 (Building
contractors were unable to continue with performance of the contract because such performance
required access to the local authority’s property and would therefore require the local authority’s
cooperation)

(3) Nominal damages

-- When no actual damage is proved (Marzetti v Williams (1830) 1 B & Ad 415), e.g. when the breach did
not in fact case a loss, or the claimant failed to prove any loss flowing from the breach, or he failed to
prove the actual amount of his loss

(4) Damages

2. Compensable heads of loss

Comparing expectation, reliance and restitution

A buys a picture for £50,000 which B, a dealer, sells as the work of C, a famous painter.

A makes a good bargain: had the picture been genuine as B promised, it would have been worth at least
£70,000. In fact it is a forgery worth only £200.

A’s expectation: Expected value (£70,000) - value received (£200) = £69,800 A’s reliance: Amount paid
(£50,000) - the value received (£200) = £49,800 A’s restitution interest if he returns the picture, is aimed
at preventing B’s unjust enrichment at A’s expense. B should return A’s payment of £50,000.
If A had made a bad bargain because, say, the picture was in fact worth only £10,000 if genuine, then:

A’s expectation: Expected value (£10,000) - value received (£200) = £9,800 A’s reliance: Amount A paid
(£50,000) - value received (£200) = £49,800 A’s restitution interest if he returns the picture: the amount
A paid = £50,000

If B makes a profit by breaching the contract, say by lending it to an exhibitor for £5,000, A may now be
able to claim B’s profit from breach or damages for loss of hypothetical bargain permitting B’s breach,
even if it caused no loss to A.

(1) Restitution interest

(2) Reliance interest – expense or loss in reliance on the promised performance and which is wasted by
the breach; it represents the extent to which the victim is left worse off than before the contract was
made

(3) Expectation interest – the benefits expected to receive but now barred from them due to the breach

(4) In reality, these three categories may overlap; hence, damages may be looked at from different
perspectives

(5) The claimant has an unfettered choice as to which measure of damages to claim (Anglia Television v
Reed [1972] 1 QB 60)

(6) The claimant should be put in a better position than when the contract is performed

No alternative reliance interest protected in contract

Omak Maritime v Mamola Challenger Shipping (The Mamola Challenger) [2010] EWHC 2026 (Comm)

-- Teare J held that ‘reliance losses are a species of expectation losses and that they are
neither...“fundamentally different” nor awarded on a different “juridical basis of claim”’ (at [42])

McRae v Commonwealth Disposals Commission (1950) 84 CLR 377

C and P Haulage v Middleton [1983] 1 WLR 1461, CA

CCC Films (London) v Impact Quadrant Films Ltd [1985] QB 16

The courts do not allow a claimant to escape from a known bad bargain by claiming reliance damages
for breach of contract. However, the burden of proving a bad bargain is on the defendant. This can be
interpreted as merely shifting the burden of proof in relation to the protection of the expectation
interest: i.e. there is a presumption, rebuttable by the defendant, that the claimant would at least have
recouped its expenses had the contract been performed.

3. Measures of compensation
“Lost gross profits minus costs saved” (Burrows’ examples)

(a) A contracts to supply a machine to B for £1000. B is to use this machine to manufacture clay pots,
which he has contracted to sell to X

for £5000. B has paid A for the machine and in addition has spent a further £800 in part performance of
his contract with X. A breaks the contract by failing to supply the machine and hence B’s contract with X
is lost. B would have had to spend a further £1200 to complete performance of his contract with X.
Assuming B could not have got a machine elsewhere and that X does not sue B, assess B’s damages for
A’s breach.

(b) C, a house-owner, has contracted with D, a builder, for the building of an extension for £2000
payable on completion. It will cost D £800 for materials and £1000 on labour to complete the job. C
wrongfully repudiates when the job is three-quarters of the way through. Assess D’s damages
(assuming, simplistically, that D, at the time of the breach, had used three-quarters of the required
materials and labour and that D could not undertake other profitable work in the time left free).

(1) Damages for substitute performance (cost of cure or completion)

-- Sale of goods: damages will be assessed as the difference between the cost of the substitute purchase
and the price fixed in the original contract

-- Other cases: difference between the market value of the defective performance and that of the
complete one

-- Claimant is entitled to the reasonable cost of having the remedial work done if it was (or is)
reasonable for him to insist on having the work done

Tito v Waddell (No 2) [1977] Ch 106, 328–338

“Whatever the circumstances, if the plaintiff establishes that the contractual work has been, or will be
done, then in all normal circumstances it seems to me that he has shown that the cost of doing it is, or is
part of, his loss and is recoverable as damages.”

Radford v De Froberville [1977] 1 WLR 1262

“In the instant case, I am entirely satisfied that the plaintiff genuinely wants this work done and that he
intends to expend any damages awarded on carrying it out.”

Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 (HL)

Ruxley Electronics Ltd was meant to build a seven foot six inch deep pool, but it was built to only six
feet. It was found that the pool was safe for diving, and anyway Forsyth never intended to put in a diving
board. Also, Forsyth had no intention to use the damages to correct the pool. Moreover £21,560 was
unreasonable for a new pool. But Forsyth refused to pay any money given the defect. Ruxley Electronics
Ltd sued for breach of contract. Forsyth counterclaimed requesting damages to fix the pool as it should
have been.

It was held that it was unreasonable for the plaintiff to claim the cost of rebuilding the pool to the
contractual specification. (However, the House of Lords did approve the award of £2,500 as damages for
loss of amenity or loss of consumer surplus.)

-- Emphasised the role of reasonableness and held that where the cost of reinstatement was out of
proportion to the advantage to be gained by the plaintiff, it would be unreasonable for the plaintiff to
insist on it

Factors to be considered

1) The claimant’s purpose(s) in contracting (whether primarily economic, so that diminution in

value is sufficient, or beyond simply economic so that diminution of value will not fully
compensate the claimant);

2) Whether the claimant has cured or intends to cure the breach; and

3) The proportionality between the cost of cure, the contract price, the benefit already received by
the claimant, and the benefit he would receive from cure. This is related to the claimant’s duty
to mitigate loss.

A detailed account set out in Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC) per Ramsey J

(1) There will generally be an award of the cost of reinstatement provided that reinstatement is
reasonable: East Ham v Bernard Sunley at 434, 445; Ruxley at 358D, 360E, 367B.

(2) Reinstatement will be unreasonable if the cost of reinstatement would be out of all proportion to the
benefit to be obtained: Ruxley at 367B.

(3) The question of reasonableness has to be answered in relation to the particular contract: Ruxley at
358D.

(4) It is not necessary for recovery of the cost of reinstatement to show that the claimant will reinstate
the property but the intention to reinstate may be relevant to reasonableness: Ruxley at 359C to D and
372A to 373E.

(5) If reinstatement is unreasonable then the measure will generally be diminution in value: East Ham v
Bernard Sunley at 434, 445; Ruxley at 360E, 367B.

(6) Where reinstatement is unreasonable and there is no diminution in value, then the court may award
damages for loss of amenity: Ruxley at 354D, 360H, 374.

…
(2) Claimant’s original purpose fulfilled despite the breach

Sale of goods

-- Claimant entitled to the difference in value between what should have been delivered and what was
delivered, even though the intended purpose has been carried out without any loss

Attorney-General v Blake per Lord Nicholls:

“If a shop keeper supplies inferior and cheaper goods than those ordered and paid for, he has to refund
the difference in price. That would be the outcome of a claim for damages for breach of contract. That
would be so irrespective of whether the goods in fact served the intended purpose.”

Services

-- Where the supplied services were defective or deficient, but the breach does not appear to have
caused the claimant any loss, damages should be nominal

City of New Orleans v Firemen’s Charitable Association 9 So 486 (1891)

D undertook to keep available specified numbers of men and lengths of hosepipe, and were paid
accordingly. Proper numbers not kept. City could not show loss suffered due to fires not being put out.

Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB)

It has been held that if the services provided are incomplete or of less than the contracted quality, the
buyer is prima facie entitled to the difference in value between the service promised and the service
delivered, whether or not he has suffered any further loss and whether or not he has obtained
substitute services from another supplier.

4. Time for assessment of damages

(1) The starting principle is that damages are assessed by reference to the time of breach.

 The principle is based on the assumptions that:

o The innocent party knows of the breach as soon as it is committed

o He can mitigate the loss at the time of the breach

(2) Johnson v Agnew [1980] AC 367

Agreement to buy property. Buyer failed to complete the transaction on the selected day. Seller sought
a specific performance. Order was only drawn up 5 months later, and specific performance was no
longer available.
Lord Wilberforce: “… this is not an absolute rule: if to follow it would give rise to injustice, the court has
power to fix such other date as may be appropriate in the circumstances.”

Some factors to be considered:

(A) Time of discovery of breach – assessed by reference to the time when the party could have made the
discovery

E.g. Sale of goods: although the seller breached the contract when “appropriating” the sub-standard
goods, damages would be assessed at the time when the buyer opened the package (Van den Hurk v R
Martens & Co Ltd [1920] 1 KB 850)

(B) Impossibility of acting on knowledge of breach

E.g. Lack the means to buy a substitute on a rising market

Wroth v Tyler [1974] Ch 30 (D contracted to sell the house for L6000. Wrongfully repudiated the
contract. Specific performance not ordered. Damages in lieu. Valuation of the house at the time of
judgment but not of breach, as P did not have money to purchase a substitute in the market.)

(C) Reasonableness of acting on knowledge of breach

The wrongdoer may be able to make good his default  damages assessed when such a probability
ceases to exist (Radford v De Froberville [1977] 1 WLR 1262)

Per Lord Wilberforce in Johnson v Agnew: “In cases where a breach of a contract for sale has occurred,
and the innocent party reasonably continues to try to have the contract completed, it would to me
appear more logical and just rather than tie him to the date of the original breach, to assess damages as
at the date when (otherwise than by his default) the contract is lost.”

Damages for anticipatory breach

(1) If the breach is not accepted, then damages will be assessed at the time when the contract ought to
have been performed and not when the contract was repudiated.

(2) If the breach is accepted, the date of acceptance if the repudiation which terminates the contract
and constitutes the date for assessment of damages.

The Mihalis Angelos [1971] 1 QB 164

Megan LJ: damages should be assessed as at the date of acceptance of the breach and that they may
reduced if the relevant events were inevitable or pre-destined to happen.

 Assess, as at that date, the likelihood that certain events might have happened in the future and the
effect on the injured party

 What about the events that would not have been anticipated at the date of the acceptance of the
breach?

Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353 (HL)

Owners accepted charterer’s repudiation in 2001, when the charterer was not due to end until 2005.
Prior to the award of the arbitrator, the Gulf War broke out. Charterers argued that damages should not
be awarded for the period beyond the outbreak of the war, as it would have relied on the War Clause.

1) HL ruled in favour of the charterers

2) Bwllfa principle: take into account of subsequent events happened after the breach – made no
sense for the courts to confine themselves to what was a matter of guess or estimate if it is now
known; plaintiff should be compensated for the actual loss but not better off

3) Subsequent events known to the court diminished the value of the owners’ contractual rights

4) Note that the claimant’s failure to perform would no longer be a breach when the breach by the
defendant was accepted and the contract was repudiated

5. Causation and contributory negligence

-- The loss must have been caused by the breach itself, since “damages for breach of contract may…
[not] be awarded… for loss caused by the manner of the breach” (Malik v Bank of Credit and Commerce
International SA [1998] AC 20 per Lord Steyn)

Galoo v Bright Grahame Murray [1994] 1 WLR 1360, Glidewell LJ, 1374-5:

“How does the court decide whether the breach of duty was the cause of the loss or merely the
occasion for the loss?...The answer in the end is ‘By the application of the court’s common sense.’”

Intervening act of third party

(1) Will normally break the chain of causation

(2) Any duty of care to prevent third party’s act?

(3) There may be a break in the chain of causation where the claimant, following the defendant’s breach
of contract, has suffered loss through his own voluntary act or omission.

Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370 (CA) (D could have foreseen their failure to supply P
with adequate equipment might result in accident if unsuitable equipment used. P was actually injured.)

1) Voluntary choice of P following the breach of contract which caused the accident

2) The breach did not cause the accident but merely gave the chance for P to injure himself by his
choice to use unsuitable equipment
Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm)

“[T]he more the claimant has actual knowledge of the breach, of the dangerousness of the situation
which has thus arisen and of the need to take appropriate remedial measures, the greater the likelihood
that the chain of causation will be broken.”

“[U]ltimately, the question of whether there has been a break in the chain of causation is fact sensitive…
‘it is almost impossible to generalise’”.

Intervening events

-- An intervening event which could reasonably be expected will not excuse the defendant for loss
caused by the combined operation of the defendant’s breach and the intervening event

Monarch SS CO Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 (HL)

D’s ship was chartered to carry a cargo from Manchuria to Sweden. Ship should have reached Sweden in
July but D failed to provide a seaworthy ship and delayed till September. War had broken out, and the
vessel was ordered to unload at Glasgow. P incurred expenses in forwarding the cargo to Sweden in
neutral ships. Reasonable business men, knowing of the possibility of war, would have foreseen that a
delay might lead to the risk that the vessel would be diverted.

Two causes

-- As long as the breach is one of the effective causes of the loss, then the defendant would be
responsible for compensation

-- “If a breach of contract is one of the two causes, both cooperating and both of equal efficacy,… it is
sufficient to carry a judgment for damages.” (per Devlin J in Heskell v Continental Express Ltd [1950] 1 All
ER 1033

Claimant’s lost opportunities (hypothetical consequences)

-- Hypothetical action of the claimant: claimant must prove that, on the balance of probabilities, he
would have acted in a certain way

-- The more the contingencies, the lower the value of the chance or opportunity of which the plaintiff
was deprived

Chaplin v Hicks [1911] 2 KB 786 (CA)

D, by a breach of contract in conducting a contest, deprived P, one of the 50 finalists, of the opportunity
to compete for one of the 12 prizes.

Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602

Contributory negligence

-- Where the plaintiff’s negligence is only a contributing factor to the loss, then the damages to be paid
by the defendant will be proportionately reduced

-- International Trading Co Ltd v Lai Kam Man [2004] 2 HKLRD 937 suggested that contractual damages
will not be reduced on account of the plaintiff’s own contributory negligence; approved Astley v
Austrust Ltd (1999) 197 CLR 1 (HCA)

-- For industrial accidents, where an employee’s own negligence contributes to his injury at work, the
damages may be reduced to take into account he extent to which he contributed to his own injury

Law Amendment and Reform (Consolidation) Ordinance (LARCO)

“s.2(1) Where any person suffers damage as the result partly of his own fault and partly of the fault of
any other person ... the damages recoverable in respect thereof shall be reduced to such extent as the
court thinks just and equitable having regard to the claimant’s share in the responsibility for the
damage.

s.21(10) ‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to a
liability in tort or would, apart from this Act, give rise to the defence of contributory negligence.”

Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852 (CA); affd on a different point [1989] AC 880, HL

1) Category three: where the defendant has been in breach of a contractual duty of care and is also
liable in the tort of negligence. UBC Bank plc v Hepherd, Winstanley & Pugh [1999] Lloyd’s Rep
PN 963

2) Category two: where the defendant has been in breach of a contractual duty of care (no duty of
care in tort) Raflatac Ltd v Eade [1999] 1 Lloyd’s Rep 506

3) Category one: where the defendant has been in breach of a strict contractual duty (negligence
irrelevant); Barclays Bank Ltd v Fairclough Building Ltd [1994] 3 WLR 1057

6. Mitigation

-- Efficient breach?

(1) Claimant cannot recover damages for any part of his loss consequent upon the defendant’s breach of
contract that the claimant could have avoided by taking reasonable steps

-- Not a duty to mitigate, but a restriction on the damages recoverable

British Westinghouse Electric v Underground Electric Rys [1912] AC 673, Viscount Haldane LC, at p 689:
“...there are certain broad principles which are quite well settled. The first is that, as far as possible, he
who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as
money can do it, in as good a situation as if the contract had been performed...but this first principle is
qualified by a second which imposes on a plaintiff the duty of taking all reasonable steps to mitigate
the loss consequent on a breach, and debars him from claiming any part of the damage which is due
to his neglect to take such steps.”

“… this second principle does not impose on the plaintiff an obligation to take any steps which a
reasonable and prudent man would not ordinarily take in the course of his business.”

-- Plaintiff not fulfilling the duty to mitigate if he unreasonably refuses to accept the offer from the
defendant to mitigate the loss

Yetton v Eastwood Froy [1967] 1 WLR 104 (Employee being wrongfully repudiated need not accept an
offer of re-employment involving a reduction in status)

Cf. Brace v Calder [1895] 2 QB 253 (Where there was no personal humiliation during the wrongful
dismissal, the offer of re-employment should have been accepted)

Payzu Ltd v Saunders [1919] 2 KB 581

Seller in breach: declined to deliver goods on the agreed credit terms but offered to do so on terms of
‘‘cash on delivery’’. Buyer refused and claimed as damages the difference between the contract price
and the higher market price on the date for delivery. Refusal was unreasonable and resulted in a
reduction in the damages.

“It is plain that the question what is reasonable for a person to do in mitigation of his damages cannot
be a question of law but must be one of fact in the circumstances of each particular case.”

Banco de Portugal v Waterlow [1932] AC 452 (D contracted to print banknotes for a bank. D delivered a
large number to a criminal who put them into circulation. Bank withdrew the issue and exchanged all
the notes in question for others. Whether D liable to costs other than printing the notes?)

“The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to
him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to
recover the cost of such measures merely because the party in breach can suggest that other
measures less burdensome to him might have been taken.”

(2) If the claimant in fact avoids or mitigates his loss consequent upon the defendant’s breach, he
cannot recover for such avoided loss, even though the steps he took were more than could be
reasonably required of him

-- While the defendant breached the contract by not accepting the goods, and the claimant has found a
third person who will take the goods, claimant entitled to recover loss of profit if the supply of goods
exceeds the demand; only nominal damages for excess demand (Charter v Sullivan [1957] 2 QB 117)
Gains from mitigation

-- British Westinghouse Electric Co Ltd v Underground Electric Rys: buyers replaced the defective turbines
supplied with a newer design of much greater efficiency, and the saving to them was taken into account

Whether the benefit is “collateral” or “a direct result of the breach”

Laverack v Woods of Colchester [1967] 1 QB 278

Claimant was wrongfully dismissed. (1) Took employment in X Co at lower salary. (2) Acquired half the
shares in X Co. (3) Invested in shares in Y Co.

(1) and (2) were taken into account; while (3) was not.

(3) Where the claimant incurs loss or expense in the course of taking reasonable steps to mitigate the
loss resulting from the defendant’s breach, the claimant may recover this further loss or expense from
the defendant

7. Remoteness

-- A test to determine the extent of responsibility that the promisor has undertaken

(1) Hadley v Baxendale (1854) 9 Ex 341

-- P’s mill could not function due to the damage of their crankshaft. D carriers failed to deliver the shaft
to the manufacturer on time. P sued for profits would have been made had the mill been functioning
again. Claim rejected.

-- Facts known to the defendant were insufficient to “… show reasonably that the profits of the mill must
be stopped by an unreasonable delay in the delivery of the broken shaft by the carriers to the third
person.” [A spare shaft would usually be available]

Two-limb test

Alderson B: “Where two parties have made a contract which one of them has broken, the damages
which the other party ought to receive in respect of such breach of contract should be such as may fairly
and reasonably be considered [1] either as arising naturally, i.e. according to the usual course of
things, from such breach of contract itself, [2] or such as may reasonably be supposed to have been in
the contemplation of both parties, at the time they made the contract, as the probable result of the
breach of it. Now, if the special circumstances under which the contract was actually made were
communicated by the plaintiffs to the defendants, and thus known to both parties, the damages
resulting from the breach of such a contract, which they would reasonably contemplate, would be the
amount of injury which would ordinarily follow from a breach of contract under these special
circumstances so known and communicated. On the other hand, if these special circumstances were
wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had
in his contemplation the amount of injury which would arise generally, and in the great multitude of
cases not affected by any special circumstances, from such a breach of contract.”

Basically, a type or kind of loss is not too remote if at the time of contracting, it was within their
reasonable contemplation as a “not unlikely” result of that breach.

(2) Victoria Laundry (Windsor) Ltd v Newman Industries [1949] 2 KB 528

P agreed to buy a large boiler from D which would be delivered on a fixed date. P sued for damages for
delay in delivery and claimed loss of profits for (1) large number of new customers could have taken and
(2) amount could have earned under special dyeing contracts with the government.

D knew P were launderers and that the boiler was intended for immediate use.

 Reasonably foreseeable for the loss of profits, but not under the special contracts with the
government (not within actual knowledge of D)

The three main propositions:

1) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss
actually resulting as was at the time of the contract reasonably foreseeable as liable to result
from the breach…

2) What was at that time reasonably so foreseeable depends on the knowledge then possessed by
the parties or, at all events, by the party who later commits the breach…

3) For this purpose, knowledge ‘possessed’ is of two kinds; one imputed, the other actual.
Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and
consequently what loss is liable to result from a breach of contract in that ordinary course… But
to this knowledge, which a contract-breaker is assumed to possess whether he actually
possesses it or not, there may have to be added in a particular case knowledge which he actually
possesses, of special circumstances outside the ‘ordinary course of things,’ of such a kind that
breach in those special circumstances would be liable to cause more loss.’’

(3) Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350

Lord Reid: “The crucial question is whether, on the information available to the defendant when the
contract was made, he should, or the reasonable man in his position would, have realised that such loss
was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed
naturally from the breach or that loss of that kind should have been within his contemplation.”

-- There is no need for the breach to be within the contemplation

-- If the parties ought to have contemplated a particular head of loss (“head of damage”), they need no
have contemplated the extent of that loss.
Degree of probability

1) Lord Reid: “… the words ‘not unlikely’ as denoting a degree of probability considerably less than
an even chance but nevertheless not very unusual and easily foreseeable.”

2) “… I would take exception to the phrase ‘liable to result’. … Liable is a very vague word but I
think that one would usually say that when a person foresees a very improbable result he
foresees that it is liable to happen.”

3) Their lordships unanimously disapproved the phrase “on the cards”

4) Therefore, it is not sufficient for the loss to be “reasonably foreseeable” but a high degree of
probability than the test for remoteness in tort

5) Lord Reid: “The modern rule in tort is quite different and it imposes a much wider liability. The
defendant will be liable for any type of damage which is reasonably foreseeable as liable to
happen even in the most unusual case, unless the risk is so small that a reasonable man would in
the whole circumstances feel justified in neglecting it; and there is good reason for the
difference. In contract, if one party wishes to protect himself against a risk which to the other
party would appear unusual, he can direct the other party’s attention to it before the contract is
made, and I need not stop to consider in what circumstances the other party will then be held to
have accepted responsibility in that event.”

(4) Monarch SS Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196

The test for imputed knowledge

Lord Wright: “… what reasonable business men must be taken to have contemplated as the natural and
probable result if the contract was broken. As reasonable business men, each must be taken to
understand the ordinary practices and exigencies of the other’s trade or business.”

(5) Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61

Time-charterer due to redeliver the ship and gave notice that they would redeliver by May 2. Owners
fixed the vessel for another hire. Latest delivery was May 8. Not redelivered until May 11. New
charterers agreed to accept the ship only at reduced rate of hire. Owner claimed damages from the
prior charterer the difference between the original and reduced rate for the entire period of the new
charter.

Charterers: liable only for the difference between the market rate and the rate under the first charter
for the nine days?

Orthodox approach

Lord Rodger: “… neither party would reasonably have contemplated that an overrun of nine days would
‘in the ordinary course of dealings’ cause the owners the kind of loss for which they claim damages. That
loss was not the ‘ordinary consequence’ of a breach of that kind. It occurred in this case only because of
the extremely volatile market conditions… this loss could not have been reasonably foreseen as being
likely to arise out of the delay in question. It was, accordingly, too remote to give rise to a claim for
damages for breach of contract.”

(1) Volatile market after the contract was made; (2) charterers had no knowledge of the subsequent
charter

Assumption of responsibility

Lord Hope: “Assumption of responsibility, which forms the basis of the law of remoteness of damage in
contract, is determined by more than what at the time of the contract was reasonably foreseeable.”

Lord Hoffmann:

”… one must first decide whether the loss of which compensation is sought is of a ‘kind’ or ‘type’ for
which the contract breaker ought fairly to be taken to have accepted responsibility.” [The question in
the South Australia case was the “scope of the duty”.]

“If… one considers what these parties, contracting against the background of market expectations found
by the arbitrators, would reasonably have considered the extent of the liability they were undertaking, I
think it is clear that they would have considered losses arising from the loss of the following [charter] a
type or kind of loss for which the charterer was not assuming responsibility. Such a risk would be
completely unquantifiable, because although the parties would regard it as likely that the owners
would at some time during the currency of the charter enter into a [subsequent charter], they would
have no idea when that would be done or what its length or other terms would be.”

“It is true that the question of whether the damage was foreseeable is a question of fact… But the
question of whether a given type of loss is one for which a party assumed contractual responsibility
involves the interpretation of the contract as a whole against its commercial background, and this, like
all questions of interpretation, is a question of law.”

 What circumstances will the defendant be held not to have an assumed responsibility although the
loss was not unlikely or if the likelihood had been drawn to the attention of him?

Lord Hoffmann – factors to be considered (at least in The Achilleas):

1) The amount of loss, determined by the terms and length of the following fixture, was out of the
control of the charterers [Out of control]

2) Loss was completely unpredictable [Contemplation]

3) Custom in the shipping market that liability only restricted to the difference between the market
rate and the charter rate for the overrun period [Trade custom]

Lord Hope suggested that the fact that the loss is hardly quantifiable will make it hard for the party to
price the risk adequately and therefore assume responsibility for it.

This approach is likely to be applied in exceptional circumstances:

Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542 (Comm)

“This is most likely to be in those relatively rare cases where the application of the general test leads
or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where
there is clear evidence that such a liability would be contrary to market understanding and
expectations.”

Supershield Ltd v Siemens Building Technologies FE Ltd [2010] EWCA Civ 7

“Hadley v Baxendale remains a standard rule but… there may be cases where the court, on examining
the contract and the commercial background, decides that the standard approach would not reflect the
expectation or intention reasonably to be imputed to the parties.”

Cf. South Australia Asset Management Corp v York Montague Ltd [1997] AC 191

Chen v Lord Energy Ltd (2002) 5 HKCFAR 297

H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 All ER 525

Brown v KMR Services Ltd [1995] 4 All ER 598

Jackson v Royal Bank of Scotland [2005] UKHL 3, [2005] 1 WLR 377

Chiu Chit v Bank of China (Hong Kong) Ltd [2010] HKDC 15.

Mega Yield International Holdings Ltd v Fonfair Co Ltd [2013] HKCFI 316

8. Restrictions on recovery of damages (non-pecuniary losses)

(1) General principle

Addis v Gramaphone Co Ltd [1909] AC 488 (HL)

Company wrongfully dismissed its manager in a way that was “harsh and humiliating”. No compensation
for injury to feelings.

Approved by Johnson v Gore Wood & Co [2002] 2 AC 1 (Breach of a contract is an “incident of

commercial life which players in the game are expected to meet with mental fortitude”)

(2) Claims for wrongful or unfair dismissal

Johnson v Unisys Ltd [2003] 1 AC 518

Employee who had recovered the maximum amount available under the legislation sought to recover
further damages for the manner of his dismissal constituted a separate breach of contract, which led to
mental breakdown and consequent loss of earnings. Claim was rejected.

(3) Mental distress that results directly from physical inconvenience

Watts v Morrow [1991] 1 WLR 1421

D omitted certain defect from the survey report upon which P relied in purchasing a house. Damages
awarded for the physical inconvenience and directly related mental distress of living in the house while
it was being repaired.

Bingham LJ: “A contract-breaker is not in general liable for any distress, frustration, anxiety,
displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent
party. This rule is not, I think, founded on the assumption that such reactions are not foreseeable, which
they surely are or may be, but on considerations of policy. But the rule is not absolute. Where the very
object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation,
damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured
instead. If the law did not cater for this exceptional category of case it would be defective. A contract to
survey the condition of a house for a prospective purchaser does not, however, fall within this
exceptional category. In cases not falling within this exceptional category, damages are in my view
recoverable for physical inconvenience and discomfort caused by the breach and mental suffering
directly related to that inconvenience and discomfort.”

(4) Loss of enjoyment or amenity

(A) Jarvis v Swans Tours [1973] QB 233 (CA)

P booked a winter holiday after D promised that it would be like a “house party”, with special
entertainment and proper facilities for skiing. Inadequate skiing facilities. Entertainment was nothing
special. P was alone by himself in the second week.

-- CA held that P was entitled to recover both cost of the holiday and general damages for
disappointment suffered and the loss of entertainment promised

-- Lord Denning MR: not only contracted for the facilities but also for the enjoyment

(B) Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468

D contracted with P to provide holiday accommodation for him, his wife and children. Accommodation
fell short of the promised demand. Claimed for damages. 500 L awarded for “mental distress”.

-- Cf. privity

(C) Diesen v Samson [1971] SLT 49

P claimed damages for D’s breach to take wedding photographs.

(D) Heywood v Wellers [1976] QB 446

P engaged in services of a solicitor for the express purpose of obtaining a non-molestation injunction
against her former male friend. Negligent solicitor so no injunction obtained.

-- Awarded damages for distress for solicitor’s failure to ensure P’s freedom from molestation; against
the express purpose of the contract

(E) Hamilton Jones v David and Snape [2004] 1 WLR 924 (Solicitors negligently failed to obtain custody of
the claimant’s children)

(F) Ruxley Electronics Ltd v Forsyth [1999] AC 344

Ruxley Electronics Ltd was meant to build a seven foot six inch deep pool, but it was built to only six
feet. It was found that the pool was safe for diving, and anyway Forsyth never intended to put in a diving
board. Also, Forsyth had no intention to use the damages to correct the pool. Moreover £21,560 was
unreasonable for a new pool. But Forsyth refused to pay any money given the defect. Ruxley Electronics
Ltd sued for breach of contract. Forsyth counterclaimed requesting damages to fix the pool as it should
have been.

It was held that it was unreasonable for the plaintiff to claim the cost of rebuilding the pool to the
contractual specification. (However, the House of Lords did approve the award of £2,500 as damages for
loss of amenity or loss of consumer surplus.)

-- Cf. cost of cure and loss of amenity

(G) Farley v Skinner (No 2) [2002] 2 AC 732 (HL)

Negligent property survey close to the airport. P specified D to check whether the house would be
affected by aircraft noise. D said no. In reliance of D’s affirmation, P bought and refurbished the house.
House was for retirement. Noise was in fact a problem. Claimed for damages.

1) No difference in value between the price paid and the market value – no damages for that

2) The main object of the object was to provide “pleasure, relaxation and peace of mind”

3) Physical inconvenience to put up with the unexpected level of noise

Lord Scott: “If the cause is no more than disappointment that the contractual obligation has been
broken, damages are not recoverable even if the disappointment has led to a complete mental
breakdown. But, if the cause of the inconvenience or discomfort is a sensory (sigh, touch, hearing, smell,
etc.) experience, samages can subject to the remoteness rules, be recovered.”

-- Damages only awarded for breach that leads to physical consequences and inconvenience and the
distress then follows from those physical consequences.
Loss of reputation

Centaline Property Agency Ltd v Lai Yuk Chun [2002] HKCA 265

Liu Hong Keung v Liu Ching Leung [2006] HKCFI 232

(5) Loss of reputation

Addis v Gramophone Co [1909] AC 488: no damages for loss of reputation itself

Malik v Bank of Credit and Commerce International [1998] AC 20

Employer in breach of an implied term not conduct business in a dishonest and corrupt manner. It was
reasonably foreseeable that such a breach would prejudice the future employment prospects of its
employees. Sought for stigma damages to compensate for financial loss caused from difficulty in re-
employment.

HL: employees failed to prove that the stigma was the cause of rejection of any job applications, or that
future applications had a real chance of success to justify damages, or that the stigma was the cause of
the loss.

-- Not restricted to cases of employment but also other circumstances where the damage on reputation
caused financial loss: creditworthiness, business reputation was tainted because of defective goods from
wholesalers (Cointat v Myham & Son [1913] 2 KB 220), loss of goodwill of the travel agent when
shipowner breaches the contract to supply accommodation to passengers on a pleasure cruise (Anglo-
Continental Holidays Ltd v Typaldos (London) Ltd [1967] 2 Lloyd’s Rep 61).

Aerial Advertising v Batchelors Peas [1938] 2 All ER 788

5 factors suggested by Professor Mindy Chen-Wishart in recovering non-compensatory losses:

1) Non-commercial claimant

2) Remoteness and foreseeability

3) Important and distinct object of the contract known by the defendant

4) Kept modest

5) Other measures do not yield damages?

9. Interest
10. Measures that are not strictly compensatory

(1) Exemplary (or punitive) damages

-- Previously awarded for the breach of promise of marriage, but was abolished already

-- May only be awarded if the breach also amounts to a tort, which qualifies for exemplary damages, e.g.
for trespass when landlord wrongfully evicted his tenant

Addis v Gramophone Co Ltd [1909] AC 488 (Exemplary damages could not be awarded for wrongful
dismissal, e.g. the plaintiff’s injured feelings even where the dismissal was carried out in a humiliating
manner)

Rookes v Barnard [1964] AC 1129

Cf. The Supreme Court of Canada allowed exemplary damages for breach of contract in exceptional
circumstances

Whiten v Pilot Insurance Co [2002] SCC 18 per Justice Binnie

“(1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has
been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked
degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages
should be assessed in an amount reasonably proportionate to such factors as the harm caused, the
degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by
the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the
misconduct in question. (5) Punitive damages are generally given only where the misconduct would
otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the
objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the
plaintiff, but (7) to give a defendant his or her just desert (retribution), to deter the defendant and
others from similar misconduct in the future (deterrence), and to mark the community’s collective
condemnation (denunciation) of what has happened. (8) Punitive damages are awarded only where
compensatory damages, which to some extent are punitive, are insufficient to accomplish these
objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish
their purpose. (10) While normally the state would be the recipient of any fine or penalty for
misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory
damages. (11) Judges and juries in our system have usually found that moderate awards of punitive
damages, which inevitably carry a stigma in the broader community, are generally sufficient.”

Kuddus v Chief Constable of Leicestershire Constabulary [2002] 2 AC 122

Lord Nicholls and Lord Scott had said that the growth of remedies for unjust enrichment mean that the
defendant’s profit may be removed without an award of exemplary damages. Lord Scott referred to AG
v Blake.
(2) Depriving part of the profit

-- Only awarded when damages, injunction, and specific performance are inadequate to compensate

-- Before the Blake case, account of profits were only awarded where

1) The claimant had a remedy in restitution or could enforce a fiduciary obligation

E.g. to deprive an agent of a bribe or secret profit or an employee of profits arising from misuse
of confidential infromation

2) He had a remedy in tort or had an interest in property used by the defendant without
permission (invasion of property interest)

Wrotham Park Estate Co v Parkside Homes [1974] 1 WLR 798: D built on his land in defiance of a
restrictive covenant; damages were assessed at the price which P could reasonably have
expected to receive from a negotiated partial release from the covenant – this price could be a
proportion of the profits expected to be made by the defendant

Attorney-General v Blake [2001] 1 AC 268

“In a suitable case damages for breach of contract may be measured by the benefit gained by the
wrong-doer form the breach. The defendant must make a reasonable payment in respect of the benefit
he has gained.”

“Hypothetical bargain” damages in Wrotham Park

-- Such damages were explained in Experience Hendrix LLC v PPX Enterprises Inc and Edward Chaplin
([2003] EWCA Civ 323) on a restitutionary basis

-- However, in WWF-World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2007]
EWCA Civ 286, it was said to be a form of compensatory damages.

Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45 (A breach of confidence)

Lord Walker on Wrotham Park damages:

‘‘… establish the following general principles…: [citations omitted]

(1) Damages (often termed ‘user damage’) are readily awarded at common law for the invasion of rights
to tangible moveable or immoveable property (by detinue, conversion or trespass):…

(2) Damages are also available on a similar basis for patent infringement and breaches of other
intellectual property rights of a proprietary character:…
(3) Damages under Lord Cairns’s Act are intended to provide compensation for the court’s decision not
to grant equitable relief in the form of an order for specific performance or an injunction in cases where
the court has jurisdiction to entertain an application for such relief:… The breach of a restrictive
covenant is also generally regarded as the invasion of a property right… since a restrictive covenant is
akin to a negative easement. (It is therefore a little surprising that Lord Nicholls in Blake… referred to
Wrotham Park as a ‘solitary beacon’ concerned with breach of contract; that case was concerned with
the breach of a restrictive covenant to which neither the plaintiff nor the defendant was a party; but the
decision of the House of Lords in Blake decisively covers what their Lordships have referred to as a non-
proprietary breach of contract.)

(4) Damages under this head… represent ‘such a sum of money as might reasonably have been
demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of
the breach of covenant or other invasion of right]’…

(5) Although damages under Lord Cairns’s Act are awarded in lieu of an injunction it is not necessary
that an injunction should actually have been claimed in the proceedings, or that there should have been
any prospect, on the facts, of it being granted:…’’

Experience Hendrix LLC v PPX Enterprises Inc and Edward Chaplin [2003] EWCA Civ 323 per Peter Gibson
LJ (repeated breach of a settlement agreement relating to the use of licensed material):

“In my judgement, because (1) there has been a deliberate breach by PPX of its contractual obligations
for its own reward, (2) the claimant would have difficulty in establishing financial loss therefrom, and
(3) the claimant has a legitimate interest in preventing PPX’s profit-making activity carried out in breach
of PPX’s contractual obligations, the present case is a suitable one (as envisaged by Lord Nicholls) in
which damages for breach of contract may be measured by the benefits gained by the wrongdoer from
the breach. To avoid injustice I would require PPX to make a reasonable payment in respect of the
benefit it has gained.”

Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 per Sales J

Factors to be taken into account in assessing the hypothetical bargain damages:

“(i) the likely parameters given by ordinary commercial considerations bearing on each of the parties…
(ii) any additional factors particularly affecting the just balance to be struck between the competing
interests of the parties…; and (iii) the court’s overriding obligation to ensure that an award of damages
for breach of contract—which falls to be assessed in light of events which have now moved beyond the
time the breach of contract occurred and which may have worked themselves out in a way which affects
the balance of justice between the parties—does not provide relief out of proportion to the real extent
of the claimant’s interest in proper performance judged on an objective basis by reference to the
situation which presents itself to the court”.

(3) Account of profits – total disgorgement by account of profits

Attorney-General v Blake [2001] 1 AC 268 (Traitor had written and published a book in breach of the
confidentiality agreement made by him when he entered the Secret Intelligence Service; criminal
offence; repeated breaches)

Lord Nicholls: “Normally the remedies of damages, specific performance and injunction, coupled with
the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a
breach of contract. It will be only in exceptional cases, where those remedies are inadequate, that any
question of accounting for profits will arise. No fixed rules can be prescribed. The court will have regard
to all the circumstances, including the subject matter of the contract, the purpose of the contractual
provision which has been breached, the circumstances in which the breach occurred, the conse-
quences of the breach and the circumstances in which relief is being sought. A useful general guide,
although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant’s
profit-making activity and, hence, in depriving him of his profit.

It would be difficult, and unwise, to attempt to be more specific…”

Some factors to be considered:

(a) The moral character of the defendant’s conduct in breaching, e.g. was it “deliberate and cynical”; did
it involve “doing exactly what one promised not to do”?

In Blake, Lord Nicholls said that none of the following facts ‘‘would be, by itself, a good reason for
ordering an account of profits’’  cumulative effect?:

“… the fact that the breach was cynical and deliberate; the fact that the breach enabled the defendant
to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more
profitable contract the defendant put it out of his power to perform his contract with the plaintiff.’’

1) In Hendrix an account of profits was not awarded on the particular facts but it was recognised
that such a remedy was possible in a commercial case

2) In granting hypothetical bargain damages, the Court of Appeal took into account the fact that

a. the defendant ‘‘did do the very thing it had contracted not to do’’;

b. that the defendant ‘‘knew that it was doing something which it had contracted not to
do’’;

c. that it was a ‘‘deliberate breach’’, a ‘‘flagrant contravention’’ of the defendant’s

obligation.

(b) The question whether the claimant “had a legitimate interest in preventing the defendant’s profit-
making activity”

In Blake, the Crown’s interest in protecting the Secret Service’s information met this test but in
Experience Hendrix, a case between commercial parties, such a legitimate interest was found because
on orthodox rules the claimant would be confined to nominal damages—the claimant could not
adequately prove any loss, or could prove only minor loss.

The qualification of legitimate interest is high – usually involving the infringement of property
(intellectual property) right or rights arising under fiduciary relationships

(c) The analogy with fiduciary obligations

Before the Blake decision it was clear that an account of profits could be awarded for breach of a
fiduciary obligation: although Blake was not a fiduciary, their Lordships said that his obligation was
‘‘closely akin to a fiduciary obligation’’.

In effect, Blake extended the previous category of fiduciaries by creating a quasi-fiduciary out of a
contractual obligation. In Experience Hendrix it was said that an account of profits was not justified on
the facts because the defendant’s situation was not analogous with a fiduciary’s duty: ‘‘there is no direct
analogy between [the defendant’s] position and that of a fiduciary’’.

Lee On Management Ltd v Po Hing Laundry Ltd [1988] HKCFI 81

Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45

1) The moral character of D’s breach- cynical, deliberate

2) The ordinary contract remedies are ‘inadequate’

3) C has ‘a legitimate interest in preventing D’s profit-making activity and, hence, in depriving him
of his profit

4) Each party’s reasonable use of their respective bargaining positions, at the time of negotiations
(ie. the date of breach)

5) C’s loss and D’s gain. Is it just and equitable that D should retain no benefit from his breach?

6) Whether C delayed in making its claim.

7) Must be necessary to meet the demand as of ‘practical justice’ in ‘exceptional circumstances’.

11. Specific performance

-- Will not be ordered when there is a defective contract or when there is no contract at all

-- Specific performance as in an equitable remedy which compels a person to actually perform his
contractual obligation

Claimant-sided considerations:
 (1) Ready, willing and able to perform own (2) Adequacy of damages
obligations

(3) Lack of consideration (4) Lack of clean hands

(5) Delay (6) Claimant’s termination of the contract

Defendant-sided considerations:

(7) Contracts for personal services (8) Impossibility

(9) Severe hardship (10) Want of mutuality

(11) Uncertainty (12) Constant supervision

(13) Avoidance of waste

(1) Claimant is ready and willing to perform own obligations

Lau Suk Ching Peggy v Ma Hing Lam (2010) 13 HKCFAR 226

Lord Millett: “A plaintiff who seeks a decree of specific performance must show (i) that he has in the
past performed or been ready to perform all the essential terms and conditions of the contract to be
then performed by him and (ii) that he is ready, willing and able to perform all such terms and
conditions thereafter to be performed by him.”

-- Need to be ready and able to perform at the time when the order of specific performance is sought

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

(2) Damages must be inadequate

-- The availability of a substitute contract in the market, if any market exists  therefore specific
performance will not be normally ordered for the sale of goods

-- Even if damages are inadequate, the court still has the discretion to refuse specific performance

Per Lord Hoffman in Co-operative Society: “… the reasons which underlie the established practice may
justify a refusal of specific performance even when damages are not an adequate remedy.”

Cf. SOGO s.54:

"In any action for breach of contract to deliver specific or ascertained goods, the court may, if it thinks
fit, on the application of the plaintiff, by its judgment direct that the contract shall be performed
specifically, without giving the defendant the option of retaining the goods on payment of damages. The
judgment may be unconditional, or on such terms and conditions as to damages, payment of the price,
and otherwise, as to the court may seem just. The application by the plaintiff may be made at any time
before judgment."

-- Whether specific performance is the most appropriate remedy?

-- Whether it will “do more perfect and complete justice than an award of damages”? (Tito v Waddell
(No 2) [1977] Ch 106

-- “The standard question… are damages an adequate remedy? It might perhaps… be rewritten: is it just,
in all circumstances, that a plaintiff shoud be confined to his remedy in damages?” (Evans Marshall & Co
Ltd v Bertola SA [1973] 1 WLR 349)

-- Cases when damages are hard to quantify and thereby risking under-compensation (Co-operative
Insurance Society Ltd v Argyll Stores (Holdings) Ltd)

Beswick v Beswick [1968] AC 58 (CA)

Facts: Coal merchant transferred his business to his nephew who promised that he would pay an
annuity to the uncle’s widow. She became the administratrix (the executor). Only paid the first annuity
then stopped. Sued the nephew on her right and as administratrix.

1) Lord Denning MR: could sue in her own right at common law, notwithstanding the doctrine of
privity; doctrine of privity could be overcome by joining the promisee as a party to the action
(administratrix + herself)

2) Lord Denning MR and Danckwerts LJ: could sue in own right by s 56(1) of the Law of Property
Act 1925 [This is rejected by HL in the same case]

3) Lord Denning MR, Danckwerts and Salmon LJJ: could sue in capacity as administratrix and order
specific performance to order the nephew to pay the annuity to her [Affirmed by HL]

-- Accepted that only the parties to the contract can enforce it at common law

-- Why specific performance was ordered? The executor did not in fact suffered any form of damages
and so damages would be nominal.

-- Pure nominal damages would have been recovered as the promisee did not suffer any loss

-- The defendant being unjustly enriched?

Sky Petroleum v VIP Petroleum [1974] 1 WLR 576

Due to a worldwide shortage of petroleum, damages would be inadequate for the plaintiff for the
defendant’s termination of a fixed supply contract because a substitute petrol supply could not be
secured in time to prevent the plaintiff going out of business.

Goulding J, at pp 578-9, “I come to the most serious hurdle in the way of the plaintiffs which is the well-
known doctrine that the court refuses specific performance of a contract to sell and purchase chattels
not specific or ascertained... the ratio, behind the rule, is, as I believe that under the ordinary contract
for the sale of non-specific goods, damages are a sufficient remedy. That, to my mind, is lacking in the
circumstances of the present case. The evidence suggests, and indeed it is common knowledge, that the
petroleum market is in an unusual state in which a would-be buyer cannot go out into the market and
contract with another seller, possibly at some sacrifice as to price. Here the defendants appear for
practical purposes to be the plaintiffs’ sole means of keeping their business going and I am prepared so
far to depart from the general rule as to try to preserve the position under the contract until a later
date.”

Sudbrook Trading Estate v Eggleton [1983] 1 AC 444, 478

For the sale of land, it is usually classified as a unique good that can hardly be replaced in the market;
therefore, a purchaser in contract for the sale of land can sue for specific performance

-- Any special interest in the sale of land, other than pure commercial interest?

Falcke v Gray (1859) 4 Drew 651

(3) Lack of consideration

-- Specific performance will not be granted even if the contract is made by deed or supported by
nominal consideration

-- How about inadequacy of consideration?

(4) Lack of clean hands (unfairness)

Walters v Morgan (1861) 3 De GF & J 718

D agreed to grant P a mining lease over land which D had only just bought. Specific performance was
refused on the ground that D was “surprised and was induced to sign the agreement in ignorance of the
value of his property”.

E.g. taking unfair advantage of superior knowledge: P hurried D into the transaction before D knew the
value of his property

Griffith v Spratley (1787) 1 Cox Eq Cas 383

(5) Delay (laches)

(6) The claimant’s termination of the contract

Johnson v Agnew [1980] AC 367

(7) Contracts for personal service

-- Interference with personal liberty

-- Cf. contracts of employment; nowadays, the employer-employee relationship is often less personal
then in the past

De Francesco v Barnum (1890) 45 Ch D 430

Infant was bound apprentice to the plaintiff for seven years, to be taught stage dancing. Contract stated
that no professional engagement or contract matrimony without the consent of P. The apprenticeship
would come to an end if the infant was unfit for stage dancing or broke any engagements of the deed.
Infant made professional engagement with D. P sued the infant, D and parent to enforce the deed and
claim for damages.

-- Unreasonable provisions of the deed  cannot be enforced against the infant or her parent

-- Personal service contract; slavery?

Johnson v. Shrewsbury & Birmingham Railway Co (1853) 3 De GM & G 914

Giles v Morris [1972] 1 WLR 307

“... if... the singer sang flat, or shut up, or too fast, or too slow, or too loudly, or to quietly, all resorted to
a dozen of the manifestations of temperament traditionally associated with some singers... who could
say whether the imperfections of performance were natural or self induced?”

However, not all contracts of personal service or for the continuous performance of services are as
dependent as this on matters of opinion and judgment, nor do all such contracts involve the same
degree of the daily impact of person upon person. ... it should [not] be assumed that as soon as any
element of personal service or continuous service can be discerned in a contract the court will, without
more, refuse specific performance.

Powell v London Borough of Brent [1988] ICR 176

Ralph Gibson LJ, at p 194: “... the court will not by injunction require an employer to let a servant
continue in his employment, when the employer has sought to terminate that employment and prevent
the servant carrying out his work under the contract, unless it is clear on the evidence not only that it is
otherwise just to make such a requirement but also that there exists sufficient confidence on the part of
the employer in the servant’s ability and other necessary attributes for it to be reasonable to make the
order. Sufficiency of confidence must be judged by reference to the circumstances of the case, including
the nature of the work, the people with whom the work must be done and the likely effect upon the
employer and the employee’s operations if the employer is required by injunction to suffer the plaintiff
to continue in the work.”

(8) Impossibility

Castle v Wilkinson (1870) 5 Ch App 534

Warmington v Miller [1973] QB 877

(9) Severe hardship

Patel v Ali [1984] Ch 283

Vendor’s disastrous circumstances: bankruptcy of her husband, suffered from bone cancer resulting in
her leg amputated at the hip-joint. Purchaser’s claim for specific performance for the sale of a house
rejected after a four-year delay.

Goulding J (at 288) emphasised that “mere pecuniary difficulties” are insufficient:

“[O]nly in extraordinary and persuasive circumstances can hardship supply an excuse for resisting
performance of a contract for the sale of immovable property. A person of full capacity who sells or buys
a house takes the risk of hardship to himself and his dependants, whether arising from existing facts or
unexpectedly supervening in the interval before completion... [but] equitable relief may... be refused
because of an unforeseen change of circumstances not amounting to legal frustration, just as it may
on the ground of mistake insufficient to avoid a contract at law.”

Denne v Light (1857) 8 De GM & G 774 (A person would otherwise be forced to complete the purchase
of land which has no right-of-way)

Wroth v Tyler [1974] Ch 30

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

(10) Want of Mutuality

Ames (1903) 3 Col LR 1

“Equity will not compel specific performance by a defendant if after performance the common law
remedy of damages will be his sole security for the performance of the plaintiff’s side of the contract.”

Price v Strange [1978] Ch 337

P obligations were not specifically performed at the date of trial as D had partly carried out some of P
obligations, preventing P from so carrying out its own obligations.

(11) Uncertainty (vagueness)

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

(12) Constant supervision

Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116

Lease of a service flat gave the right to the services of a porter who was to be “constantly in
attendance”.

Lord Esher MR, at p123, ‘The contract is that these services shall be performed during the whole term of
the tenancy: it is therefore a long-continuing contract to be performed from day to day and under
which the circumstances of non-performance might vary from day to day. I apprehend, therefore, that
the execution of it would require that constant superintendence by the court, which the court in such
cases has always declined to give.”

Lopes LJ at p 125: “... it is clear that it is such a contract, that, in order to give effect to it by an order for
specific performance, the court would have to watch over and supervise its execution. But it is a
recognised rule that the court cannot enforce a contract by compelling specific performance where the
execution of the contract requires such watching over and supervision by the court.”

Posner v Scott-Lewis [1986] 3 WLR 531

Lessor covenanted to employ a resident porter to perform a number of specified tasks. It was specifically
enforceable in the sense that the lessor could be ordered to appoint a resident porter for the
performance of those tasks.

Wolverhampton Corp v Emmons [1901] 1 KB 515

P acquires land for improvement and sold part of it to D, who obliged to demolish the houses and build
new ones. Demolition carried out and plans were approved. D refused to continue. Specific performance
granted since D’s obligation was clearly defined, and that damages would be inadequate since P could
not get the work done by employing another contractor as D owned part of the site.

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 (cf Millett LJ [1996] 3 All ER
934, 944 – 950)

(13) Avoidance of waste

-- When the cost of performance to D was wholly out of proportion to the benefit which performance
will confer on P
Tito v Waddell (No 2) [1977] Ch 106

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

(14) Mutual cooperation required

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

P granted D a lease of one of the units in a shopping centre for a term of 35 years to operate a
supermarket. Contained a covenant to keep the premises open for retail trade during the usual hours of
business in the locality. In April 1995 they announced to close the unprofitable supermarket. P invited
the defendants to continue trading but D closed the supermarket and stripped out the fixtures and
fittings. P brought an action against them seeking specific performance of the covenant and/or damages.

-- Specific performance was disallowed

1) Difficulty in constant supervision and might require frequent reference to the court
“To carry on an activity” vs. orders “to achieve a result”, with the latter having “the court… to
examine the finished work”

2) Other factors to be considered in refusing specific performance –

a. Injustice of compelling D to carry on the business at a loss might exceed the loss
suffered by P

b. Not in public interest if there is any plausible alternative by which P can obtain
compensation, e.g. by way of damages

c. Heavy-handed nature of the enforcement mechanism by proceedings for contempt

3) Will have to consider the cumulative effect of the factors

Lord Hoffmann summarized the position of English law in Co-operative Insurance Society:

“Specific performance is traditionally regarded in English law as an exceptional remedy, as opposed to

the common law damages to which a successful plaintiff is entitled as of right. There may have been
some element of later rationalisation of an untidier history, but by the 19th century it was orthodox
doctrine that the power to decree specific performance was part of the discretionary jurisdiction of the
Court of Chancery to do justice in cases in which the remedies available at common law were
inadequate. This is the basis of the general principle that specific performance will not be ordered when
damages are an adequate remedy. By contrast, in countries with legal systems based on civil law, such
as France, Germany and Scotland, the plaintiff is prima facie entitled to specific performance. The cases
in which he is confined to a claim for damages are regarded as the exceptions. In practice, however,
there is less difference between common law and civilian systems than these general statements might
lead one to suppose. The principles upon which English judges exercise the discretion to grant specific
performance are reasonably well settled and depend upon a number of considerations, mostly of a
practical nature, which are of very general application. I have made no investigation of civilian systems,
but a priori I would expect that judges *12 take much the same matters into account in deciding
whether specific performance would be inappropriate in a particular case.

The practice of not ordering a defendant to carry on a business is not entirely dependent upon damages
being an adequate remedy. In Dowty Boulton Paul Ltd v Wolverhampton Corporation [1971] 1 WLR 204,
Sir John Pennycuick V.-C. refused to order the corporation to maintain an airfield as a going concern
because: 'It is very well established that the court will not order specific performance of an obligation to
carry on a business:' see p. 211. He added: 'It is unnecessary in the circumstances to discuss whether
damages would be an adequate remedy to the company:' see p. 212. Thus the reasons which underlie
the established practice may justify a refusal of specific performance even when damages are not an
adequate remedy.

The most frequent reason given in the cases for declining to order someone to carry on a business is
that it would require constant supervision by the court. In J C Williamson Ltd v Lukey and Mulholland
(1931) 45 CLR 282, 297-298, Dixon J. said flatly: 'Specific performance is inapplicable when the
continued supervision of the court is necessary in order to ensure the fulfilment of the contract.'

There has, I think, been some misunderstanding about what is meant by continued superintendence. It
may at first sight suggest that the judge (or some other officer of the court) would literally have to
supervise the execution of the order. In CH Giles & Co Ltd v Morris [1972] 1 W.L.R. 307, 318 Megarry J.
said that 'difficulties of constant superintendence' were a 'narrow consideration' because:

'there is normally no question of the court having to send its officers to supervise the performance of
the order… Performance… is normally secured by the realisation of the person enjoined that he is liable
to be punished for contempt if evidence of his disobedience to the order is put before the court;…'

This is, of course, true but does not really meet the point. The judges who have said that the need for
constant supervision was an objection to such orders were no doubt well aware that supervision would
in practice take the form of rulings by the court, on applications made by the parties, as to whether
there had been a breach of the order. It is the possibility of the court having to give an indefinite series
of such rulings in order to ensure the execution of the order which has been regarded as undesirable.

Why should this be so? A principal reason is that, as Megarry J. pointed out in the passage to which I
have referred, the only means available to the court to enforce its order is the quasi-criminal procedure
of punishment for contempt. This is a powerful weapon; so powerful, in fact, as often to be unsuitable
as an instrument for adjudicating upon the disputes which may arise over whether a business is being
run in accordance with the terms of the court's order. The heavy-handed nature of the enforcement
mechanism is a consideration which may go to the exercise of the court's discretion in other cases as
well, but its use to compel the running of a business is perhaps the paradigm case of its disadvantages
and it is in this context that I shall discuss them.
The prospect of committal or even a fine, with the damage to commercial reputation which will be
caused by a finding of contempt of court, is likely to have at least two undesirable consequences. First,
the defendant, who ex hypothesi did not think that it was in his economic interest to run the business at
all, now has to make decisions under a sword of Damocles which may descend if the way the business is
run does not conform to the terms of the order. This is, as one might say, no way to run a business. In
this case the Court of Appeal made light of the point because it assumed that, once the defendant had
been ordered to run the business, self-interest and compliance with the order would thereafter go hand
in hand. But, as I shall explain, this is not necessarily true.

Secondly, the seriousness of a finding of contempt for the defendant means that any application to
enforce the order is likely to be a heavy and expensive piece of litigation. The possibility of repeated
applications over a period of time means that, in comparison with a once-and-for-all inquiry as to
damages, the enforcement of the remedy is likely to be expensive in terms of cost to the parties and
the resources of the judicial system.

This is a convenient point at which to distinguish between orders which require a defendant to carry
on an activity, such as running a business over or more or less extended period of time, and orders
which require him to achieve a result. The possibility of repeated applications for rulings on compliance
with the order which arises in the former case does not exist to anything like the same extent in the
latter. Even if the achievement of the result is a complicated matter which will take some time, the
court, if called upon to rule, only has to examine the finished work and say whether it complies with the
order. This point was made in the context of relief against forfeiture in Shiloh Spinners Ltd v Harding
[1973] AC 691. If it is a condition of relief that the tenant should have complied with a repairing
covenant, difficulty of supervision need not be an objection. As Lord Wilberforce said, at p. 724:

'what the court has to do is to satisfy itself, ex post facto, that the covenanted work has been done, and
it has ample machinery, through certificates, or by inquiry, to do precisely this.'

This distinction between orders to carry on activities and orders to achieve results explains why the
courts have in appropriate circumstances ordered specific performance of building contracts and
repairing covenants: see Wolverhampton Corporation v Emmons [1901] 1 KB 515 (building contract) and
Jeune v Queens Cross Properties Ltd [1974] Ch 97 (repairing covenant). It by no means follows, however,
that even obligations to achieve a result will always be enforced by specific performance. There may be
other objections, to some of which I now turn.

One such objection, which applies to orders to achieve a result and a fortiori to orders to carry on an
activity, is imprecision in the terms of the order. If the terms of the court's order, reflecting the terms of
the obligation, cannot be precisely drawn, the possibility of wasteful litigation over compliance is
increased. So is the oppression caused by the defendant having to do things under threat of proceedings
for contempt. The less precise the order, the fewer the signposts to the forensic minefield which he has
to traverse. The fact that the terms of a contractual obligation are sufficiently definite to escape being
void for uncertainty, or to found a claim for damages, or to permit compliance to be made a condition of
relief against forfeiture, does not necessarily mean that they will be sufficiently precise to be capable of
being specifically enforced. So in Wolverhampton Corporation v Emmons, Romer L.J. said, at p. 525, that
the first condition for specific enforcement of a building contract was that

'the particulars of the work are so far definitely ascertained that the court can sufficiently see what is
the exact nature of the work of which it is asked to order the performance.'

Similarly in Morris v Redland Bricks Ltd [1970] AC 652, 666, Lord Upjohn stated the following general
principle for the grant of mandatory injunctions to carry out building works:

'the court must be careful to see that the defendant knows exactly in fact what he has to do and this
means not as a matter of law but as a matter of fact, so that in carrying out an order he can give his
contractors the proper instructions.'

Precision is of course a question of degree and the courts have shown themselves willing to cope with a
certain degree of imprecision in cases of orders requiring the achievement of a result in which the
plaintiffs' merits appeared strong; like all the reasons which I have been discussing, it is, taken alone,
merely a discretionary matter to be taken into account: see Spry, Equitable Remedies, 4th ed. (1990), p.
112. It is, however, a very important one.

I should at this point draw attention to what seems to me to have been a misreading of certain remarks
of Lord Wilberforce in Shiloh Spinners Ltd v Harding, at p. 724. He pointed out, as I have said, that to
grant relief against forfeiture subject to compliance with a repairing covenant involves the court in no
more than the possibility of a retrospective assessment of whether the covenanted work has been done.
For this reason, he said:

'Where it is necessary, and, in my opinion, right, to move away from some 19th century authorities, is to
reject as a reason against granting relief, the impossibility for the courts to supervise the doing of work.'

This is plainly a remark about cases involving the achievement of a result, such as doing repairs, and,
within that class, about making compliance a condition of relief against forfeiture. But in Tito v Waddell
(No 2) [1977] Ch 106, 322 Sir Robert Megarry V.-C. took it to be a generalisation about specific
performance and, in particular, a rejection of difficulty of supervision as an objection, even in cases of
orders to carry on an activity. Sir Robert Megarry V.-C. regarded it as an adoption of his own views
(based, as I have said, on incomplete analysis of what was meant by difficulty of supervision) in CH Giles
& Co Ltd v Morris [1972] 1 W.L.R. 307, 318. In the present case [1996] Ch. 286, 292-293, Leggatt L.J. took
this claim at face value. In fact, Lord Wilberforce went on to say that impossibility of supervision 'is a
reality no doubt, and explains why specific performance cannot be granted of agreements to this
effect…' Lord Wilberforce was in my view drawing attention to the fact that the collection of reasons
which the courts have in mind when they speak of difficulty of supervision apply with much greater
force to orders for specific performance, giving rise to the possibility of committal for contempt, than
they do to conditions for relief against forfeiture. While the paradigm case to which such objections
apply is the order to carry on an activity, they can also also apply to an order requiring the achievement
of a result.
There is a further objection to an order requiring the defendant to carry on a business, which was
emphasised by Millett L.J. in the Court of Appeal. This is that it may cause injustice by allowing the
plaintiff to enrich himself at the defendant's expense. The loss which the defendant may suffer through
having to comply with the order (for example, by running a business at a loss for an indefinite period)
may be far greater than the plaintiff would suffer from the contract being broken. As Professor R. J.
Sharpe explains in 'Specific Relief for Contract Breach,' Ch 5 of Studies in Contract Law (1980), edited by
Reiter and Swan, p. 129:

'In such circumstances, a specific decree in favour of the plaintiff will put him in a bargaining position vis-
à-vis the defendant whereby the measure of what he will receive will be the value to the defendant of
being released from performance. If the plaintiff bargains effectively, the amount he will set will exceed
the value to him of performance and will approach the cost to the defendant to complete.'

This was the reason given by Lord Westbury L.C. in Isenberg v East India House Estate Co Ltd (1863) 3 De
G.J. & S. 263, 273 for refusing a mandatory injunction to compel the defendant to pull down part of a
new building which interfered with the plaintiff's light and exercising instead the Court of Chancery's
recently-acquired jurisdiction under Lord Cairns's Act 1858 (21 & 22 Vict. c. 27) to order payment of
damages:

'... I hold it... to be the duty of the court in such a case as the present not, by granting a mandatory
injunction, to deliver over the defendants to the plaintiff bound hand and foot, in order to be made
subject to any extortionate demand that he may by possibility make, but to substitute for such
mandatory injunction an inquiry before itself, in order to ascertain the measure of damage that has
been actually sustained.'

It is true that the defendant has, by his own breach of contract, put himself in such an unfortunate
position. But the purpose of the law of contract is not to punish wrongdoing but to satisfy the
expectations of the party entitled to performance. A remedy which enables him to secure, in money
terms, more than the performance due to him is unjust. From a wider perspective, it cannot be in the
public interest for the courts to require someone to carry on business at a loss if there is any plausible
alternative by which the other party can be given compensation. It is not only a waste of resources but
yokes the parties together in a continuing hostile relationship. The order for specific performance
prolongs the battle. If the defendant is ordered to run a business, its conduct becomes the subject of a
flow of complaints, solicitors' letters and affidavits. This is wasteful for both parties and the legal system.
An award of damages, on the other hand, brings the litigation to an end. The defendant pays damages,
the forensic link between them is severed, they go their separate ways and the wounds of conflict can
heal.

The cumulative effect of these various reasons, none of which would necessarily be sufficient on its
own, seems to me to show that the settled practice is based upon sound sense. Of course the grant or
refusal of specific performance remains a matter for the judge's discretion. There are no binding rules,
but this does not mean that there cannot be settled principles, founded upon practical considerations of
the kind which I have discussed, which do not have to be re-examined in every case, but which the
courts will apply in all but exceptional circumstances. As Slade J. said, in the passage which I have
quoted from Braddon Towers Ltd v International Stores Ltd [1987] 1 E.G.L.R. 209, 213, lawyers have no
doubt for many years advised their clients on this basis. In the present case, Leggatt L.J. [1996] Ch 286,
294 remarked that there was no evidence that such advice had been given. In my view, if the law or
practice on a point is settled, it should be assumed that persons entering into legal transactions will have
been advised accordingly. I am sure that Leggatt L.J. would not wish to encourage litigants to adduce
evidence of the particular advice which they received. Indeed, I doubt whether such evidence would be
admissible.

The Court of Appeal said that it was enough if the contract defined the tenant's obligation with sufficient
precision to enable him to know what was necessary to comply with the order. Even assuming that this
to be right, I do not think that the obligation in clause 4(19) can possibly be regarded as sufficiently
precise to be capable of specific performance. It is to 'keep the demised premises open for retail trade.'
It says nothing about the level of trade, the area of the premises within which trade is to be conducted,
or even the kind of trade, although no doubt the tenant's choice would be restricted by the need to
comply with the negative covenant in clause 4(12)(a) not to use the premises 'other than as a retail *17
store for the sale of food groceries provisions and goods normally sold from time to time by a retail
grocer food supermarkets and food superstores . . .' This language seems to me to provide ample room
for argument over whether the tenant is doing enough to comply with the covenant.

The Court of Appeal thought that once Argyll had been ordered to comply with the covenant, it was, as
Roch L.J. said, at p. 298, 'inconceivable that they would not operate the business efficiently.' Leggatt L.J.
said, at p. 292, that the requirement

'was quite intelligible to the defendants, while they were carrying on business there. . . . If the premises
are to be run as a business, it cannot be in the defendants' interest to run it half-heartedly or
inefficiently . . .'

This treats the way the tenant previously conducted business as measuring the extent of his obligation
to do so. In my view this is a non sequitur: the obligation depends upon the language of the covenant
and not upon what the tenant has previously chosen to do. No doubt it is true that it would not be in the
interests of the tenant to run the business inefficiently. But running the business efficiently does not
necessarily mean running it in the way it was run before. Argyll had decided that, from its point of view,
the most efficient thing to do was to close the business altogether and concentrate its resources on
achieving better returns elsewhere. If ordered to keep the business open, it might well decide that the
next best strategy was to reduce its costs as far as was consistent with compliance with its obligations, in
the expectation that a lower level of return would be more than compensated by higher returns from
additional expenditure on more profitable shops. It is in my view wrong for the courts to speculate
about whether Argyll might voluntarily carry on business in a way which would relieve the court from
having to construe its order. The question of certainty must be decided on the assumption that the
court might have to enforce the order according to its terms.

C.I.S. argued that the court should not be concerned about future difficulties which might arise in
connection with the enforcement of the order. It should simply make the order and see what happened.
In practice Argyll would be likely to find a suitable assignee (as it in fact did) or conduct the business so
as to keep well clear of any possible enforcement proceedings or otherwise come to terms with C.I.S.
This may well be true, but the likelihood of Argyll having to perform beyond the requirements of its
covenant or buy its way out of its obligation to incur losses seems to me to be in principle an objection
to such an order rather than to recommend it. I think that it is normally undesirable for judges to make
orders in terrorem, carrying a threat of imprisonment, which work only if no one inquires too closely
into what they mean.

The likelihood that the order would be effective only for a short time until an assignment is an equivocal
argument. It would be burdensome to make Argyll resume business only to stop again after a short
while if a short stoppage would not cause any substantial damage to the business of the shopping
centre. On the other hand, what would happen if a suitable assignee could not be found? Would Argyll
then have to carry on business *18 until 2014? Mr. Smith, who appeared for C.I.S., said that if the order
became oppressive (for example, because Argyll were being driven into bankruptcy) or difficult to
enforce, they could apply for it to be varied or discharged. But the order would be a final order and
there is no case in this jurisdiction in which such an order has been varied or discharged, except when
the injuncted activity has been legalised by statute. Even assuming that there was such a jurisdiction if
circumstances were radically changed, I find it difficult to see how this could be made to apply.
Difficulties of enforcement would not be a change of circumstances. They would have been entirely
predictable when the order was made. and so would the fact that Argyll would suffer unquantifiable loss
if it was obliged to continue trading. I do not think that such expedients are an answer to the difficulties
on which the objections to such orders are based.

Finally, all three judges in the Court of Appeal took a very poor view of Argyll's conduct. Leggatt L.J. said
[1996] Ch. 286, 295, that they had acted 'with gross commercial cynicism;' Roch L.J. began his judgment
by saying that they had 'behaved very badly' and Millett L.J. said, at p. 301, that they had no merits. The
principles of equity have always had a strong ethical content and nothing which I say is intended to
diminish the influence of moral values in their application. I can envisage cases of gross breach of
personal faith, or attempts to use the threat of non-performance as blackmail, in which the needs of
justice will override all the considerations which support the settled practice. But although any breach of
covenant is regrettable, the exercise of the discretion as to whether or not to grant specific performance
starts from the fact that the covenant has been broken. Both landlord and tenant in this case are large
sophisticated commercial organisations and I have no doubt that both were perfectly aware that the
remedy for breach of the covenant was likely to be limited to an award of damages. The interests of
both were purely financial: there was no element of personal breach of faith, as in the Victorian cases of
railway companies which refused to honour obligations to build stations for landowners whose property
they had taken: compare Greene v. West Cheshire Railway Co. (1871) L.R. 13 Eq. 44. No doubt there was
an effect on the businesses of other traders in the Centre, but Argyll had made no promises to them and
it is not suggested that C.I.S. warranted to other tenants that Argyll would remain. Their departure, with
or without the consent of C.I.S., was a commercial risk which the tenants were able to deploy in
negotiations for the next rent review. On the scale of broken promises, I can think of worse cases, but
the language of the Court of Appeal left them with few adjectives to spare.

It was no doubt discourteous not to have answered Mr. Wightman's letter. But to say, as Roch L.J. did, at
p. 299, that they had acted 'wantonly and quite unreasonably' by removing their fixtures seems to me
an exaggeration. There was no question of stealing a march, or attempting to present C.I.S. with a fait
accompli, because Argyll had no reason to believe that C.I.S. would have been able to obtain a
mandatory injunction whether the fixtures had been removed or not. They had made *19 it perfectly
clear that they were closing the shop and given C.I.S. ample time to apply for such an injunction if so
advised.

Building contracts

-- Starting point: not specifically enforceable

 Adequacy of damages? Too vague (failed for certainty)? Constant supervision?

-- But if (i) work is clearly defined, (ii) damages will be inadequate and (iii) no alternative builder 
specifically enforceable

-- Hounslow (London Borough) v Twickenham Gardens Ltd [1977] Ch 233 (Building contract for the
builder to execute the agreed work. License given was irrevocable until work had been done. Owner
wrongfully purported to terminate it and sought an injunction to prohibit the builder from entering the
land. The claim failed.)

Partial specific performance?

Ryan v Mutual Tontine Association [1893] 1 Ch 116: “When the court cannot grant specific performance
of the contract as a whole, it will not interfere to compel specific performance of part of a contract.”

Specific performance with compensation?

Eton Properties litigation (HCCT 54 of 2007 (24 June 2008) (Reyes J) and HCCL 13 of 2011 (14 June 2012)
(Deputy High Court Judge Stone)).

12. Injunction

-- Prohibitory (preventive) vs. Mandatory (cease a wrongful omission or undo something done)

-- Final vs. Interim

[The balance of convenience test]

-- May be rejected on the ground of causing “particular hardship” and “oppression”

-- Express vs. Implied stipulations? Injunction? (Involving personal services or not)

-- Cf. contracts that are not involving personal services: even though enforcing the negative covenant
may in effect place undue pressure on the defendant to perform positive obligation, injunction may still
be available.

(1) Doherty v Allman (1878) 3 App Cas 709, 720, Lord Cairns:

“... if there had been a negative covenant, I apprehend, according to well-settled practice, a Court of
Equity would have no discretion to exercise, If parties, for valuable consideration, with their eyes open,
contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of
injunction that which the parties have already said by way of covenant, that the thing shall not be
done; and in such case, the injunction does nothing more than give the sanction of the process of the
Court to that which already is the contract between the parties. It is not then a question of the balance
of convenience or inconvenience, or the amount of damage or of injury.”

(2) Lumley v Wagner (1852) 21 LJ Ch 898

D agreed to perform in P’s theatre twice a week for three months. Not to use her talent over other
theatre. Then contracted with a competitor for larger payment.

Lord St Leonards LC, at p 902: “It was objected that the operation of the injunction in the present case
was mischievous, excluding the defendant... from performing at any other theatre while this Court had
no power to compel her to perform at Her Majesty’s Theatre. It is true, that I have not the means of
compelling her to sing, but she has no cause of complaint, if I compel her to abstain from the
commission of an act which she has bound herself not to do... in continuing the injunction, I disclaim
doing indirectly what I cannot do directly.”

(3) Warner Bros v Nelson [1937] 1 KB 209

D agreed to render acting services for P for some time. Not allowed to work for anyone else. D
contracted with another film company. Injunction for three years. “Engage in any other occupation” 
serverance?

Branson J, at pp 219-220: “It was also urged that the difference between what the defendant can earn
as a film artiste and what she might expect to earn by any other form of activity is so great that she will
in effect be driven to perform her contract... [but] no evidence was addressed to show that, if enjoined
from doing the specified acts otherwise than for the plaintiffs, she will not be able to employ herself
both usefully and remuneratively in other spheres of activity... She will not be driven, although she
may be tempted, to perform the contract, and the fact that she may be so tempted is no objection to
the grant of an injunction.”

-- Criticized by Nourse LJ in Warren v Mendy – the notion that the young and up-coming actress could
employ herself usefully in other fields was “extraordinarily unrealistic”.

(4) Page One Records v Britton [1968] 1 WLR 157

Music group employed P as their sole agent and manager for five years. Agreed not to record songs for
anyone else. P sought an interim injunction to restrain the group from the breach of this undertaking.
Indirect specific performance of personal services.

Stamp J, at pp 166-7: “... It was said in this case, that if an injunction is granted, The Troggs could
without employing any other manager or agent... seek other employment of a different nature... I think
that I can and should take judicial notice of the fact that these groups, if they are to have any great
success, must have managers. As a practical matter...I entertain no doubt that they would be
compelled, if the injunction were granted,... to continue to employ the plaintiff as their manager and
agent... I should if I granted the injunction, be enforcing a contract for personal services, in which
personal services are to be performed by the plaintiff.”

(5) Warren v Mendy [1989] 1 WLR 853

Plaintiff manager of the boxer against another manager for the tort of inducing the boxer’s breach of his
agreement with the plaintiff.

Nourse LJ, at pp 865-866: “In Lumley v Wagner itself the contractual period was three months of which
there was less than two to run when the injunction was granted. That was the maximum period for
which Miss Wagner would have had to remain idle in England... Although it is impossible to state in
general terms where the line between short and long term engagements ought to be drawn it is
obvious that an injunction lasting for two years or more (the period applicable in the present case)
may practically compel performance of the contract.”

(6) Beacon College Ltd v Yiu Man Hau [2001] 3 HKLRD 558

P employed D as a tutor in a tutorial school. Tutors later resigned in favour of joining the rival school.
Negative covenant that prevents an employee of P from working for another school for specified time.
Sought an interim injunction to prohibit D from breaching the contract.

Chu J: teaching at schools, though having a different learning environment from private tutorial schools,
would be a reasonable alternative where the skills and expertise could be utilized and could earn
reasonable income

“It may be that the defendants are reluctant to adapt to the teaching and learning environment of the
conventional day schools. It may also be that the teaching in government or government aided schools
is, therefore, less attractive and/or less remunerative than teaching tutorials, so that returning to
teach for the plaintiff is a more attractive option. That, however, is not the same as, and certainly falls
short of, compelling the defendant teachers to resume teaching for the plaintiff. As observed by
Nourse LJ in Warren v Mendy, the question of compulsion involves a realistic analysis of the facts of each
case.”
-- Referred to Lumley v Wagner

-- Where the effect of an injunction would “drive the defendant either to starvation or to specific
performance”, an injunction will not be granted. Injunction will only be granted if there are some
reasonable means of earning a living

-- Quoted from Warren v Mendy: “Compulsion is a question to be decided on the facts of each case, with
a realistic regard for the probable reaction of an injunction on… the need of the servant to maintain the
skill and talent. The longer the term for which an injunction is sought, the more readily will compulsion
be inferred.”

-- Essential question: “whether the defendants are left with any reasonable alternative of employment
or work”

Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798

No injunction to undo what should not have been done if there would be a disproportion between the
detriment to defendant and the benefit to the claimant.

Can parties agree to specific performance or an injunction?

Quadrant Visual v Hutchison Telephone [1993] BCLC 442

Awarding damages in lieu

-- Can grant damages in lieu of, or in addition to, specific performance and injunctions by s 17 of High
Court Ordinance (Cap 4)

-- Same rules as common law damages (Johnson v Agnew)

-- May be awarded to compensate for anticipated cause of action

-- May be awarded where specific performance has not been complied with