DAMAGES

Aim: ‘Court will try to put C in position he would have been in if contract was properly
performed’ (Robinson v Harman)or put C in position he was in before entering the contract
(for EL)

Court will look at various factors:

1. Was there a LOSS ? if not – nominal damages (£5-10; could even pay costs –
Obagi)

If yes

2. Is there an AGREED DAMAGES CLAUSE ?

 Party in breach might argue that it is a penalty clause if loss less than
agreed sum.
o Innocent party might argue that it is penalty if it’s actual loss greater than
agreed sum.
Dunlop guidelines (also - wording used by parties not conclusive):
a) Sum extravagant/unconscionable compared to greatest loss conceivable (not actual)
from breach
b) If breach consists only of not paying money, and the sum is more than amount to be
paid
c) Single lump sum payable upon happening of several events - some major, some minor.
d) Can be valid SDC, even if difficult/impossible to pre-estimate the loss caused by the
breach.
o If a)& b) – definitely a penalty, if c) – rebuttable presumption of being a penalty.
o Philips Hong Kong- SDCs valuable in comm. cases, as they give parties certainty as to possible
risks
o Cavendish v Makdessi guide: commercial justification ? SDC oppressive ? is purpose to deter
breach ? SCD negotiated on ‘level playing field’ (lawyers involved etc) ?
If SCD =enforceable, and usual rules on MoD, remoteness and mitigation do not apply
In exam – even if SCD clearly enforceable, go on to discuss the rest of structure (as if it was not enforceable)

If no or unenforceable
because treated as penalty,
loss
judged acc. to usual rules

3. Was the loss too REMOTE ?

-Under Hadley v Baxendale loss reasonably supposed to be in parties’ contemplation
if either:
1st limb-loss arises in ordinary course of events (naturally) from the breach
or
nd
2 limb- spec. circumstances giving rise to loss are known to both parties at the time
of contract

-Victoria Laundry - failure to supply boiler to laundry, loss of profit, incl. highly
lucrative Govt. contract:
o Loss of ordinary profit not too remote (1st limb Hadley) – imputed (assumed)
knowledge by D
 Profit from lucrative deal – too remote – as no actual knowledge by D at time
(2nd limb)

Heron II – loss ‘of a kind which D when entering contract ought to have realized was not
unlikely to result’

Parsons v Uttley Ingham: pigs died infected from mouldy food – provided type loss is
within parties’ contemplation, then all loss of that type, however extensive, is
recoverable (‘dying is an extensive version of illness’) but cf. Brown v KMR: loss of
ordinary profits different in kind from very high profits

Achilleas: because of D’s failure to return ship in time, C lost chance to re-charter it at
high rate-‘for what kind of loss parties could reas. be taken to have accepted liability’

If not

4. Quantification (assessment)

Damages assessed on expectation basis = what C would have obtained if contract

properly performed

Financial loss:
-DIFFERENCE IN VALUE- if goods (diff. between actual value and value goods would have if
not defective)
- COST OF CURE- if services (cost of putting the work right, if reas. to do so; not - if ‘wholly
disproportionate’)
-‘LOSS OF AMENITY’ (consumer surplus)- if unreasonable to award full cost of cure - Ruxley
Electr. v Forsyth
-LOSS OF PROFIT; -Physical injury

Non-financial loss (actionable types):

-LOST OPPORTUNITY- Chaplin v Hicks (loss of chance to be one of winners)/Blackpool v Aero (to get
selcted for concession)
-DAMAGES FOR MENTAL DISTRESS & DISAPPOINTMENT – generally no (Addis
Grammophone), unless contract for pleasure/entertainment (Jarvis-recovered half of holiday
price as received half of entertainment). No need to be sole, so far as important object (Farley v
Skinner – house surveyor failed to note airport noise)
Non-actionable types: Loss of reputation; Mere disappointment (as opposed to DMDD)

OR
Damages assessed on reliance basis = damages to cover expense incurred by C in
reliance on contract

Anglia TV v Reed – reliance loss (no claim for loss of profits, as did not know what profit (if any)
would be made)

Usually, C decides whether to seek damages on EB or RB, but court may decide on RB if
EB speculative
-Also C must prove that he suffered actual loss due to Ds breach - The Mamola Challenger – D
failed to charter vessel, C incurred modification expense, but re-chartered vessel at even higher
rate – no reliance loss, as C managed to mitigate loss and suffered no damage as a result-
case also applies both to EB and RB
-Both EB and RB are compensatory damages (remember - C cannot be compensated twice for
the same loss)

THEN
5. MITIGATION (British Westinghouse)
 C should take reasonable steps to keep losses to a minimum -he cannot recover losses which he
could have thus avoided
 If C does take reas. steps to mitigate, he can claim losses incurred in trying to mitigate even if he is
unsuccessful
 Amount saved in mitigation will be taken in account in assessing damages: eg buyer finds another
machine for extra 9,000, machine is so good it saves him 4,000; buyer can only claim 5,000; wrongfully dismissed
employee would have earned 3,000 for lost time, during that time he works on another job earning 2,000, he can
claim only 1,000
 Burden of proof is on party alleging failure to mitigate
 If wrongful termination of contract, C should obtain at least 2 or 3 comparable quotes
 Insurance payment to C is not taken into account when assessing damages
 If damaged object was second-hand and there is no market for such second-hand goods – C can get a new one
(otherwise - no)
 Time of assessment: damages, generally, assessed by reference to time of breach – add. reason why C
must mitigate quickly:
ie market price of similar goods at the time of breach is taken as basis – so if it increases later – buyer’s fault; but
if it decreases – buyer can buy at cheaper later price and still claim as damages the (higher) price which was at
the day of breach !
 ‘Assessment date’ rule may be used if by time of court case will be known that Cs actual loss was
different – Golden Victory
Contributory Negligence: if the only cause of action for breach is negligent breach (eg s13 SGSA),
Cs damages may be reduced for contrib. neg. under LR(CN) Act 1945- must also show that D was at
fault and this caused the losses
Non-compensatory (restitutionary) damages (if relevant on the facts – mention possibility):
-A-G v Black – account of profit – benefit wrongdoer acquired from the breach, even if C has not
actually suffered any loss
-Wrotham Park Estate – ‘relaxation fee’ to C for breach of restr. covenant no to build – 5 % of profit
-Experience Hendrix (Blake distinguished:national security + fiduciary duty) – but 3 conditions for
restitutionary damages:
1) breach by D must be deliberate and for his own reward;
2) C would have difficulty establishing fin. loss
3) C has legitimate interest in preventing Ds profit-making activity