Remedies- Different types of damages- compensatory damages and non-compensatory damages-

Compensatory damages are an award of a sum of money which aims to compensate the claimant for
his loss under the contract. This need not be limited to loss from the contract itself and may
compensate the innocent party for losses relating to subsequent contracts, which will be covered
later in the chapter.

Non-compensatory damages are an award of a sum of money not only to compensate the claimant
for his contractual losses, but also aim to compensate the claimant in relation to any bad conduct of
the other party.

Damages- Contractual damages is “a monetary award aimed at putting the claimant in the position
he would have been in if the other party had performed according to the contract.”

Damages are the most widely available judicial remedy, and we will spend a lot of time on this.

Link between damages and other topics

Topic 6: Breach of Contract: Every breach of contract gives rise to a claim of damages. It does not
matter if it is a breach of condition, warranty, or an innominate term.

Topic 7: Frustration: Not all failure to perform a contractual obligation constitute a breach.

Damages- Damages: the aim of an award of damages. In making an award of damages, how do the
courts measure the claimant’s loss (i.e., calculate what damages are payable)?

Two usual formulations:

 The expectation interest (the normal contractual measure)

 The reliance interests

Expectation Interest

The court will give you what the other party’s promise entitles you to expect.

The way this is put in the textbooks and judgments is that the disappointed party, the victim
of the breach, is entitled to be put in the same position he would have been in had the
contract been kept, i.e. his “expectation”.

Robinson v Harman (1848), per Parke B: “[The claimant] is, so far as money can do it,
to be placed in the same situation, with respect to damages, as if the contract had
been performed.”

Taylor & Taylor p 293: “Expectation interest equates to the net value of what the
innocent party would have received if the contract had been performed”

The award of damages achieves this goal of providing the victim with his performance expectation,
by:
Providing the victim with a sum of money that makes up the difference between their performance
expectations (E) and the actual position they are in as a result of the breaching party’s failure to
perform (A).

Damages (D) = E – A.

Reliance interest- it has been used as protecting the reliance interest- a measure which put the
claimant in the position as though he had not relied on the contract. This allows the claimant to
recover the expenses they have incurred during performance of the contract.

The choice between expectation and reliance interests: why distinguish?

Taylor & Taylor: “Reliance damages are merely a part of the expectancy- contracting parties
normally expect to recover their reliance expenditures plus an element of net profit.”

If claimant cannot prove their expectation

Reliance measure is useful then:

“If the full expectation including net profit cannot be proved, reliance measure can
be allowed as a substitute measure since it is assumed that the contract would have
been sufficiently profitable to at least recoup the expenditure.’ P.296

 However, if the defendant proves that the claimant had, in fact, made a bad
bargain, the reliance expenditure will not be awarded.
 The reason is that this would have been wasted even if the defendant had
performed their promise.

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

Causation and remoteness-

Causation: We will start with a reminder that damages are limited to losses actually caused by the
breach: the loss must be caused as a matter of fact.

Remoteness: However, not all losses caused by a breach of contract can be recovered. The loss
suffered must not be too remote.

We will therefore also look at the principles determining remoteness of damage:

Taylor & Taylor, Contract Law Directions, p.300: “If any system of compensation-imposed liability for
all the consequences of a given act it would be safest to stay in bed in the morning and avoid the risk
of being found liable for anything.”

Causation- An action for breach of contract will fail if the claimant cannot prove that the defendant’s
breach caused the claimant’s loss. The “but for” test applies to this issue: Would the claimant have
suffered that loss but for the defendant’s breach of contract?

Bank of Credit and Commerce International SA v Ali (No 2) [2002] EWCA Civ 82

 BCCI engaged in systematic fraud and went bankrupt.

  Because it was kept hidden from most employees, the fraud also breached BCCI’s duty of
fair dealing and good faith to them.
 5 ex-employees sued, claiming the stigma from BCCI’s fraud prevented them from finding
new jobs in banking.
 Held: the action failed, because the ex-employees could not prove that they would have
found new jobs if their reputations had not been harmed by BCCI’s fraud.

Remoteness of loss

Even if the “but for” test is satisfied, the contract-breaker may still escape liability for all or part of
the loss that the other suffered as a result of their breach of contract, on the ground that the loss
was too remote.

Legal consequence: If a loss is held to be too remote, damages cannot be claimed for that loss
against the contract-breaker by the innocent party.

Basic rule- the basis rule for assessing whether a loss resulting from a breach of contract is too
remote was established in the landmark case of Hadley v Baxendale.

Hadley v Baxendale (1854) 9 Exch 341

 The crankshaft of C’s flour mill broke.

 C employed D to transport crankshaft to engineer, who needed to copy it to make a
replacement.
 D delayed delivery in breach of contract.
 This prolonged the standstill of the mill by 5 days.
 C claimed damages for the profit lost during these 5 days
 Held: D not liable for this lost profit.

Reasoning/ratio (as stated by Alderson B at p.354)

“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 either arising naturally, i.e., according to the usual course of things, from
such breach of contract itself, 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.”

Note that this rule has 2 limbs:

 First, such damage “as may fairly and reasonably be considered either arising naturally,
i.e., according to the usual course of things, from such breach of contract itself”,
 Secondly, such damage “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”.

Legal consequence: A loss is only recoverable if it satisfies either the first or the second limb. If it
does not satisfy at least one of them, then it is too remote.
Non-pecuniary loss and contributory negligence-

The general rule

The phrase “non-pecuniary loss” refers to loss that is not financial, e.g. disappointment, distress, loss
of reputation.

Rule: Non-financial loss is not generally recoverable in an action for breach of contract. It comes
from the following cases:

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

C dismissed from employment without notice.

Lord Loreburn LC: damages for dismissal without notice “cannot include compensation either for the
injured feelings of the servant, or for the loss he may sustain from the fact that his having been
dismissed of itself makes it more difficult for him to obtain fresh employment.”

Special focus: harm to reputation

An injury to reputation causing pecuniary loss falls outside the rule:

 Malik v BCCI [1998] AC 20: Damages recoverable for financial loss resulting from stigma of
employer BCCI engaging in wide-ranging fraud.
 Reflection point: Compare this case with Addis v Gramophone Co Ltd [1909] AC 488 (HL))

Damages may be recoverable where the object/purpose of the contract is to protect C’s reputation.

 Cambridge Nutrition Ltd v BBC [1990] 3 All ER 523, 540 (CA):

BBC breached agreement not to broadcast a programme covering a negative report on C’s
activities.

Obiter1 by Ralph Gibson LJ at p 540: “… I do not think that the decision in Addis v Gramophone Co
Ltd is a bar to the recovery of damages for injury to reputation in an action for breach of contract,
where the contractual provision proved to have been broken had as its purpose, or one of its
purposes, the protection of the claimant against the sort of damage suffered

1
Latin for "something said in passing." A comment, suggestion, or observation made by a judge in an
opinion that is not necessary to resolve the case, and as such, it is not legally binding but may still be
cited as persuasive authority in future litigation.