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GLUP1034/CONTRACT LAW II

PART 8 & 9 - BREACH OF


CONTRACT & REMEDIES FOR
BREACH OF CONTRACT

CONTENT:
A. BREACH OF CONTRACTS
Examples of breach of contracts
Effects of breach of contracts
Relief under sections 40 and 65,
Contracts Act1950
Effects under English law

Breach of Contract
Breach of contract happens where there
is an actual failure by a party to the
contract to perform his obligations under
the contract or an indication of his
intention not to do so.
(Oxford Dictionary of Law, 4th Edition)

Forms of Breach and its effects


Breach of Condition (breach of an
important term) the law permits the
Plaintiff to treat himself as being
discharged (i.e. repudiate the contract)
from further obligations and claim
damages.
Breach of warranty (breach of a less
important term) the innocent party here
MAY NOT treat himself as being
discharged from his obligations under the
contract (i.e. may not repudiate the..

cont
contract) although he may sue and
recover damages for non-performance of
the subsidiary term.
Ching Yik Development Sdn Bhd v
Setapak Heights Development Sdn Bhd
[1996] 3 MLJ 675

Statutory provision of breach


Section 40 of the Malaysian Contracts
Act 1950 provides that when a party to a
contract has refused to perform, disabled
himself from performing, the promisee
may put an end to the contract or to
continue with the contract.
See Illustrations (a) & (b) of s.40 CA.

cont
Section 65 of the Malaysian Contracts
Act 1950 provides for consequences of
rescission of voidable contract.
Please refer.

Content:B. REMEDIES FOR BREACH OF


CONTRACTS
Definition
Types of remedies available
Damages
Quantum Meruit

Remedies under Specific Relief Acts 1950


Specific Performance
Injunctions

Remedies available in event of


Breach
Damages
Compensatory damages
Nominal damages
Punitive damages

Quantum Meruit
Specific performance
Injunction

Definition
A legal remedy - is the means with which
a CT of law, enforces a right, imposes a
penalty, or makes some other CT order
to impose its will.
There are several remedies for breach of
contract, such as damages, specific
performance, injunction, quantum meruit
and etc.

Damages
The purpose of awarding damages is to
compensate the Plaintiff for the loss
suffered due to the Defendants breach of
contract.
Damages is that sum of money which will
put the party who has been injured or who
has suffered, in the same position as if the
contract had been properly performed.

Types of Damages
Compensatory Damages
Nominal Damages
Punitive damages

Compensatory Damages.(AKA
Ordinary / General Damages)
Compensatory Damages cover the
loss the non-breaching party incurred as
result of the breach of contract.
The amount awarded is intended to make
good or replace the loss caused by the
breach.

cont
Compensatory damages can be divided
into:General damages cover the loss directly &
necessarily incurred by the breach.
Special damages cover any loss incurred by
the breach of contract because of special
circumstances / conditions that are not
ordinarily predictable.

Nominal Damages
Definition of nominal damages according
to Chitty on Contracts:Whenever a party is liable for breach of
contract, either express or implied, the
Plaintiff is generally entitled to nominal
damages although no actual damage is
proved; the violation of a right at common
law will usually entitle the plaintiff to
nominal damages without proof of special
damage.

..CONT
Nominal damages i.e a very small sum
of damages.
Nominal damages are awarded when,
e.g. a plaintiff who has sued for breach of
contract has suffered no loss.
Nominal damages are awarded merely to
acknowledge that his rights have been
breached.

Nominal Damages
In Industrial & Agricultural Distribution Sdn
Bhd v Golden Sands Construction Sdn Bhd
[1993] 3 MLJ 433, the Court further illustrated
the importance of proving damages and stated
that :
damages are not meant to be punitive in
nature but rather compensatoryIt is therefore
important for the plaintiff to establish his loss and
not, so much as what the defendant had gained
from the breach.

Punitive or Exemplary Damages


Punitive Damages are awarded to punish or
make an example of a wrongdoer who has acted
willfully, maliciously or fraudulently.
Unlike compensatory damages that are intended
to cover actual loss, punitive damages are
intended to punish the wrongdoer. Punitive
damages are rarely awarded for breach of
contract. They arise more often in tort cases.

Principles of claiming damages Causation


1. In order to recover damages, the
Plaintiff must show that his losses were
caused by the Defendants breach.
(show causation)
He has to prove that the loss was due to
the act or default of the Defendant and
there is no break in the chain of causation
between the Defendants breach and the
Plaintiffs losses.

Principles of claiming damages Remoteness of Damages


2. Apart from causation, the Plaintiff must also
show that the losses he has suffered are not
remote in order to recover them.
Losses, to be recoverable, must be within the
reasonable contemplation (i.e reasonable
foreseeable) of the parties.
In English law, the test of remoteness of
damages was laid down in Hadley v Baxendale
(1854) 9 Ex 341.

Hadley v Baxendale (1854) 9 Ex


341
A shaft in the plaintiffs mill broke down and the plaintiffs
hired the defendant to transport the shaft for repairs.
The Defendant delayed in returning the shaft and the
Defendant did not know that the plaintiffs did not have a
spare shaft.
The Plaintiffs sued for loss of profits as damages.
The CT held: The Plaintiffs action failed. That the losses
which are too remote are not recoverable.
NOTE: The action was heard on the basis that the only
information given to the Def was that the article to be
carried was the broken shaft of a mill & that the
Plaintiffs were the millers of that mill.

Hadley v Baxendale (1854) 9 Ex


341
Losses are NOT TOO REMOTE if they are:a) ordinary losses which arise naturally in the
usual course of things; or
b) extraordinary losses which arise within the
reasonable contemplation of the parties at the
time they entered into the contract.
Here, the loss of profits did not fall under the 1 st
limb as normally mills would have spare shaft.

Hadley v Baxendale (1854) 9 Ex


341
Since the Defendant did not know that
the Plaintiffs did not have spare shaft, the
losses did not fall under 2nd limb.
Hence, the losses are not recoverable.

Victoria Laundry (Windsor) Ltd v Newman


Industries Ltd [1949] 2 KB 528
The Court further explained the test of Hadley v
Baxendale in that:
a) the Plaintiff can always recover foreseeable
losses or damages which arises naturally
b) what is reasonable foreseebility depends on
the knowledge then possesses by the party in
default
c) knowledge is actual or imputed knowledge

cont
NOTE: The law will impute to every
individual, knowledge of the loss that is
liable to result naturally or in the ordinary
course of things from a breach of contract.
Whether or not the contract breaker actually
has this knowledge is irrelevant.
That is to say, imputed knowledge relates to
the 1st limb of Hadley v Baxendale.

cont
NOTE: In addition to the imputed knowledge,
the defaulter may have knowledge of special
circumstances which are outside the normal
course of things & which will add or enhance the
damage that may be caused by a breach of
contract (i.e. actual knowledge).
It is actual knowledge of the special
circumstances that activates the 2nd limb of
Hadley v Baxendale

Remoteness of damages in
Malaysia
In Malaysia, Section 74 Contracts Act
1950 sets out the consequences of a breach
of contract:
(1) when a contract has been broken, the
party who suffers by the breach is entitled to
receive, from the party who has broken the
contract, compensation for any loss or
damage caused to him thereby, which
naturally arose in the usual course of things

Remoteness of damages in
Malaysia
from the breach, or which the parties
knew, when they made the contract, to be
likely to result from the breach of it.
(2) Such compensation is not to be given
for any remote and indirect loss or
damage sustained by reason of the
breach.

Remoteness of damages in
Malaysia

Section 74 of the Contracts Act 1950


provides for the test for remoteness of
damages which is similar to the test in
Hadley v Baxendale : In Dato Mohd
Anuar bin Embong & Anor v Bank
Bumiputra (m) Sdn Bhd [1997] 1 MLJ
642 ta 653-654, Siti Norma Yaakob JCA
said that s. 74(1) & (2) of the CA 1950
restate the rule in Hadley v Baxendale.

cont
Therefore, once it is shown that the losses
could fall under the 1st or 2nd limb, the
Defendant is liable to the full extent of it so
long as the extent of damages has been
shown on the balance of probabilities.

Mitigation of Damages
The duty to mitigate (i.e. minimise the
losses) only comes about when there is a
breach of contract.
The explanation in Section 74 CA 1950
provides that: In estimating the loss or
damage arising from a breach of contract,
the means taken to remedy the
inconvenience caused by the nonperformance of the contract must be taken
into account.

Principles of mitigating
The Plaintiff must take reasonable steps to
mitigate his loss and must not incur
unreasonable expenses.
What this means is that the plaintiff cannot
recover any part of the damages that he
could have avoided by taking all reasonable
steps possible in the circumstances.

Timing of Assessment of Damages


As a general rule, damages should be
assessed as at the date of breach.
In Malaysia, the Court in Elkobina (M) Sdn
Bhd v Mensa Mercantile (Far East) Pte
Ltd [1994] 1 MLJ 553 held that:
A) the normal measure for damages is the
difference between the market price of the
goods or property as at the date of breach
and the contract price.
B) in appropriate cases, losses can be
assessed as at the date of trial.

Quantum Meruit
Quantum Meruit : where a plaintiff sues
for an unspecified amount for services
rendered (claim for reasonable
remuneration)
Quantum Meruit means as much as he
can earned.

Quantum Meruit where available


The circumstances in which a quantum
meruit may be claimed are as follows:
1. when there is an express /implied
agreement to provide a service but no
agreement as to price.
Case: Ayer Hitam Tin Dredging
Malaysia Bhd v YC Chin Enterprises
Sdn Bhd [1994] 2 MLJ 754

cont
2. where the parties have not performed
the terms of their contract but a new
contract can be inferred from their conduct
to have replaced the original, a quantum
meruit award may be available for the
value of the work done under the new
implied contract.
Case: Smith Construction Co Ltd v Phit
Kirivatna (f) [1955] MLJ 8, HC

cont
3. where a contract is terminated by
breach after one party has performed his
obligations, the party not in default may
elect to accept the breach & sue on
quantum meruit for the value of work
done.
Case: De Bernady v Harding (1853) 8
Ex 822; 11 ER 1586

cont
4. A quantum meruit is also available to a
a prty who is prevented from completing
his obligations by the other party.
Case: Ban Hong Joo Mines Ltd v Chen
& Yap [1969] 2 MLJ 83, FC

Remedies under Specific Relief Acts 1950


Specific Performance & Injunction are forms of
what is termed as specific relief.
Specific relief is embodied in a statute Specific
Relief Act 1950 & s.4 of the Act provides:
Specific relief is given
a) by taking possession of certain property &
delivering it to a claimant
b) by ordering a party to do the very act which he
is under an obligation to do.

cont
c) by preventing a party from doing that
which he is under an obligation not to do
d) by determining & declaring the rights of
parties otherwise than by an award of
compensation; or
e) by appointing a receiver
S.4(b) encompassed the order of specific
performance & s.4(c) may refer to the
injunction.

Specific Performance
SP is an decree/order of CT requiring a
party to perform in terms the very
obligations he undertook to discharge on
entering into the contract.
The purpose is to put the parties in the
position, in which the due performance of
their obligations would have placed them.

Specific Performance where


available
As an equitable remedy, SP is available
only when the common law or a statute
does not provide an adequate remedy.
Generally, Specific performance is
available in the following circumstances:a) where the contract breached is for the
sale & purchase of land

cont
b) if the subject matter of the contract is rare
(or unique); the reasoning is that damages
are not an adequate remedy because they
will not place the innocent party in position
he would have been in but for the breach.
c) exceptional circumstances where
damages would not be adequate remedy :
Beswick v Beswick [1968] AC 58.

Injunction
Injunction : are form of what is term as specific
relief & it is embodied in section 4(c) of the
Specific Relief Act 1950.
s.4: Specific relief is given (c) by preventing a
party from doing that which he is under an
obligation not to do
An injunction is an order of CT to prohibit
threatened / continuing illegal conduct of certain
kinds.

cont
It is awarded in circumstances where
damages would not be an adequate remedy
to compensate the claimant because the
claimant needs to restraint the defendant
from starting or continuing a breach of a
negative contractual undertaking
(prohibitory injunction) or needs to compel
performance of a positive contractual
obligation (mandatory injunction).

..cont
The condition precedent for the grant of an
injunction are:
a) the plaintiff must have an interest to
protect
b) damages must be shown not to be an
adequate remedy
c) there is danger that unless restrained, the
defendant will breach the contract / continue
with the breach complained of.