Here are some of my notes on remedy of contracts. It is with out doubt considered to be one of the most important areas in contract law. The client of course is really interested in this section too as its solves his problem.

A normal breach of a contract is mostly solved by damages. Monetary is the normal form of compensation. There is also performance contracts which can be used too.

(There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. For example where an art collector purchases a rare painting and the vendor refuses to deliver, the collector's damages would be equal to the sum paid.

The court may make an order of what is called "specific performance", requiring that the contract be performed. In some circumstances a court will order a party to perform his or her promise (an order of "specific performance") or issue an order, known as an "injunction," that a party refrain from doing something that would breach the contract. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a unique value)

Robinson V Harman famously cited for putting the plaintiff back to where he was monetary wise if the contract had not been performed. That is a aim of remedy law.

How is that calculated?

Loss of profit is the key objective this is calculated by the following ways:

Expectation Loss

Reliance loss

Restitution damages

Privity Contract

The doctrine of privity in contract law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it.

The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.

Privity of contract occurs only between the parties to the contract, most commonly contract of sale of goods or services. Horizontal privity arises when the benefits from a contract are to be given to a third party. Vertical privity involves a contract between two parties, with an independent contract between one of the parties and another individual or company.

If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer.

This, however, does not mean that the parties do not have another form of action e.g. Donoghue v. Stevenson – here a friend of Ms. Donoghue bought her a bottle of ginger beer, which was defective. Specifically, the ginger beer contained the partially decomposed remains of a snail. Since the contract was between her friend and the shop owner, there was no privity of contract, but it was established that the manufacturer has a duty of care owed to their consumers and she was awarded damages in tort.

Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty

Wrotham Park Estate Co Ltd v Parkside Homes Ltd

In Wrotham Park, a decision at first instance in 1974, the defendant built houses on land that was subject to a restrictive covenant. The houses were therefore constructed in breach of that covenant. The claimant sought a mandatory injunction requiring demolition of the houses. Brightman J was not prepared to close his mind to the fact that the houses now existed, or, as he put it, the ‘fait accompli’, and refused to grant the injunction. Although the existence of the new houses did not diminish the value of the land ‘by one farthing’, Brightman J considered that justice would not be served if the claimant recovered only nominal damages or no damages at all. He therefore concluded that, despite the fact that no identifiable financial damage had been suffered by the claimant, damages should be assessed as 5% of the defendant’s anticipated profit in developing and selling the properties. The damages awarded should reflect an amount of money ‘as might reasonably have been demanded by [the claimant]from [the defendant] as a quid pro quo for relaxing the covenant’.

Cost of Cure

How much would it cost?

Damages are not a matter of law but a fact, rational way of a placing a value on what is lost. The date that one can claim damages from is from the date of breach.

Mitigating Loss

The respondent must always try to reduce the amount of damages. By doing anything reasonable possible. As the following cases show:

Golden Victory, The (LANGLEY, J.) - Charter-party (Time)/Damages/Each party having right to cancel charter in event of war between U.K. and Iraq/Charter-party to terminate in 2005/Repudiation of charter-party by charterers in 2001/War breaking out in 2003/Owner's measure of damages/Whether damages ran from date of repudiation to outbreak of war in 2003 or from date of repudiation to later date on which charter-party due to terminate/Appeal against award of arbitrator/Arbitration Act, 1996, s. 69 - Q.B.D. (Com. Ct.)

1. CAUSATION

The plaintiff must show that his loss was one which resulted from a breach of contract by the defendant (a direct causal link).

An act of the defendant in a sequence of events leading to a loss might not be held to be the cause of the loss. For example, a shipowner was not liable to a charterer when, as a result of delay, the ship ran into a typhoon, as such a catastrophe may occur anywhere: The Monarch SS Co Case [1949] AC 196.

If there are two causes of the state of affairs resulting in damage, and both causes have equal effect, one will be sufficient to carry a judgment for damages. See:

Smith, Hogg & Co v Black Sea Insurance [1940] AC 997.

An intervening act of a third party which itself causes the loss to the plaintiff, or aggravates the loss, caused by the defendant's breach, will not absolve the defendant from liability if the intervening act was reasonably foreseeable (the Victoria Laundry and The Heron II principles, below). Compare:

Stansbie v Troman [1948] 2 KB 48
Weld-Blundell v Stephens [1920] AC 956.

2. REMOTENESS OF DAMAGE

Not every type of damage caused to the plaintiff as a result of the breach of contract will be recoverable. If the loss flowing from the breach of contract is too remote then it cannot be recovered. Losses, to be recoverable, must have been within the reasonable contemplation of the parties. See:

Hadley v Baxendale (1849) 9 Exch 341.

Damages are recoverable under two limbs under Hadley v Baxendale: (i) Damages which may fairly and reasonably be considered as arising naturally from the breach; (ii) Damages which may reasonably be supposed to have been in the contemplation of the parties, as liable to result from the breach, at the time of the contract.

The Court of Appeal took the opportunity to review and restate the principles governing the measure of damages in:

Victoria Laundry v Newman Industries [1949] 2 KB 528.

The principles relating to remoteness of damage were further considered in the House of Lords and given greater refinement in:

The Heron II [1969] 1 AC 350.

The effect of "the two limbs" in Hadley v Baxendale is as follows:-

Losses which occur "in the ordinary course of things" only are recoverable under the first limb. See:

Pilkington v Wood [1953] Ch 770.

The defendant's knowledge of special circumstances under the second limb is not in itself sufficient to make him liable. There must be knowledge and acceptance by the defendant of the purpose and intention of the plaintiff. Compare:

Horne v Midland Railway (1873) LR 8 CP 131
Simpson v L & N Railway (1876) 1 QBD 274.

3. MITIGATION OF LOSS

It is the duty of every plaintiff to mitigate his loss, that is, to do his best not to increase the amount of damage done. There are three rules:

(i) The plaintiff cannot recover for loss which the plaintiff could have avoided by taking reasonable steps.
(ii) The plaintiff cannot recover for any loss he has actually avoided, even though he took more steps than were necessary in compliance with the above rule.
(iii) The plaintiff may recover loss incurred in taking reasonable steps to mitigate his loss, even though he did not succeed.

The plaintiff must minimise the loss resulting from the breach by taking all reasonable steps available to him. If he fails to do so, then he cannot recover anything in respect of that extra loss. See:

Payzu v Saunders [1919] 2 KB 581.

However, the plaintiff is not expected to take risks in order to mitigate losses caused by the defendant's breach:

Pilkington v Wood [1953] Ch 770.

If the plaintiff obtains any benefits as a result of his mitigation, these must be taken into account. See:

British Westinghouse v Underground Electric Railway of London [1912] AC 673.

Note the case of White & Carter v McGregor [1962] AC 413; an exception to the general rule?

4. PURPOSE OF DAMAGES

Damages are meant to compensate the injured party for any consequences of the breach of contract. The underlying principle is to put the injured party financially as near as possible, into the position he would have been in had the promise been fulfilled.

In Addis v Gramaphone Co Ltd [1909] AC 488, Lord Atkinson said: "I have always understood that damages for breach of contract were in the nature of compensation, not punishment."

5. HEADS OF DAMAGE & CALCULATION

There are several ways in which the plaintiff can be compensated for his loss and the plaintiff is entitled to choose whichever form of compensation he feels is most appropriate to his case.

HEADS OF DAMAGE

(i) LOSS OF BARGAIN

Damages for loss of bargain are assessable to put the plaintiff, so far as money can do it, in the same situation as if the contract had been performed. For example, in a contract for the sale of goods which are defective, the plaintiff will (under this head) be entitled to damages reflecting the differences between the price paid under the contract and the actual value of the defective goods.

(ii) RELIANCE LOSS

Damages for reliance loss are designed to put the plaintiff in the position he would have been, if the contract had never been made, by compensating him for expenses he has incurred in his abortive performance. See:

McRae v Commonwealth Disposals (1950) 84 CLR 377
Anglia Television v Reed [1972] 1 QB 60.
(iii) RESTITUTION
Where a bargain is made and the price paid, but the defendant fails to deliver the goods, then the plaintiff is entitled to recover the price paid plus interest thereon.

NOTE: Incidental losses are those which the plaintiff incurs after the breach has come to his notice. They include the administrative costs of buying a substitute, or sending back defective goods, or hiring a replacement in the meantime. Consequential losses may be loss of profits, for example, reliance loss, or further harm such as personal injury or damage to property.

The plaintiff's choice of claim may be aided by the fact that more than one of the claims is available to him. In such cases, the plaintiff can combine the claims:

Millar's Machinery Co v David Way (1935) 40 Com Cas 240.

TIME FOR ASSESSMENT OF LOSS

The general rule is that damages are to be assessed at the time of the breach. However, the court can postpone the date for assessment of damages to a more appropriate time. See:

Johnson v Agnew [1980] 1 All ER 883.

CALCULATION OF DAMAGES FOR LOSS OF BARGAIN

Where the plaintiff claims for loss of bargain and that he be put in the position as if the contract had been performed, two bases of assessment are available: cost of cure and difference in value. See:

Peevyhouse v Garland Coal Co (1962) 382 P 2d 109.

In the majority of cases where there is a discretion, the court will exercise this to use the most appropriate basis of assessment in the case. However, certain rules do exist for working out the appropriate mode of assessment:

(i) In sale of goods contracts if a defect can be cured at a reasonable cost, the cost of cure will be awarded, otherwise the difference in value is awarded.
(ii) In building contracts, cost of cure basis is usual, and the builder must put the defects right. However, if the cost of cure is greater than the whole value of the building, then only the difference in value will be awarded. This issue was considered by the House of Lords in:

Ruxley Electronics & Construction v Forsyth [1995] 3 WLR 118.

ACTUAL AND MARKET VALUES

Where damages are based on the difference in value principle, then market values may be taken into account to assess the plaintiff's loss. For example, where the defendant fails to deliver goods or render services, then the plaintiff can go into the market and obtain these goods or services at the prevailing price. Therefore the plaintiff's damages will be the difference between the market price and the price of the goods or services in the contract. There are two rules:

(i) Under s51 SGA 1979, where a seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery. But such an action will not allow the seller to recover for anything more than the difference between the market value and the contract value.

(ii) If the defendant wrongfully refuses to accept and pay for the goods, then the plaintiff can sue for the loss of profit on that transaction in certain circumstances. Compare:

Thompson v Robinson (Gunmakers) Ltd [1955] Ch 177
Charter v Sullivan [1957] 2 QB 117.

DAMAGES WHICH ARE IRRECOVERABLE

The plaintiff may be able to recover damages for injury to feelings in tort, but in contract such damages are irrecoverable. See:

Addis v Gramaphone Company [1909] AC 488.

This principle was reaffirmed by the Court of Appeal in Bliss v South East Thames Regional Health Authority [1985] IRLR 308 (an unfair dismissal case).

OTHER TYPES OF DAMAGE

(i) Discomfort, vexation and disappointment
In Jarvis v Swan Tours [1973] 2 QB 233, the plaintiff solicitor, went on a Swan Tour and sued for damages because the hotels and buses fell short of the standards promised. It was held that the plaintiff could recover damages for the disappointment and discomfort he had been caused as a result. See also Jackson v Horizon Holidays.

However, there is a limit to damages for distress for breach of contract. In Bliss, Dillon LJ stated that such damages should be confined to cases "where the contract which has been broken was itself a contract to provide peace of mind or freedom from distress". Recently, the Court of Appeal made it clear that they were not prepared to extend the circumstances in which damages for distress or disappointment might be granted:

Alexander v Rolls Royce Motor Cars [1995] TLR 254.

(ii) Inconvenience
In Bailey v Bullock [1950] 2 All ER 1167, a solicitor failed to take proceedings to recover his client's house for him and was held liable in damages for the inconvenience caused by reason of the client having to live with his wife's parents for two years.

(iii) Diminution of future prospects
In Dunk v George Waller [1970] 2 QB 163, an apprentice was wrongfully dismissed, but had he been allowed to complete his apprenticeship he would have got a certificate entitling him to certain jobs at certain wages. Without this certificate, his chances were lessened and he claimed damages for diminution of future prospects. He was held to be entitled to damages on this basis as the object of his apprenticeship was to enable him to get better employment.

(iv) Speculative damages
If the plaintiff's loss is the chance of doing something or benefiting from doing something, and this contingency is outside the control of the parties, then he is entitled to damages if the defendant's breach of contract denies him this chance. For example, in Chaplin v Hicks [1911] 2 KB 786, the plaintiff recovered damages for loss of the chance to take part in a beauty contest.

6. LIQUIDATED DAMAGES & PENALTY CLAUSES

The parties to the contract may make a genuine assessment of the losses which are likely to result in the event of a breach, and stipulate that such sum shall be payable in the event of a breach. Such clauses are known as liquidated damages clauses and will be effective in the event of a breach, and the plaintiff will not recover more than that sum. (No action for unliquidated damages will be allowed.)

If, however, the clause is not an assessment of losses, but is intended as punishment on the contract-breaker, then the clause is a penalty clause and is void. In an action for breach of contract it is disregarded.

The parties may often be in dispute over whether the clause was a penalty or a liquidated damages clause. Various rules have been formulated to deal with such contingencies. See:

Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79.

Where the contract has underestimated damages in the event of a breach, either because of inflation or through bad bargaining, damages will be limited to the amount stipulated by the contract. See:

Cellulose Acetate v Widnes Foundries [1933] AC 20.

If the clause is in fact a penalty clause, then as it is void, the plaintiff can ignore it and sue for his actual loss:

Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66.

Consequential damages

George Mitchell v Finney Lock Seeds Ltd [1983] 2 All ER 737

The plaintiff farmer bought cabbage seeds from the defendant national seed company. The plaintiff planted the seed but the seed was defective and the crop was a total failure. The plaintiff claimed over �60,000 damages for breach of contract, based on the loss of the crop. The defendants attempted to rely on a clause in the contract which purported to limit their liability to the cost of the seeds at �201-60.

The House of Lords held that although the clause was part of the agreement and covered this event, it was however, unreasonable. The reasons for this were: that it appeared that the normal practice of the seller was not to rely on the limitation clause, but to negotiate settlements of reasonable claims; the breach was due to the seller's negligence; and the seller could have insured against the loss without materially raising his charges

Injunction

injunction is an equitable remedy in the form of a court order, whereby a party is required to do or interact with in certain ways all right, or to refrain from doing, certain acts. The party that fails to adhere to the injunction faces civil or criminal penalties and may have to pay damages or accept sanctions for failing to follow the court's order. In some cases, breaches of injunctions are considered serious criminal offenses that merit arrest and possible prison sentences.

In the law of Remedy, an order of specific performance is an order of the court which requires a party to perform a specific act, usually what is stated in a contract. While specific performance can be in the form of any type of forced action, it is usually used to complete a previously established transaction, thus being the most effective remedy in protecting the expectation interest of the innocent party to a contract. It is usually the opposite of a prohibitory injunction but there are mandatory injunctions which have a similar effect to specific performance.

Under the common law, specific performance was not a remedy, with the rights of a litigant being limited to the collection of damages. However, the courts of equity developed the remedy of specific performance as damages often could not adequately compensate someone for the inability to own a particular piece of real property, land being regarded as unique. Specific performance is often guaranteed through the remedy of a right of possession, giving the plaintiff the right to take possession of the property in dispute. However, in the case of personal performance contracts, it may also be ensured through the threat of proceedings for contempt of court.

Orders of specific performance are granted when damages are not an adequate remedy, and in some specific cases such as land sale. Such orders are discretionary, as with all equitable remedies, so the availability of this remedy will depend on whether it is appropriate in the circumstances of the case.

There are certain circumstances where an order of specific performance would not be granted. Such circumstances include:

1. specific performance would cause severe hardship to the defendant
2. the contract was unconscionable
3. the claimant has misbehaved (no clean hands)
4. specific performance is impossible
5. performance consists of a personal service
6. the contract is too vague
7. contracts terminable at will
8. contracts requiring constant supervision
9. contract lacking mutuality.
10. contract made for no consideration.

Additionally, in England and Wales, under s. 50 of the Supreme Court Act 1981, the High Court has a discretion to award a claimant damages in lieu of specific performance (or an injunction). Such damages will normally be assessed on the same basis as damages for breach of contract, namely to place the claimant in the position he would have been had the contract been carried out.