Damages1

Part 1
Damages are normally assessed at the time of breach (Johnson v Agnew (1980)), although
this is not an inflexible rule.

It was held in Golden Strait Corporation v Nippon Ysen Kubishika Kaisha, The Golden
Victory (2007) that in exceptional cases damages would be reduced where it was proven
that, between the date of breach and the time of trial, certain events occurred which
would have inevitably reduced the damages the claimant could have recovered in respect
of its loss.

In Bacciottini v Gotelee (2016) the defendant firm of solicitors conceded that its conduct
in the course of acting for the claimants in a property transaction had been negligent, but
argued that its negligence had not caused a loss beyond the nominal sum of £250, because
the claimants had mitigated their loss. The Chancery Division held that the claimants loss
had been eradicated by mitigation and that their was no evidence to justify an award of
damages other than or in excess of £250.

The date of breach is the right date to assess damages where there is an immediately
available market for the sale of the relevant asset or for the purchase of an equivalent
asset (Hooper v Oates [2013] EWCA Civ 91).
The expectation loss
The general rule is that an award of damages for breach of contract seeks to protect the
claimant’s expectation interest. As held in Robinson v Harman “the rule of the common
law is, that where a party sustains a loss by reason of breach of contract, he is, so far as
money can do it, be placed in the same situation, with respect to damages, as if the
contract had been performed.”

An award based on the claimant’s expectation interest is compensation for the loss of a
bargain. The claimant may thereby obtain the profits he would have received had the
contract been performed – damages are assessed in reference to the claimant’s
expectation or performance loss. If A contracts to buy a painting from B for £100 and A
plans to resell the painting for £200, on the expectation measure of damages, A has lost
£100 as this is his profit upon the re-sale. Had he already paid the £100 purchase price, he
has lost £200. What is important in these situations is that the law compensates A for the
benefit he would have obtained by reason of his contract with B.

It has been argued that the expectation loss cannot be solely computed on the basis of loss
of profit. For example contracts to enhance leisure time may include an element beyond

1
Amila Siriwardena LLB (Hons)(London), LLM (Colombo), MPhil (Reading), Attorney-at-Law
financial means. Thus, in Alfred McAlpine v Panatown Lord Goff (dissenting) stated
that a party may suffer a loss beyond diminution of his/her financial position.
Cost of cure
One issue in deciding expectation is whether the expectation should give you the ‘cost of
cure’ or the difference in value. In situations where the defendant does not perform the
contract, or performs it badly, the claimant is generally entitled to the cost of cure. This is
the amount required to pay a third party to perform what was stipulated in the contract.

In Watts v Morrow (1991) Watts instructed Morrow to provide a full structural survey
on a house he wished to purchase. The report found the property to be sound, stable and
in good condition. Such defects as there were could be dealt with as part of ordinary, on-
going maintenance and repair. Watts purchased the property and subsequently
discovered substantial defects which cost over £33,000 to correct. Watts brought an action
for breach of contract.

The issue before the court was whether Watts can claim damages for the cost of the repair
work together with further damages for the distress caused by having to live on a
‘building site’ for several months.

The Court held that Watts is only entitled to claim damages for the excess purchase
amount he paid to the house in reliance of the report and not the cost for conducting
repairs.

In some instances, however, the courts will not award the cost of the cure where this is
wholly disproportionate to any benefit which would be received (where there is little
difference in value between the value of the thing contracted for and the thing received).
In this situation the courts may award the difference in value.

In Ruxley v Forsyth Mr Forsyth had contracted for a recreational swimming pool of a

certain depth. The pool was built to the wrong depth and Mr Forsyth sued for breach of
the express term. The cost of cure would have required the original pool to be taken out,
re-dug and replaced correctly. This cost far exceeded the original cost of the pool. The
difference in value, the court decided, was nil. In trying to ensure that damages are truly
compensatory the courts had to ensure that Mr Forsyth was not over-compensated (i.e.
that Mr Forsyth had a swimming pool and extensive damages). The outcome may have
been different if Mr Forsyth had required the pool to be at a certain depth for reasons
other than merely recreational use. Faced with this situation the courts awarded neither
cost of cure nor difference in value but awarded damages based on loss of amenity
A cheaper way to cure the breach

In 125 OBS v Lend Lease Construction the court awarded damages (Approx. 14.7
million) following the recurrent failure of glass used in the refurbishment of the old
London Stock Exchange, which was the cost of re-grazing the building. The court
dismissed as unreasonable an argument that the problem could be ‘cured’ less
expensively by the construction of a canopy to catch falling glass!
Loss of chance

Loss of a chance can also form the basis of a claim for loss of expectation. This is unusual
but see Chaplin v Hicks (1911) where the plaintiff received damages for the loss of a chance
to compete in a competition. Such damages are meant to compensate for the lost
opportunity and so, given that there was no certainty that the plaintiff would if she
entered have won, the amount recovered will be less than the ‘prize’ for winning.
Reliance Loss
If the claimant is unable to prove the value of his or her expectations, the court may resort
to award damages on the basis of reliance loss. Here the court may take into account the
expenditure and other losses suffered by the claimant because of the contract.

In Anglia Television v Reed (1972) the plaintiff was unable to establish what profit his
television show would have made and consequently claimed for the expenditures he had
incurred.

In Yam Seng v International Trade Corp. the court held that for a breach of franchise
agreement to sell branded goods, wasted marketing and promotional costs, damages
could be recovered on the basis that the defendant had made false representations and
induced the claimant to enter int the contract.

It should also be noted that C & P Haulage v Middleton is authority to say that the court
will not award damages if the claimant attempts to escape from a bad bargain.
When is restitution available?
The circumstances in which a claimant can recover on a restitutionary basis for a breach
of contract are strictly limited. Recovery on a restitutionary basis will only occur when
the claimant can establish that the defendant was enriched at the claimant’s expense and
that it is unjust to allow the defendant to retain his profit without compensating the
claimant. A restitutionary reward requires the defendant to disgorge the profit obtained
as a result of his wrongdoing. When a contract is terminated because of the defendant’s
breach, the claimant may elect to proceed in contract or restitution.
 (a) Total failure of consideration

In the first set of circumstances, the claimant may seek a restitutionary remedy where
there has been a total failure of consideration. The decision in Whincup v Hughes (1871)
stands for the proposition that the claimant may seek a restitutionary remedy by saying
that the basis upon which he conferred a benefit has failed entirely because of the
defendant’s breach of contract. However, if any part of the contract had been fulfilled,
the remedy for restitution will not be awarded.

(b) Unjust benefit

This remedy will be available if the claimant can prove that the defendant had made a
gain from breaching the contract.

In Attorney General v Blake the court held that it would order an account of profits where
neither equitable remedies nor an award of damages would not provide sufficient
remedy. (However, this would only be awarded in exceptional circumstances).

In Wrotham Park Estate Co Ltd v Parkside Homes Ltd (1974) A land was developed for
housing in breach of a restrictive covenant in the sale agreement. The developer was
ordered to pay 5 per cent of the profit to the estate which had the benefit of the covenant
despite the fact that the development did not affect the value of the estate at all. The
fractional account of profits ordered in Wrotham Park was the amount which a reasonable
person might have asked for the waiver of the covenant.

Non-pecuniary loss
This would include losses in the form of mental distress, stress, anxiety etc.

In Addis v Gramaphone The House of Lords held that injured feelings were not
compensable for a breach of contract. (He claimed damages for the indignity he suffered
because of the manner in which he was dismissed from employment.

Recently however, the courts have adopted a more relaxed approach in this regard.

For example in Jarvis v Swan Tours the court of Appeal held that where a contract is
entered for the specific purpose of the provision of enjoyment or entertainment, damages
may be awarded for the disappointment, distress, upset and frustration caused by a
breach of contract in failing to provide the enjoyment or entertainment.

Further in Hamilton Jones v David and Snape – The claimant was represented by the
respondent firm of solicitors in an action for custody of her children. Through their
negligence the children had been removed from the country. She sought damages for the
distress of losing her children. The Court held that Damages was proper and recoverable.

Moreover, in Milner v Carnival Plc the court awarded damages for inconvenience when
the claimant’s clothes and cabin on a cruise liner was damaged in a storm.
Activity 1
What is the purpose behind preventing a recovery of damages for mental distress
where there is a breach of an ‘ordinary’ contract?

Remoteness of damages
Even if the claimant establishes that his loss was caused by the defendant’s breach,
damages cannot be recovered for this loss where the loss is held to be too remote.
The Court established the basic rule in Hadley v Baxendale (1854). In this case the owners
of a mill took their broken shaft to a delivery company to send it to engineers in
Greenwich. The carriers delayed the delivery and the owners were not able to use the
mill during this time. The owners sought damages based on their loss of business during
this time. The court held that the owners could not recover damages for the loss of
business during the period of the delay because this was not damage that was reasonably
foreseeable by the carriers – it would not be within the normal contemplation of the
carriers that the owners would be unable to operate the mill without that particular shaft.
In a now famous passage, Alderson B stated:
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 a contract should be such as may fairly and
reasonably be considered as [1] either arising naturally, that is according to the usual course
of things, from such breach itself, or [2] 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.

Damages as a result of a loss arising naturally within the usual course of things

In South Australia Asset Management Co v York Montague Ltd [1997] the House of
Lords held that what will determine which damages arise in the usual course of things,
as a probable result of breach, will depend on the degree of knowledge the parties are
presumed to possess and the scope of the contractual duty.

Damages where the losses as a result of the breach had been within the contemplation
of the parties
The second limb deals with the situation where there are exceptional circumstances. That
is to say, if the contract is breached, then the consequences of the breach will be
particularly severe because, for example, an especially lucrative opportunity will be lost.
In this case, the damages will only be recoverable (that is to say, they will not be too
remote) if the special circumstances are reasonably within the contemplation of the
parties at the time they made the contract as likely to occur if the contract is breached.
The most likely way this test will be satisfied is if the circumstances were actually
communicated by one party to the other.
No damages were recovered in Hadley v Baxendale. The court found that reasonable
people in the position of the carriers would not think that while they had possession of
the shaft the mill was idle. Rather they might reasonably expect that the mill owners
might have had a spare shaft.

In Victoria Laundry v Newman Industries the defendant engineers failed to deliver and
fit a boiler as they had contracted with a laundry to do. The laundry consequently lost
income from two sources: they lost some of their normal laundering business and they
also were not able to obtain some particularly lucrative dying contracts from the Ministry
of Supply. It was held that the first item of loss was recoverable under the first limb of
Hadley but that the second was not recoverable under either limb.

In The Heron II the House of Lords addressed the difficult question of the probability of
occurrence which must be foreseen. There were several formulations discussed but the
greatest consensus was that for any item of loss to be recoverable as damages for breach
of contract it must have been within the reasonable foresight or contemplation of the
parties as a ‘not unlikely’ consequence of breach.

The Privy Council in Attorney General of the Virgin Islands v Global Water Associates
[2020] UKPC 18 thought the term a ‘serious possibility’ to express the same likelihood as
‘not unlikely’.

Read: the decision of the House of Lords in Transfield Shipping Inc v Mercator Shipping Inc
(The Achilleas) (2008).

In Parsons v Uttley Ingham Parsons ordered a bulk storage hopper to store pignuts to
feed their top-grade pigs from the defendants. When installing the hopper, the
defendants failed to ensure the ventilator was left open which caused the pignuts to go
mouldy. The mouldy food caused the outbreak of an infection which killed 254 pigs.
Parsons brought a claim for breach of contract.

The court found the defendants liable and held that although the deadly infection could
not have reasonably been foreseen at the time the contract was made, it was reasonably
foreseeable that the pigs would become ill if their food was inappropriately stored. Where
the type of damage is reasonably foreseeable at the time of contract formation, then
damages will be recoverable for losses consequent on breach, even if the specific
consequence could not have been foreseen.