Notes on Treitel

1. A claim for damage is one for compensation in money for the fact that the claimant
has not received the performance for which he bargained.

2. The action for damages is always available when a contract has been broken. It should
be contrasted with claims for specific relief and for restitution, which are either
subject to the discretion of the court or only available if certain conditions are
satisfied. The action for damage can be satisfied even though the victim has not
suffered from any loss, that is nominal damages.

General principle: damages are compensatory

Loss to claimant the criterion
1. As a general rule, damages are based on loss to the claimant and not on gain to the
defendant. It also follows that damages are not awarded merely on the ground that
the defendant has by the breach saved himself expense.

2. Meaning of loss: there is no conceptual basis of what constitutes loss. This leaves
rooms for a number of theories. First, direct loss: non-re-receipt of the performance
bargained for. second, consequential loss: the subsequent adverse consequences of
such non-receipt. Although the court seems to accept performance interest, for the
present purpose, loss includes any harm to the person or property of the claimant, and
any other injury to his economic position in the wider sense now recognized by the
courts.

3. In determining whether the victim has suffered loss, his overall position is taken into
account. For example, any benefits which he may have obtained under the broken
contract, and his release from obligations under it. If a buyer has not yet paid and is
released from his obligation to do so by the seller’s wrongful failure to deliver, his
loss will be the value of the goods less the price.

4. The court will also take into account the overall position in determining the basis on
which damages are to be assessed, it will not generally order the defendant to pay
which makes the position of the claimant better than him.

5. The principle that the claimant’s overall position should not be made better than it
would have been, if the contract had not been broken, is subject to a number of
qualifications. First, it is no inflexibly applied where costs are actually incurred by
the claimant in remedying the breach. In a case, the claimant’s factory was burnt
down a result of the defendant’s breach of contract. It was held that the claimant could
recover the cost of rebuilding the factory without making any allowance for the fact
that he would then have a new factory. The case can be explained on the ground that
the claimant had no reasonable alternative but to rebuild, or that he did so in order to
mitigate his loss. Secondly, the principle was modified where a client had suffered
loss in consequence of bad investment advice given by the defendant and had, before
suffering the loss, spent some of the income produced by the investments on living
expenses. This expenditure generated no benefit to the claimant and did not have to be
brought into account since the very object of the contract was to produce an increased
income for the client. Thirdly, the principle in Philips v Ward does not require the
court to take into account benefits derived by the claimant under some contract with
the defendant, other than the one which has been broken. Thus, if there are two
 contracts between them, any profit made by the claimant in consequence of the
performance of one of those contracts will not have to be brought into account in
assessing his damages in respect of the breach of the other.

6. Breach having no adverse effect: the claimant cannot recover substantial damages if
the breach has not adversely affected his position as damages are designed to
compensate for an established loss and not to provide a gratuitous benefit to the
aggrieved party. For example, a buyer has not paid and if, at the time fixed for
delivery, he can buy substitute goods more cheaply elsewhere, the breach will have
had no adverse effect on him, so that he will not be entitled to substantial damages.
Nor can a buyer recover substantial damages merely because the seller delivers goods
which are not of the contract description if they are in fact no less valuable than goods
which are of the contract description.

7. Damages based on the gain made by the defendant: there is one exception to the
rule that damages for breach of contract are based on loss to the claimant and not on
gain to the defendant. An account of profit may be ordered against a person who
wrongfully uses another’s trade secrets or confidential information, and this remedy
may also be available where the wrongful use amounts to a breach of a contract of
employment. Where a breach of contract amounts also to breach of a fiduciary
obligation, damages may also be based on the defendant’s profit.

8. Attorney general v Blake: the wider availability of the remedy of an account of

profits for breach of contract was recognized by the house of lords in attorney general
v Blake. While employed as a member of the security services, Blake passed secret
information to agents of Soviet Union, in breach not only of the terms of his
employment but also of the official secrets act 1911, he was convicted of offences
under that act and sentenced to 42 year’s imprisonment. He escaped from prison and
fled to Moscow where he entered into an agreement with an English publisher for the
publication of his autobiography, the disclosure of information amounted to both a
further offence under 1911 act and a further breach of Blake’s contract with the
crown. However, this breach caused no material loss to the Crown in respect of which
compensatory damages could have been recovered. The house of lord held that where
damages were not a sufficient remedy, the court should exceptionally be able to grant
the discretionary remedy of requiring a defendant to account to the claimant for
benefits derived from his breach of contract. Also, a useful general guide is that
whether the plaintiff had a legitimate interest in preventing the defendant’s profit-
making activity and hence in depriving him of the profit. It seems like the test is two-
folded, first, it has to be established that the inadequacy of other remedies thus
appears to be a condition precedent to the award of an account of profits. Second, the
claimant must also show that he has a legitimate interest in depriving the defendant
of his profit.

9. Scope: the overriding principle is that this discretion is to be governed so far as

possible by fixed rules and principles. In relation to the discretion created by the
above case, he only gave the general guide that this depends on whether the claimant
had a legitimate interest in preventing the defendant’s profit-making activity, but this
formula does little to reduce the uncertainty. Some further guidance is provided: an
account of profits is not to be available merely because the defendant is guilty of
 either skimped performance or by doing the very thing that he has promised not to do
and so on. But no positive indication is given.

10. Only in exceptional circumstances: the facts of that case can fairly be described as
not merely exceptional, but as extreme, and it is hard to take issue with the outcome
on those facts. Secondly, on such facts there would normally be other ways of
stripping the wrongdoer of his profits. Lord Hobhouse said if such a rule extends to
commercial situations, it would be disruptive. In Esso Petroleum v Niad, an account
of profits was ordered as a remedy for breach of a contractual scheme under which
Esso provided financial support to the defendant, in exchange for him agreeing to
keep the price at which petrol was sold from his garage in a certain level. The
defendant received financial support, but did not lower the price as required. Damages
were regarded as an inadequate remedy, since it was impossible for Esso to attribute
any lost sales of petrol to breach of the scheme by one dealer.

11. Wrotham Park Damages: this award of damages is so named after the wrotham park
case, in which a developer had acquired land subject to a restrictive covenant which
had been imposed for the benefit of an adjoining estate. In breach of the covenant, the
developer built houses on the land, this did not diminish the value of the estate, but its
owners nevertheless recovered substantial damages for the breach, amounting to 5%
of the additional profit made by the defendant. This percentage was said to represent
such sum of money as might reasonably have been demanded by the claimant from
the defendant as a exchange condition for releasing the covenant.

12. Compensation or restitution: the concept of a quid pro quo for releasing the
covenant is equally consistent with a compensatory or a restitutionary analysis.

Punitive damages
1. Punitive damages can be awarded in certain tort cases. The purpose of such damages
is not to compensate the claimant, not even to strip the defendant of his profit, but to
express the court’s disapproval of the defendant’s conduct, e.g. where he has
deliberately committed a wrong with a view to profit.

2. As a general rule, this kind of damages cannot be awarded in a purely contractual

action. Punitive damages are not available even though the breach was committed
deliberately and with a view to profit. If the court is particularly outraged by the
defendant’s conduct, it can sometimes achieve much the same result by awarding
damages for injury to the claimant’s feelings, in theory, such damages are meant to
compensate the claimant for mental suffering, rather than to punish the defendant.
Where the claimant has a cause of action both in tort and for breach of contract, he
may be able to recover punitive damages by framing the claim in tort.

Compensation for what? (loss of bargain)

1. The object of damages for breach of contract is to put the victim so far as money can
do it in the same situation as if the contract had been performed.(Robinson v Harman)
In other words, he is entitled to compensate the loss of his bargin, his expectations
arising out of or created by the contract are protected. While, the object of damages in
tort is to put the victim into the position in which he would have been, if the tort had
not been committed.
The expectation interest
1. In England, financial position is to be taken account, which is rejected by the court in
Australia. For contracts about service and building work, it is hard to use financial
position to evaluate.

2. The issue is the role of intention in the assessment of damages. But it is only one
factor to be taken into account, the vital test is reasonableness.

3. The general rule can be found in the case of Robinson v Harman.

4. The first way of measuring the loss of bargain is the difference in value between what
the claimant has received and what he expected to receive. The second is the cost of
cure, which means the cost of putting the claimant into the position which he would
have been in had the contract been fully performed.

2. What he had been bargained for: read case note

3. Scope of duty and remoteness: here the rule that a defendant is not liable for
unforeseeable loss has been explained on the ground that such loss is too remote, but
it can equally well be explained on the ground that the defendant is under no duty not
to cause unforeseeable loss. In the present group of negligent valuation cases, the two
issues are clearly distinct: the scope of the duty depends on the true meaning of the
contract(which clearly imposes some duty) while the test of remoteness depends on
what consequences the valuer could have contemplated as likely to result from failure
to make the valuation with due care. The distinction of information case and advice
case is that the information provider is under no prima facie liability for that loss
because he has undertaken no duty with regard to the desirability or prudence of the
transaction(if the test of scope of duty is to be applied).
4. Advice and information: it is very difficult to distinguish and they should rather be
regarded as a question of construction. They should be treated as labels and apply
once that construction exercise is complete.

5. direct loss vs consequential loss: A buys a good may expect not only to receive the
goods but also to use them for manufacturing purposes. if the seller fails to deliver,
the buyer is entitled to damages based on the value of the goods that he should have
received (direct loss) and also to damages for loss of profits (consequential loss)
suffered as a result of not receiving the good.

Reliance loss
1. reliance loss are expenses which is said to have been wasted as a consequence of the
defendant’s breach. For example, the seller needs to pay the delivery cost for a
contract of sale of good, if the buyer refuses to continue the contract and the cost is
paid, he should be entitled to recover the reliance loss.

2. Sometimes it is said that wasted expenses of delivery may be recoverable as reliance

loss even though the claimant was not, under the contract, actually obliged to incur
them. For example, in McRae v Commonwealth Disposals Commission, the
defendants were held liable under a contract for the salvage of a wrecked tanker for
 breach of an implied warranty that the tanker could be found lying in specified
position and the claimants recovered the 3000 which it had cost them to send out an
expedition to look for the tanker.

3. Pre-contractual expenditure: the above cases show that the expense incurred after
the contract was made, but even expenditure incurred before then may be recoverable.
Read Anllia case. Pre-contract expenditure may also be recoverable if it was incurred
in reliance on an agreement before that agreement had become a legally binding
contract.
Reliance loss:
4. Both Teare J and Professor Trietel agree that the claimant’s entitlement to recover
reliance damages is subject to the limit that they cannot be recovered to the extent that
the defendant can prove that the expenditure would not have been recovered had the
contract been performed according to its terms. This limit is easy to explain if reliance
losses are indeed a species of expectation losses because the limit is consistent with
the principles that a claimant cannot seek to be put in a better position that he would
have been in had the contract been performed according to its term. However, it will
be more difficult to explain why the expectation measure should act as a limit if the
entitlement to recover reliance losses is based on an alternative principle.

5. The general rule, affirmed in CCC Films Ltd v Impact Quadrant Films Ltd, is that a
claimant has an unfettered right to choose whether to claim for loss of bargain
damages or for wasted expenditure. The general rule of selection is subject to an
exception where the claimants seek to recover his reliance loss in an attempt to escape
the consequences of a bad bargain.

6. The only situation in which an innocent party can escape the consequence of his bad
bargain is where there has been a total failure of consideration. In such a situation
there has been no performance under the contract, the claimant’s claim is one in
restitution and so there is no objection to the reversal of the contractual allocation of
risk.

7. A claimant may wish to recover his reliance loss where he has incurred reliance
expenditure before the conclusion of the contract provided that it was within the
reasonable contemplation of the parties that it would be likely to be wasted as a result
of the defendant’s breach.

8. A claimant may be confined to the recovery of his reliance losses where he cannot
prove what his expectation losses would have been. McRae v Commonwealth
Disposals Commission, where the speculative nature of the enterprise made it
impossible for the claimants to quantify the expectations with any degree of precision.
But it is an extreme case and the court is reluctant to conclude so.

9. Limit on recovery: this is only the basis that such loss is presumed to represent
his expectation loss, that if the contract had been performed, the claimant would
have recouped his expenditure. As a result, where the claimant suffered no
expectation loss, and the expectation loss has been mitigated in full, no reliance
loss will be granted. The burden of proof is on the defendant. He can prove that
even if the contract has been performed, it is still not profitable that the reliance
 loss incurred can be recovered. the claimant is not entitled to claim his reliance loss
in order to escape from what was a bad bargain. For example, if the tanker in McRae
only worth 2000, no matter the contract was broken or not, the claimant lost 1000, the
court will not shift that loss to the defendant by allowing the claimant to recover the
whole of his wasted expenditure. (C & P Middleton) so when there is a breach, he can
only recover 2000, instead of 3000. It follows that where the claimant has suffered no
expectation loss because such loss has been mitigated in full, he is not entitled to
damages on the basis of his reliance loss. The burden of proof is on the defendant. It
leaves the defendant in a worse position if he is unable to discharge the burden of
proving that the contract would have been unprofitable, or that his expectation loss
has been fully mitigated. (The Mamola Challenger)

10. Restitution (total failure of consideration): this means putting the party into the
position where there is no such contract. It is different from expectation loss as
expectation loss aims to put the party into a position where the contract has been
performed. It is not the same as reliance loss as it will leave the defendant in a worse
position if he is unable to discharge the burden of proving that the contract would
have been unprofitable.

Relationship between loss of bargain, reliance loss and restitution

1. Claimant’s choice: where more than one type of claim is available the choice
between them is the claimant’s. Suppose that a seller has been paid in advance and
then fails to deliver, the buyer can choose between claiming the return of his money
(restitution) and the value of the goods at the time fixed for delivery (loss of bargain).
obviously he will take the former course if he has made a bad bargain and vice versa.

2. Remedy awarded may be limited to reliance or restitution: the claim for loss of
bargain damages is in principle always available. But to make good such a claim the
injured party must prove the value of his expectation. If he cannot do so with
reasonable certainty, he may be limited to his reliance and restitution claims. In
McRae case, where the claimant sought damages for loss of their bargain, alleging
that the value of the supposed tanker and its content (for which they had paid 275)
would have been 30000. This basis for quantifying damages was dismissed as
manifestly absurd and the claimants recovered their payment of 285 plus 3000 spent
on their fruitless salvage expedition.

3. Limits on restitution: the claimant’s right to claim restitution is limited by the rule
that he can recover back money paid under the contract only if there has been a total
failure of consideration. However, if restitution is possible, it is no objection to such a
claim that it will leave the claimant better off than he would have been, if the contract
had been performed.

4. Suing in the alternative for loss of bargain and reliance loss: reliance loss is most
likely to be pursued is one in which the claimant cannot prove the value of his
expectation had the contract been performed.

5. Whether claim can be combined: the court sometimes allow this claim. In one case,
machinery was bought, paid for and installed, the buyer rejected the machinery
because it was not in accordance with the contract, and he recovered the price
(restitution), installation expenses (reliance loss) and his net loss of profits resulting
 from the breach (loss of bargain). The true principle is not that there is any logical
objection to combining the various types of claim, but that the claimant cannot
combine them so as to recover more than once for the same loss. If the claimant in
McRae case had been able to establish the value of the tanker, he should clearly not
have been entitled to that amount and to the 3285 as he would have had to spend the
latter amount to acquire the former. Usually the buyer cannot obtain under both as the
expectation loss is found on the footing that the reliance loss is incurred.

Incidental loss
1. The victim of a breach of contract can often recover loss which does not fit easily into
the categories so far discussed. He may incur expenses after a breach has come to his
attention, such as the administrative costs of buying a substitute, or sending back
defective goods, or of wasted staff time. Such expenses are hardly incurred in reliance
on the contract, and they will be called incidental loss.

Qualification
The bases of assessment
1. Reliance and restitution: for reliance, the basis of assessment is the cost to him of
his action in reliance on the contract. in restitution, it is the benefit obtained by the
defendant under the contract. to prove the above is straightforward where money is
expended or received. However, when the thing being restored consists of goods and
services, a reasonable value must be placed on them.

2. Loss of bargain: there are two distinct bases of assessment: difference in value and
cost of cure. For example, a coal company took a mining lease of farmland,
covenanting to restore the land to its original state at the end of the lease. The cost of
doing the work would have been 29000 but the result of not doing it was to reduce the
value of the land by only 300. Damages for the company’s failure to do the work were
assessed at the latter sum. Difference in value (market value of expected
performance), cost of cure (exact state of expected performance)

3. Where a seller delivers goods which are not of the contract quality, the damages are
prima facie assessed on a difference in value basis, the buyer can recover the
difference between the two goods, as if the contract had been performed. But this rule
is only a prima facie one and if the defect in the goods is cured at a reasonable cost
there is little doubt that the cost of such cure can be awarded. A defendant who is in
breach of an obligation to do building work is prima facie liable on a cost of cure
basis, for example, he must pay for the cost of putting the defects right or of
completing the work. This is a prima facie rule and can be replaced by difference in
value where the cost of putting the defect right would be out of all proportion to the
advantage which cure would confer on the injured party. For example, if components
not in accordance with the contractual specifications had been built into a structure
which would have to be substantially demolished to effect a cure, the cost of cure will
be greater than the value of the whole building, or where execution of the promised
building work would confer no economic benefit at all on the claimant. In such a case,
difference in value will be used. However, if the claimant can show either that he has
in fact incurred that cost or that he will incur it by getting the work done. To fulfil the
requirement, he is required to act reasonably to mitigate his loss.
 4. Where cure is not undertaken: where the claimant is prima facie entitled to
damages based on cost of cure, the further question arises whether he can recover this
amount even though he does not undertake cure. The conduct of the injured party
after the breach may affect the basis of assessment, if he has disposed of the defective
or damaged subject-matter without effecting cure, the court is likely to conclude that
what he has lost is the difference in value rather than cost of cure. And whether it is
reasonable for him to do so, if not, cost of cure will be irrecoverable under the
mitigation rule.

5. Both bases may lead to the same result: in Dean v Ainley, a vendor of land broke
her contractual undertaking to seal a patio so as to prevent water from leaking into a
cellar. The purchaser recovered the cost of doing the promised work, and this sum
was variously described as the cost of the works, or as the extent to which the
property was clearly less valuable as a result of the vendor’s failure to perform her
undertaking. Where the only reliable evidence of difference in value is cost of cure,
the two methods of assessment will lead to the same result. For a contract where a
seller fails to deliver good to the buyer, it makes no difference whether such damages
are described as the cost of curing the seller’s breach or as the difference in value
between what the buyer has received (nothing) and what he should have received (the
goods).

6. Other bases of assessment: Read Ruxley Electronics case.

7. Services: in some cases damages may be awarded by reference to the difference in

value in the provision of the services themselves, particularly where there is no longer
any opportunity for cure such as ruined wedding photographs. The real difficulty in
such cases is how to determine the difference in value. The difference in price
between the performance contracted for and that provided may be accept as evidence
of the difference in value and may well produce a result not very different to a partial
or full refund.

Time for assessment

Time of breach
1. A mitigation explanation: the starting principle is that damages are assessed by
reference to the time of breach. The theory is that any loss suffered by reason of
market movements after the time of breach is not caused by the breach. According to
the mitigation rules the claimant need only act reasonably. For example, a contract for
sale of peas required the seller to deliver on about July 21 but no delivery was made.
goods of precise contract quality were not available in the market. It was held that the
buyers had a reasonable time to consider their position, if they choose to retain the
contract, damages will be assessed on the date they decide to retain the contract. the
principle of assessment by reference to time of breach is based on 2 assumptions, first,
the injured party knows of the breach as soon as it is committed, and that he can at
that take steps to mitigate the loss which is likely flow from it. Where the facts falsify
these assumptions, the courts will depart from the principle, and assess the damages
by reference to such other date as may be appropriate in the circumstances. In
particular they will have regard to the time when the breach has discovered.
 2. Time of discovery of breach: for breach that are not discovered at the time of breach,
the damages will prima facie be assessed by reference to the time when that party
could have made the discovery. Where goods are sent with sealed packages, the
damages may be assessed by reference to later time as it is reasonable to open it later.

3. Possibility of acting on knowledge of breach: even though the injured party knows
of the breach, it may be impossible for him to act on that knowledge by making a
substitute contract so as to reduce the loss. For example, a buyer may wrongfully
refuse to pay for goods after they had been despatched to him, and it might be
impossible for the seller to resell them until they had reached their destination. In such
a case, the time for assessment will be delayed to the time that the seller could
reasonably resell the goods. Another relevant case is that the defendant sell the house
for 6000 but he breached the contract, at this time the house worth 7500. When the
judgment is given, the house worth 11500, it was held that the damages give should
be 5500 instead of 1500 as the defendants knew the buyer could not act on their
knowledge of the breach by making a substitute purchase on a rapidly rising market at
the time of breach.

4. Reasonableness of acting on knowledge of breach: even where it is possible for the

injured party to make a substitute contract on discovering the breach, it may not be
reasonable to expect him to do so because at that time there is still a reasonable
probability that the defendant will make good his default. In this case the damages are
assessed by reference to the time when that probability ceased to exist. An example of
this case is that where the seller, who breached the contract, assured the buyer that the
good will be delivered, but then declares his final inability to perform, then the date
will be the date of the declaration.

5. Late performance: if the party in default performs the late and the other party suffers
loss by reason of the delay, the damages for that loss will be assessed by reference to
the date when performance actually was rendered.

Method of limiting damages

Causation
1. The present concern is which there is a breach, followed by a state of affairs clearly
disadvantageous to the claimant, but the defendant argues that the breach did not
bring about the state of affairs. Why loss may be held not to have been caused by the
breach is that it would have been suffered even if the breach had not been committed.

2. Concurrent causes: in the above, the defendant is not liable for a loss which is not
caused by the breach at all, but a claimant can often recover damages although the
breach is not the sole cause of the loss. It was said that “if a breach of contract is one
of two causes, both cooperating and both of equal efficacy it is sufficient to carry a
judgment for damages. (Heskell v Continental Express Ltd)

3. The chain of causation which leads from the breach is only broken by an intervening
act of the claimant when it can be shown that the true cause of the loss is the conduct
of the claimant. (Borealis AB v Geogas Trading SA.The more unreasonable the
conduct of the claimant, the more likely that the chain will have been broken. In
 assessing the reasonableness of his conduct, the state of knowledge of the claimant is
an important factor.

4. Intervening acts of third party: where loss results partly from the breach and partly
from the act of a third party, the party in breach is nevertheless liable for the loss if
the third party’s act was foreseeable on the standard of probability which governs
remoteness in contract. in weld-blundell v stephens, a client employed an accountant
to investigate the affairs of a company and wrote him a letter defaming two of the
company’s directors. The accountant’s partner negligently dropped the letter in the
company’s office, where it was picked up by the manager and shown to the two
directors. They recovered heavy damages for libel from the client who claim this
amount from the accountant as damages for breach of contract. the court held that the
client’s liability for defamation existed quite apart from the breach of contract, which
simply brought that liability to the director’s attention. Also, the loss was not caused
by the breach, but by the act of the manager in showing the letter to the directors and
this act was not one which the defendant could have foreseen. so the court dismissed
the claim. However, it is subject of some skepticism as it was the defendant duty to
keep the letter secret.

Remoteness:
1. The principle justification for the existence of this doctrine is that it would be unfair
to impose liability on a defendant for all losses, no matter how extreme or
unforeseeable, which flows from his breach of contract. The general test is that the
claimant can only recover in respect of losses which were within the reasonable
contemplation of the parties at the time of entry into the contract.

2. The uncertainty has been increased in two respects by the decision of the house of
lord in Transfield Shipping Inc v Mercator Shipping Inc.

3. The foundation of the law can be traced back to the case of Hadley v Baxendale
1854. The test can usefully be divided into two parts. The first is that the defendant
is liable for such losses as occur naturally or as a result of the usual course of
things after such a breach of contract. To quanlify it, there must have been a
serious possibility or a real a real danger or a very substantial probability that the loss
would occur. (Koufos v C Czarnikow Ltd 1969. For example, a defendant who
agrees to supply or repair a chattel which is obviously being used for profit-making
purposes is liable for the ordinary loss of profits suffered as a result of his failure to
supply or repair the chattel timeously.

Why could the claimants not recover their loss of profits in Hadley v Baxendale when
it must have been obvious to the carrier that the mill was being used for profit-making
purposes? The answer is the stoppage of the mill was not a natural consequence of
the delay because the claimants might have had a spare shaft which could have kept
the mill in production while the new shaft was being made.

It has also been held that a defendant supplying a commodity for use in a construction
or manufacturing process is not to be assumed, merely because of the order of it, to be
aware of the details of all the techniques undertaken by the claimant. The onus of
proof must be on the claimant to bring information of this nature to his attention of the
defendant prior to entry into the contract.
 The second limb, which were within the reasonable contemplation of both parties
at the time they made the contract. the test is not satisfied in Hadley because,
although the claimants were aware of the consequences of delay, they had not
informed the defendants that delay would result in the halting of production and so the
loss could not be said to have been in the reasonable contemplation of both parties.
The defendant must at least know of the special circumstances and there is some
suggestion in the case law that the claimant must go further and establish that the
defendant agreed to assume liability for the exceptional loss.

4. The above rules are illustrated by the case of Victoria Laundry Ltd v Newman
Industries Ltd 1949. It is suggested that the law cannot ignore entirely the extent of
the economic loss in contract cases because parties typically entered into a contract to
make a profit, so loss of profit is always a foreseeable consequence of the breach. If
the extent of the loss of profit were always irrelevant there would be no adequate
control device to keep liability within the acceptable bounds. This depends on the
knowledge of the defendant, if he has actual knowledge of the circumstances, they
will be liable. However, they werse not liable for loss of exceptionally lucrative
government contracts, which the buyers would have been able to make if they had
received the boiler in time since the defendant did not know about it and did not
foresee it.

1. Heron II, the reasonable foreseeability test is rejected. The house of lord rejected
that the test is reasonable foreseeability. They said that the degree of probability
required to satisfy the test of remoteness in contract must be a serious possibility, or a
real danger, or a very substantial probability of loss. It must easily foreseeable that the
loss will occur. It seems to suggest that the “ foreseeability” used in the Victoria
laundry case refer to this higher degree of probability. (the events is more foreseeable
than reasonable foreseeable)

2. The Achilleas: Lord Rodger and Baroness Hale found that it has not been reasonably
contemplated. Lord Hoffmann and Lord Hope say it should consider whether it
assumed responsibility. The intention should be objectively ascertained. One relevant
factor is see if responsibility is assumed is that whether he has control of the length
and terms of the following contract, if no, it is unpredictable. Another factor is
whether he understands the industry.

3. Consequence: the approach seems to be the court first look at the standard rule laid
down in Hadley, if the standard approach would not reflect the expectation or
intention reasonably to be imputed to the party, the court will consider the approach in
Archilleas. They may often produce the same result.

5. The objectives of the second limb established in Hadley case is that the claimant
should tell the defendant the things the subject-matter are used for. This encourages a
share of loss. In this area, the contract may not be broken easily and they may rely on
insurance decrease the loss from a breach of contract.
 6. Given that the both the traditional Hadley tests and the new assumption of
responsibility have their place in the English law, how is the court decide which test
to apply then? The answer given by Hamblen in The Sylvia is that the Hadley
approach remains the general tests of remoteness applicable in the great majority of
cases. The assumption of responsibility test is likely to be invoked in the minority of
cases where the application of the general tests leads to an unquantifiable,
unpredictable, uncontrollable or disproportionate liability or where there is clear
evidence that such a liability would be contrary to market understanding and
expectations.

7. An alternative rationalization is that the two approaches can be reconciled on the basis
that they both seek to give effect to the intention of the parties. The rule in Hadley as
one that was attributable to the implied intention of the parties, that is to say, the law
implies a term that the party in breach is to be held liable for the type of loss which
can reasonably be foreseen at the time of entry to be not unlikely to result from the
breach. He then acknowledged that it was open to the parties to contract out of that
rule and to assume a responsibility that was different from the term implied on the
basis of Hadley.

Causation
1. An independent third party may break the chain of causation between the defendant’s
breach and the claimant’s loss, unless the defendant has actually promised to guard
against the very thing which has actually happened.

2. Natural event may also break the chain of causation. Those events which are
reasonably foreseeable at the time of the contract will not breack the chain of
causation.
The date of assessment:
3. It was established in Johnson v Agnew 1980 that damages are to be assessed as at the
date of breach. However, it is inflexible one and it is based on the assumption that
there is an immediately available market for the subject-matter of the contract. In
Hooper v Oates 2013, the court of appeal postponed the date of assessment when a
seller of land could not find an alternative purchaser for the land on default of the
defendant purchaser. It seems that where the claimant is unable reasonably to take
immediate steps to mitigate his loss, the date of assessment will be postponed until
such time as it is reasonable to expect the claimant to do so.

4. The date of assessment will be deferred where the claimant is unaware of the breach,
in such cases damages will be assessed at the time it is recovered.

5. Where between the date of the breach and the time of trial an event has occurred
which inevitably would have reduced the amount of damages which the claimant
could have recovered in respect of its future loss, it has been held that account scan be
taken of the occurrence of the later event for the purpose of reducing the damages
payable to the claimant on the ground that, were the court to disregard the event
which has occurred, it would overcompensate the claimant.
6.
Mitigation
1. There are two kinds of mitigation, the first is the duty to mitigate, which means that
the claimant cannot recover damages for a loss that he ought to have avoided. The
second type is the claimants has to give credit for certain benefits accruing to him in
consequences of the breach.

Damages for pain and suffering and the consumer surplus

1. Prior to Ruxley, the courts were generally unwilling to compensate a claimant for his
purely subjective losses

The duty to mitigate:

1. First, the claimant must take reasonable steps to minimize his loss, and he must
forbear from taking unreasonable steps that increase his loss. The duty arises when
he actually knows of the breach.

2. Failure to minimize loss: if he cannot take reasonable steps to minimize his loss, he
cannot recover anything in respect of extra loss due to that failure. (if you sell an
apple to A for 100, when A doesn’t buy, and you keep it, and the market value of the
apple rise to 250, you cannot claim the 150 because you do not mitigate the loss by
selling the apple to other party, for, let say, 150) Commonly, he is required to make a
substitute contract. When a seller of goods fails to deliver, the buyer must go into the
market at the relevant time to buy substitute goods. If he fails to do so, he cannot
recover any further loss that he may suffer because the market continues to rise or
because he is deprived of the opportunity of making a profit out of the use or resale of
the goods. However, he only needs to do so when reasonable. For example, when the
party has spare capacity, he does not need to buy substitute.

3. Accepting substitute performance from party in breach: sometimes the injured

party will be required to mitigate by accepting from the party in breach a performance
which differs in some way from that originally bargained for.

4. Unreasonably augmenting loss: if the claimant acts unreasonably in attempting to

mitigate, he cannot recover extra loss which he suffers as a result. For example, he
should not continuously spend money for the purpose of tendering performance after
the other party has clearly indicated that he will refuse to accept it. However, two
cases illustrate some possible exceptions to the rule. The defendant had contracted to
print banknote for the bank, and in breach of contract the banknotes circulated. Then
the bank undertook to exchange all the notes in question for others. Even though the
bank use extra money after the breach, the court held that the defendants was liable
for the full face value of the notes as the bank’s conduct was reasonable, having
regard to its commercial obligations towards the public. On the same principle, the
claimant may be able to recover amounts paid in reasonable settlement of a
liability to a third party incurred in consequence of the breach.

5. Recovery of increased loss: it is possible for steps taken in performance of the duty
to mitigate to be reasonable, but actually to increase the loss. For example, the buyer
who accepts a seller’s anticipatory breach is bound to mitigate by buying a substitute
in the market at the time of acceptance, if the market price exceeds the contract price,
 he can recover the loss. This is even so by the time fixed for delivery the market price
has fallen below the contract price so that the buyer, if he had not performed the duty
to mitigate, would have suffered no loss at all.

Mitigation in fact
1. Benefits accrued as a result of breach: loss is sometimes said to be mitigated where
some benefit in fact accrues to the claimant as a result of the breach. For example, he
may benefit from finding a job comparable to that from which he was wrongfully
dismissed, and the benefit should be taken into account. This can show that the
purpose of granting damages is to compensate the loss, not to enrich the
claimant. The claimant benefits from doing something that he was not required to do
in performance of his duty to mitigate, his actual earnings will be taken into account
in assessing damages. (an employee who has been wrongfully dismissed need not
accept an offer of re-employment involving a reduction in status)

2. Whether benefit is collateral: in the British Westinghouse Co v Underground

Electric Rys Co of London, it was said that a benefit is taken into account only if it is
one arising from the consequences of the breach. It follows from the requirement that
damages will not be reduced by reason of any insurance taken out by the injured party
against the consequences of the breach.

Contributory negligence
1. Where the injured party fails to perform the duty to mitigate, his damages are reduced
because it can be said that he is at fault in failing to avoid loss. He may also be at fault
in the sense of actually helping to bring about the loss or the event causing it.

Non-pecuniary losses:
Mental distress
1. No recovery for injured feelings (strictly at common law on cases of wrongful
dismissal), which has been regarded as the basis of the wider principle that
damages will not be recovered for injured feeling: this is illustrated in the house of
lord in Addis v Gramophone Co Ltd, where a company wrongfully dismissed its
manager in a way that was harsh and humiliating. He recovered damages for loss of
salary and commission, but not for the injury to his feelings caused by the manner of
the dismissal. The right to recover damages for injured feelings is restricted by this
court.

All exceptions are established in Farley v Skinner.

2. Exception- pain and suffering, and psychiatric illness: damages can be recovered
for pain and suffering for a breach of contract which causes personal injury such as
mental illness.

3. Exception- mental distress consequent on physical inconvenience, it extends to

mental suffering directly related to that inconvenience.

4. Execption- loss of enjoyment, or amenity: damages can be awarded if at least one

of the major and important objects of the contract was to provide enjoyment, security,
 comfort or sentimental benefits. Examples include carrier for breach of a contract to
convey guests to a wedding, a photographer for breach of a contract to take wedding
photographs. The award of damages for the customer’s personal use was broken by
building the pool to less than the stipulated depth can be explained on the same
ground. And this explanation also accounts for the view that an architect who designs
a house for his client’s personal occupation is liable for failing to incorporate in the
design agreed features, such as an impressive entrance hall and wide staircase, which
deprive the client of the pleasure which he expected to derive from these features.

5. Borderline cases: the question whether one of the main objects of the contract is to
provide pleasure, relaxation and peace of mind can give rise to difficulty in borderline
cases. Thus in one case damages for distress were awarded against the seller of a new
car which broke down and would not start, so that the buyer suffered a totally spoilt
day comprising nothing but vexation. In other case for a breach of contract to repair a
car, there is no damages.

6. Nature of claims for non-pecuniary loss: where damages are recoverable for
disappointment resulting from failure to perform an obligation to provide enjoyment,
security or peace of mind, it is sometimes said that the basis of such recovery is that
the claimant was, by the breach, deprived of the contractual benefit to which he was
entitled. Where damages are awarded for non-pecuniary loss, there may be the risk of
duplication of damages awarded for pecuniary loss. Thus, in the case of a sub-
standard holiday, it has been said that it is necessary to distinguish the difference
between what the supplier contracted to provide and what was actually
provided, which is pecuniary loss. And how the client felt about the diminution
in the service supplied, which is relevant to an award for non-pecuniary loss in
the form of mental distress. It does not mean that if he can recover the former
type of compensation, he cannot recover the latter type as the client who books a
holiday does not want performance in purely monetary terms so that he still has
an additional and further loss in the form of his mental distress.

Loss of reputation
1. No recovery for loss of reputation itself: in Addis v Gramophone Co Ltd it was held
by the house of lord that no damages could be awarded for any loss of reputation
caused by the manner of his dismissal, and the wide principle that damages cannot be
awarded for loss of reputation itself has not seriously been questioned in the court.

2. Financial loss consequent on loss of reputation: in the above case, it was further
held that in an action for wrongful dismissal, the employee could not recover damages
for the loss that he might suffer because the dismissal made it more difficult for him
to get another job. But this view is hard to justify and may no longer be the law. In
Malik v BCCI, the house of lords held that such stigma damages were in principle
recoverable by former employees of a bank which had collapsed in consequence of
corruption and dishonesty in which the employees had not been involved, provided
that it can be established that all the loss would been in respect in financial loss, and
not of injury to feelings. The employees can recover such damages where the effect of
the breach is positively to damage his job prospects, but not where its effect is
merely a failure to improve them. it was further held in this case that an apprentice
who was wrongfully dismissed before the end of his period of training was entitled to
damages for diminution of his future prospects since the very object of an
 apprenticeship agreement is to enable the apprentice to fit himself to get better
employment.

3. Non-enjoyment cases: damages can be awarded for financial loss consequent on

injury to reputation resulting from a breach of contract. First, a trader can recover
damages for injury to his business reputation, e.g. if his reputation suffers because his
wholesaler supplies him with defective goods. a travel agent can recover damages for
loss of goodwill from a shipowner who breaks his conduct to supply accommodation
for passengers on a pleasure cruise. When it comes to wrongfully dishonours its
costomers cheque case, It has long been held that a trader can recover general
damages for the resulting injury to his business reputation. Now, for a person who is
not a trader, he can recover general damages in respect of injury to what may be
called their financial reputation resulting from the wrongful dishonor of a cheque.
Secondly, an actor or author can recover damages for loss of publicity and for the
injury of existing reputation. Finally, it has been held that a claimant should be
entitled to damages for injury to reputation where the contract had as its purpose, or
one of its purpose, the protection of the claimant against the sort of damages suffered.

Liquidated damages:
Distinction between penalty and liquidated damages: a contract may provide for the
payment of a fixed sum on breach, but the court is not willing to allow a party to recover
money more than the loss. They have therefore divided such provisions into two categories,
penalty clauses, which are invalid, and liquidated damages, which will generally be upheld.
A liquidated clause was defined for this purpose as a genuine or reasonable pre-estimate of
the loss likely to be occasioned by the breach. (Dunlop)

1. A question of construction: a clause is said to be penal if it provides for “a payment

of money stipulated as in terrorem of the offending party, or the clause is deterrent
rather than compensatory. On the other hand, the clause is a genuine attempt by the
parties to estimate in advance the loss which will result from the breach, it is a
liquidated damages clause. Contract in identical terms may be held penal or not,
according to the subject-matter of the contract and to the circumstances in which the
contracts was made.

2. Rules of construction: in the case of Dunlop Pneumatic Tyre Co Ltd V New

Garage & Motor Co Ltd, Lord Dunedin formulated four rules for the construction of
a liquidated damages clause:
1. if the sum stipulated for is extravagant and unconscionable in amount in comparison
with the greatest loss that could conceivably be proved to have followed from the breach.

2. if the breach consists only in not paying a sum of money, and the sum stipulated for
compensation is a sum greater than the sum which ought to have been paid, this is penal.
The rule does not apply merely because a contract under which a sum of money is
payable in instalments provided that, on default of any payment, the whole balance is to
become immediately due. This clause is said to accelerate but not to increase the liability.
This is arguable as a provision for an extra payment equal in value to this expense would
almost certainly be penal. The rule may also be rebutted if it can be shown that a high
sum is to be paid as the contract price, subject to a discount if payment is made by a
specified date, or by providing for the payment to be made by a third party under a
performance bond.
3. There is a presumption that a clause is penal when a single lump sum is made payable
on the occurrence of one or more or all of several events, some of which may occasion
serious and others but trifling damage. A sum is not presumed to be penal if it is expressly
proportioned to the seriousness of the breach. A sum payable on one of several events
will be treated as penal if one of those events is the non-payment of a smaller sum, of if
one event is bound to cause greater loss than others.

4. There may be circumstances that the consequence of a breach of contract is impossible

to be pre-estimated precisely. The presumption that a sum payable on several events was
penal was rebutted by the very fact that the damage caused by each and every one of
those events was of such an uncertain nature that it cannot be accurately ascertained.

3. In the Makdessi case, the judge said that the real question to be asked in future is
whether the agreed damages clause is penal not whether it is a pre-estimate of loss. So
that the mere fact that the agreed damages clause sets the level of damages payable at
a sum which is higher than a pre-estimate of a party’s loss does not of itself render
that clause a penalty clause. So what amounts to penalty? The judge said a penalty
clause is secondary obligation which imposes a detriment on the contract-breaker out
of all proportion to any legitimate interest of the innocent party in the enforcement of
the primary obligation. It seems that there are two elements of the test, the first is that
the imposition of a detriment on the contract-breaker which is out of all proportion,
the comparison is to be conducted with any legitimate interest of the innocent party in
the enforcement of the contract. For the first requirement, the court looks for a very
high degree of disproportion before a term would be classified as a penalty clause.
Something like “extravagant”. The greater the equality of bargaining power, the less
likely it is that the court will conclude that the disproportion is extravagant or
unconscionable. The second element is legitimate. In the car parking case, even
though the amount of penalty for parking more than the time is high. It is legitimate as
it lays in the efficient operation of the car park which made it possible to secure a
regular flow of customers to the retail park.

4. There are possible ways to evade the penalty clause rule. First, this does not apply to a
clause which simply accelerates the liability. The second device is to stipulate that the
sum shall be payable on an event which is not a breach of contract. For example, a
hirer who breaks a contract by failing to pay instalment can invoke penalty rule when
the clause is extravagant. But where the hirer honestly admits that he can no longer
pay the instalments, and exercises his right under the contract to return the goods,
such a hirer will have no defence to an action by the owners for an excessive sum of
money because the sum is not payable on a breach of contract. Another case is the car
parking case, if the clause states that no charge will be made in the first two hours, but
150 will be made after the two hours. People who parked for more than 2 hours are
not in breach of contract.

5. Nature of the breach: where the defendant is guilty of a non-repudiatory breach and
the contract is terminated under an express provision, he is only liable in damages for
the loss which flows from any breach committed prior to termination. A clause which
stipulated for a sum which included the loss flowing from the premature
determination of the contract is likely to be panel.
 6. A broader approach: the rule against penalties is difficult to reconcile with the
principle of freedom of contract. why the court should control the clause made in a
commercial contract where both parties may have comparable bargaining power.
While the rule against penalties continues to apply, and it is still necessary to ask
whether the clause in question amounted to a genuine pre-estimate of loss, the courts
have emphasized that they should adopt a broader approach. On this basis, it has been
held that a clause will not necessarily be struck down as a penalty even if it was not a
genuine pre-estimate of loss, if its inclusion in the contract was commercially
justifiable or not oppressive and it seems that this leaves room to take account of
market expectations. For example, the payment of 50% of net salary and 50% of the
agreed fee by a finance broker for failing to honour his employment contract.

7. Stipulated sum intended to be below the estimated loss: a clause may be intended
to provide for payment of a sum below the estimated loss. Such a clause is not invalid
as a penalty as its object is not to act in terrorem.

8. Effect of penalty where stipulated sum less than actual loss: the clause may be a
penalty even though the stipulated sum falls short of the claimant’s loss. This
happens when the changing conditions have made an originally extravagant sum
inadequate or because a perfectly reasonable sum is nevertheless penal on technical
grounds. But they are still effective. In Wall v Rederiaktiebogalet Luggude case, it
was held that the innocent party could do this and recover his actual loss, although the
decision is only at the first instance and the reasoning is not very clear.

Damages for anticipatory breach

1. Breach accepted (contract ends): he can start his action before the time fixed for
performance. If the action comes to trial before the time fixed for performance, the
damages will therefore necessarily be speculative, as they are based on the forecasts
or guesses as to future market movements. Also, if the person accepting the breach
fails to mitigate his loss, the damages awarded will be reduced. When the person
accepting the breach buy a substitute, then the damages will be assessed by reference
to the time when that contract would have been made. It is on the person who is in
breach to prove that whether the injured party have any substitute, if he cannot
prove it, the damages will be assessed by reference to the time fixed for
performance.

2. Breach not accepted (contract continues): the principle as to the time for
assessment apply. (at the time fixed for performance) Assuming that the subsequent
events have not deprived the injured party of his right to damages, the general rule is
that those damages will be assessed by reference to the time when the contract ought
to have been performed but not the time of repudiation, even though the loss
increases.

3. Events known to have happened by the time of the hearing: in The Mihalis
Angelos it was said that damages should be assessed as at the date of acceptance of
the breach and that they may be reduced if the relevant events were inevitable or pre-
destined to happen.

4. Scope: the reasoning of The Mihalis Angelos would not apply where the charterer’s
case was that he would have been entitled to terminate on account of the shipowner’s
future breach. The important feature of cases like The Mihalis Angelos and The
Golden Victory is that a cancelling clause gives the charterer an independent option to
calcel if the ship is not ready to load by the specified date. The right to cancel under
such clause is exercisable on the occurrence or non-occurrence of an event and does
not depend on any breach by the shipowner.