Remedy

Remedy of damages

💡 Common law remedy of damages available for breach of contract

Award of financial sum for loss suffered by the plaintiff

→ Purpose: to put the plaintiff, in economic terms, in the position which they would have been in if
the wrong had not been committed (as if the contract had been performed)

in a contract, the purpose of awarding damages is to put the plaintiff, in economic terms, in
the position which they would have been in if the contract had been performed

Example cases: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd; Richly Bright
International Ltd v De Monsa Investments Ltd

Types of damages:

ordinary damages (substantial damages): to compensate for loss

nominal damages: where no loss was suffered

Measure of damages
Basis for assessing what the loss is and what damages award should be

Categories:

Expectation damages

put them in the position as if the contract has been performed

to protect performance/expectation interest

e.g. there is a contract of sale of goods where there is non-delivery by the seller; assume the
contract price is $100 and the purchaser has not paid (market price is $120) → the loss is $20
(as the purchaser has to spend $20 more to obtain the goods) → damages of $20 should be
awarded

the performance interest generally includes reliance expenditure plus the net profit on the
transaction

the Sale of Goods Ordinance section 53(3) stipulates damages to be the difference in value
between contract price and market price

(3) Where there is an available market for the goods in question, the
measure of damages is prima facie to be ascertained by the difference
between the contract price and the market or current price of the goods

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 at the time or times when they ought to have been delivered, or, if no time
was fixed for delivery, then at the time of the neglect or refusal to deliver.

if the market price does not go up but go down → nominal damages would be awarded (as
no loss has been suffered)

Methods for calculating expectation damages include:

“cost of cure” basis, or cost of reinstatement

the cost of cure basis is more likely to be applicable in the contracts for the
provision of services → cost used to rectify the breach

the sum of money needed in order to enable the party to obtain the performance for
which he contracted/rectify the defective performance → the cost incurred to obtain
the contractual performance

→ whether it is reasonable to grant damages based on ‘cost of reinstatement’ does not

depend on the difference in value

Exceptions where the cost of cure approach would not be allowed to calculate
damages:

1. the claimant does not intend to rectify the issues with the damages (see Tito v
Waddell) → but in Ruxley Electronics & Constructions Ltd v Forsyth, the court
expressed a different idea

Ruxley Electronics & Constructions Ltd v Forsyth: ‘Thus irreparable

damage to an article as a result of a breach of contract will entitle
the owner to recover the value of the article irrespective of
whether he intends to replace it with a similar one or to spend the
money on something else. Intention, or lack of it, to reinstate can
have relevance only to reasonableness and hence to the extent of
the loss which has been sustained.’

→ the intention can be taken into consideration in assessing the reasonableness of

granting certain amount of damages

2. the cost of cure is wholly disproportionate to the value that the cure will add to the
end product (see Ruxley Electronics & Constructions Ltd v Forsyth)

depends on the loss? (which would be equal to the value added to the end
product if the cost of reinstatement is incurred?)

Ruxley Electronics & Constructions Ltd v Forsyth: ‘the

reasonableness of an award of damages is to be linked directly to
the loss sustained. If it is unreasonable in a particular case to award
the cost of reinstatement it must be because the loss sustained
does not extend to the need to reinstate.’
‘Thus in the present appeal the respondent has acquired a perfectly

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 serviceable swimming pool, albeit one lacking the specified depth.
His loss is thus not the lack of a useable pool with consequent need
to construct a new one.’ ‘if a building is constructed so defectively
that it is of no use for its designed purpose the owner may have
little difficulty in establishing that his loss is the necessary cost of
reconstructing.’
→ when the cost of reinstatement is smaller than the difference in value → grant damages in
the amount of the cost of reinstatement
But when the cost of reinstatement is out of all proportion to the benefit obtained, the
damages would be confined to the difference in value (when the difference in value is small,
the damages may be nominal damages)

“difference in value” basis: determine loss on basis of difference between value

received by the plaintiff and the value which the plaintiff ought to have received under
the contract

e.g. there is defective performance of the sale of goods (where defective goods are
delivered) → constitute breach of warranty of quality; assume the contract price paid is
$100, and the value of defective goods is $70 (the market price of the goods which are not
defective is $100) → the loss is $30 → damages of $30 should be awarded

the Sale of Goods Ordinance section 55(3) stipulates damages to be the difference
between value of goods and value they would have had if they had answered to the
warranty

(3)In the case of breach of warranty of quality, such loss is prima facie
the difference between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had answered to the
warranty.

Additional losses potentially recoverable as expectation damages

damages for loss of profits

e.g. there is a sale of goods contract where the seller in breach and the purchaser loses the
profit which could have been earnt on a re-sale (usually manufacturer → wholesaler →
customers)

the plaintiff can claim lost benefits where the plaintiff can prove, on balance of
probabilities, that expectation of receipt of benefit had a likelihood of attainment

Example case: Commonwealth v Amann Aviation Pty Ltd

if whether the party would have earned the benefit or not was wholly uncertain → not
entitled to be awarded damages corresponding to the loss

but may be able to claim damages for loss of chances

Reliance damages

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 reliance damages compensate for losses reasonably incurred by the plaintiff in or for the
purposes of performance of contract

covers wasted expenditure or out-of-pocket expenses

opportunities for gain which were forgone in reliance on a promise

when the contract is loss-making where the gross profit does not cover the expenditure,
the plaintiff (party not in breach) may not succeed in claiming the reliance damages

Example case: McRae v Commonwealth Disposals Commission

the plaintiff was entitled to reliance damages for wasted expenditure in locating
non-existent oil barge

protection of reliance interest: the plaintiff’s reliance on promise of the defendant

Some contends that reliance damages are part of protection of performance interest → the
plaintiff relies on promise of performance/expectation of performance

often expectation damages already covers reliance loss (because calculation of profit
takes into account expenses incurred): no need to separately claim reliance damages

Situations where the plaintiff claimed reliance damages rather than performance
(expectation) damages:

1. he cannot prove his loss of profit

2. he wishes to recover damages in respect of his pre-contract expenditure

3. he has entered into a losing bargain (unlikely to succeed based on this claim)

→ ‘The law of contract compensates a plaintiff for damages resulting from the defendant’s
breach; it does not compensate a plaintiff for damages resulting from his making a bad bar­gain.
Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole,
the expenses he has incurred are losses flowing from entering into the contract, not losses
flowing from the defendant's breach. In these circumstances, the true consequence of the
defendant's breach is that the plaintiff is released from his obligation to complete the contract
— or in other words, he is saved from incurring further losses.’

* The burden of proving that the party not in breach has entered into a losing bargain is on the
party in breach
→ the court will relegate a claimant to reliance loss damages only in the case where there is no
objective basis for the award of damages designed to protect his performance interest

But reliance damages would be specifically claimed if the plaintiff cannot prove the loss of
profits

Example Case: Chaplin v Hicks

pre-contractual expenditure can be compensated if the parties contemplated or ought

reasonably to have contemplated that the expenditure is likely to be wasted if the contract is
not performed

Example Case: Anglia Television v Reed

→ If the plaintiff claims the wasted expenditure, he is not limited to the expenditure incurred
after the contract was concluded (could recover pre-contractual expenditure if the parties

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 contemplated or ought reasonably to have contemplated that the expenditure is likely to be
wasted if the contract is not performed)

broader than restitution damages to the extent that it includes cases where the plaintiff has
relied on the defendant’s promise without benefiting the defendant

Restitution damages

restitution damages enable the plaintiff to claim for value of benefits conferred upon the
defendant in the course of the plaintiff’s performance of the contract

usually, the principle of restitution damages has no role to play unless and until the contract
between the parties is set aside; in the case where the contract has not been set aside, the
contract governs the rights and remedies of the parties (e.g. there was a repudiatory breach
of contract and effective termination)

e.g. the purchaser pays the contract price but the seller fails to deliver

damages for purchaser: contract price paid

recoverable only if total failure of consideration

Where the claim is one to recover money paid to the defendant, it is only
available where there has been a total failure of consideration, that is to
say where the claimant has received no part of the performance for which
he contracted. Where he has received part of the promised performance,
he is confined to a claim for contractual damages
(performance/expectation damages or reliance damages) unless the
benefit which he has received is incidental or collateral to the bargained-
for performance or the consideration is severable and there has been a
total failure in respect of a severable part of that consideration.

→ in the case where goods or services have been supplied, there is no requirement of total
failure of consideration

alternative remedy to damages for breach of contract: restitution for unjust enrichment

Non-pecuniary losses
e.g. non-pecuniary losses may be recoverable: compensation for pain and suffering in
connection with personal injury caused by breach of contract (where injury not too remote)

e.g. Grant v Australian Knitting Mills Ltd

General rule: damages for injured feelings or distress not recoverable

e.g. Addis v Gramophone Co Ltd

Exceptions where non-pecuniary losses are recoverable:

1. Pain and suffering and loss of amenities

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 2. Where object of contract is to provide pleasure, relaxation or peace of mind

→ it should be noted that it now suffices that the object of the term broken is to provide pleasure
or freedom from distress and that the term is an important one in the context of the contract as a
whole, rather than the ‘object of the contract’

e.g. the contract is for the pleasure during a holiday; the plaintiff may have booked a holiday with a
tour operator and he may recover damages for his disappointment if the tour operator is in breach
of contract by failing to provide what the contract called for

Example Cases: Ruxley Electronics & Constructions Ltd v Forsyth; Jackson v. Horizon Holidays Ltd

3. Physical inconvenience

in Farley v Skinner, one of the judge in the court said ‘physical inconvenience’ means the
cause of the inconvenience or discomfort was a sensory (sight, touch, hearing, smell, etc.)
experience, and subject to the remoteness rules, damages can be awarded for such
incovenience (the approach to distinguish between inconvenience and disappointment)

the court in Farley v Skinner stated that ‘As a matter of terminology I should have thought that
‘inconvenience’ by itself sufficiently covered the kinds of difficulty and discomfort which are
more than mere matters of sentimentality, and that ‘disappointment’ would serve as a
sufficient label for those mental reactions which in general the policy of the law will exclude’

For an award to be made a loss or injury has to be identified which is a consequence of the
breach but not too remote from it, and which somehow or other can be expressed and
quantified in terms of a sum of money

Consequential damage, including damage consisting of inconvenience or discomfort, must, in

order to be recoverable, be such as, at the time of the contract, was reasonably foreseeable as
liable to result from the breach

damages would be awarded when the defendant expressly or impliedly promised to provide the
claimant with pleasure or relief from distress or the claimant was deprived, as a result of the
breach, of performance to which she attached ‘added value’

Date of assessment

💡 Damages are normally assessed at the time of the breach of contract (as established in
Johnson v Agnew)

assumes that parties could go out into the market at the date of breach to obtain substitute
performance → cost of the substitute performance would fix the measure of damages to which
parties are entitled

Exceptions:

1. when there is no immediately available market (i.e. the vendor taking all reasonable steps
cannot find an alternative purchaser for the property), the court may defer the date of
assessment to a later point in time (e.g. the date on which a sale is achieved) (in Hooper v
Oates)

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 2. when the claimant could not have been aware of the breach at the time at which it occurred,
damages will generally be assessed as at the date on which the claimant could, with reasonable
diligence, have discovered the existence of the breach

Anticipatory breach:

Damages normally assessed at time when performance should have been made (in Millet v Van
Heck &Co)

Causation
Loss must be caused by the breach of contract (in C&P Haulage v Middleton)

Where multiple causes, look at whether breach was an effective cause (in County Ltd v
Girozentrale Securities)

Common sense approach to causation (March v E & M H Stramare Pty Ltd)

“But-for” test may be applied

Reg Glass Pty Ltd v Rivers Locking System Pty Ltd: the court held that on balance of
probabilities, but for the defective security doors, the burglary would not have occurred →
the defendant was liable for the goods stolen

but for the breach of contract, there would not have been the loss

Remoteness of loss
a claimant cannot recover damages in respect of a loss which is too remote a consequence of
the defendant’s breach of contract

→ damages will not include losses which are too remote

→ liability for damages is based on (objective) intentions of parties at time of contracting

→ damages recoverable only where there is objectively an assumption of responsibility by the

defendant for the type of loss concerned

The rule laid down in Hadley v Baxendale was that the losses are recoverable if they flow
naturally from the breach or if they are in the contemplation of both parties at the time of
entry into the contract

(1) General damage: loss fairly and reasonably considered to arise naturally from breach (arising in
usual course of things)

→ imputed knowledge of the defendant

→ whether the loss was reasonably foreseeable?

(2) Special damage: loss reasonably supposed to be in contemplation of parties, at time of

contracting, as probable result of breach

→ actual knowledge of the defendant

‘In British Columbia Saw Mill Co v. Nettleship (1868) LR 3 CP 499 Willes I

stated that the knowledge must be brought home to the defendant under

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 such circumstances that he knows that the person with whom he contracts
reasonably believes that he accepts responsibility for the special loss’

→ the defendant should have contemplated the loss arising from the breach as a serious possibility
or a real danger at the time when the contract is concluded → the question is ‘ought the defendant
reasonably to have contemplated that there was a serious possibility that such a breach would
involve the plaintiff in loss of profit?’

💡 The liability for losses is based on what may be reasonably contemplated by parties; and
what is reasonably contemplated by parties arises from either imputed or actual
knowledge of the defendant regarding the plaintiff’s circumstances

Distinguishing between Hadley and Victoria Laundry: in Hadley, it was unusual that the business
of the millers would be adversely affected when the craftshafts were sent for repairs; but in
Victoria Laundry it was more normal for the laundry’s business to be suspended or affected
because of the delay

the seller of the boiler for the laundry business was expected to have more information
about the business of the laundry; the defendant in Hadley was a carrier which may have
less knowledge about the plaintiff’s business

Suggested approach (Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (The Sylvia) [2010] 2
Lloyd's Rep 81 per Hamblem J):

Assumption of responsibility concept provides basis for rule in Hadley v Baxendale

Starting point: apply rule in Hadley v Baxendale

Where necessary, then specifically consider whether def can reasonably be expected to
have assumed responsibility for loss in question

Mitigation
There was a duty of the plaintiff to mitigate losses

where the plaintiff unreasonably fails to mitigate loss, the plaintiff would not be entitled to
recover loss that would not be suffered if there was mitigation

e.g. where the plaintiff acts unreasonably in not attempting to minimize loss suffered

Example:

Wrongful dismissal of employee (breach of contract)

Loss of income

But employee unreasonably declines alternative employment immediately available elsewhere

(on same or better terms)

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 Failure to mitigate: loss of income not recoverable if same (or more) income could be earnt had
employee taken up alternative employment

See Brace v Calder [1895] 2 QB 253 on similar facts

Recovery of sums fixed by the contract

Action for liquidated sum:

cause of action in debt for sum owing

Not an action for damages for breach of contract

Action in debt - elements to be established

Sum fixed by contract

Sum is now due for payment by the defendant

→ not suing for a liquidated cause of action?

→ does not concern about suing losses

Agreed damages clauses

Agreed damages or liquidated damages clauses:

Term of contract specifying the amount payable by one party as liquidated damages if that
party is in breach of contract

The clauses provide certainty as to what the plaintiff would be entitled to recover

Where the clause applies, then:

The plaintiff can sue for liquidated sum and need not prove their loss

The defendant would be liable for liquidated sum regardless of whether the actual loss is
greater than or less than the liquidated sum

Example: Polyset Ltd v Panhandat Ltd

→ there is also certainty provided to the defendant (the defendant would not be liable for the
loss which is greater than the sum specified by the contract)

The agreed damages clauses would not be enforceable on public policy grounds if the amount
to be paid constitutes a penalty

→ whether the damages required to be paid would be a penalty depends on the intention of the
parties

Example case: Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

The principles stated in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

The test of determining whether a clause is a penalty or not is whether the agreed sum is a
genuine pre-estimate of loss in the event of breach by other party or not

The principles stated in Cavendish Square Holding BV v Makdeshi

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 The test on whether the clause is penal in nature is whether it is a secondary obligation
imposing detriment on contract-breaker out of all proportion to any legitimate interest of the
non-breaching party in enforcement of primary obligation (if yes, it is a penal clause)

Deposits
Upfront deposit payments

e.g. 10% deposit paid by the purchaser upon entry into the contract for sale of land

Deposit:

Applied towards payment of contract price

Forfeited if the party (payor) in breach

Nature of deposit:

Distinguished from agreed damage clauses (deposits are not intended as pre-estimate of
loss on breach)

The payment of deposit is to provide an “earnest”

The thing of value given to signify serious intent to perform the contract

Earnest money

Paid as guarantee for performance

Deposits and part payments

Deposits should be distinguished from part payments

Part payments:

The payor may recover the payments if the contract is not completed (even if the payor may
be in breach)

Basis for return of payment

advance payment conditional on the contract being performed; or

restitution occurs where there is total failure of basis (total failure of consideration)

Whether the payment is deposit or part payment:

Question of construction of contract

Recovery of deposits

1. where the deposit constitutes a penalty

2. equitable jurisdiction for relief against forfeiture (of deposit)

3. where the deposit is invalid and regarded as part payment

The test of whether the deposit constitutes a penalty:

whether the deposit is reasonable as earnest money (Workers Trust and Merchant Bank Ltd v
Dojap Investments Ltd)

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 Amounts higher than conventional amount will be invalid as a deposit and recoverable as a part
payment unless justified by exceptional circumstances ( Polyset Ltd v Panhandat Ltd)

Specific performance
Equitable remedy:

Order compelling the party to perform the contract

Granted only in particular circumstances

Discretionary remedy

Basic principle:

Specific performance granted only if remedy of damages is inadequate

* Privity of contract doctrine: A third party (who is not a party to the contract) cannot sue for
damages, but there are exceptions under the Contracts (Rights of Third Parties) Ordinance (Cap.
623)

Particular types of contract

Sale of land

Specific performance may usually be granted against vendor

Land regarded as unique; damages would be an inadequate remedy

Sale of goods:

Specific performance against the seller is usually not available

Purchaser can usually obtain identical goods in the market: damages is adequate remedy

But damages would be inadequate if goods are unique

Example Case: Dougan v Ley (where the sale of licensed taxi-cab occurred and specific
performance was granted)

Discretionary bars to granting specific performance

Specific performance may be declined as a matter of discretion where

Contract for personal services

Contract requiring constant supervision of court

Contract which is too vague

Lack of mutuality

Severe hardship on the defendant

Mistake on part of the defendant entering into contract

Contracts for personal services

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 Employment contracts usually not specifically enforced

Example Case: De Francesco v Barnum

Reasons:

Inappropriate to force parties to cooperate together

Form of slavery

Difficulties in enforcing court order

Same principles apply to other contracts for provision of services (e.g. engagement of a singer
for performances)

Mutuality
Specific performance is generally only granted against the defendant if the plaintiff is able to
perform the plaintiff’s own obligations

Example Case: Price v Strange

Undue hardship
The court may not grant specific performance against the defendant if the specific
performance imposes undue hardship on the defendant

Example Case: Patel v Ali [1984] Ch 283

Other factors for declining specific performance

General principle: specific performance usually not granted to compel the party to carry on
business

Reasons:

Specific performance is not granted where continued supervision of the court is required to
ensure performance (one has to distinguish between orders for carrying on an activity and
orders for achieving a particular result) → the former incurs higher costs

Contractual obligation (and court order) was not sufficiently precise

Possibility of the plaintiff being enriched at the expense of the defendant (and receiving
benefits which would not have been conferred upon the plaintiff under the original contract)

Example case: Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd

→ the court held that specific performance was not appropriate since an obligation to keep
premises open for retail trade was not precise enough

→ it is uncertain whether the business would be in breach of court order if it did not operate at
optimal level or at reduced capacity

→ business would be compelled to be carried on under the threat of imprisonment for contempt of
court order: no way to run a business

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 Injunctions
Order of court requiring the party to an act (mandatory injunction) or refraining from doing
some act (prohibitory injunction)

E.g. injunction to enforce a particular contractual obligation

Equitable discretionary remedy

Two types of injunctions

Prohibitory injunctions: usually granted unless there is hardship to the defendant

Example case: Araci v Fallon

Mandatory injunctions: test of balance of convenience should be applied

Example case: Sharp v Harrison

→ it is relevant to look at whether damages was an adequate remedy

Example case: QBE Management Services (UK) Ltd v Dymoke

(balance of convenience: whether the grant of manadatory injunction would prejudice the
defendant/the plaintiff)

→ if the obtaining of injunctions is similar to the obtaining of specific performance, the court would
assess principles of specific performance and when it is not appropriate to grant specific
performance, the court would not grant injunctions(?)

Possibilities of restraint of trade clauses not being enforced on grounds of public policy (if it is
restrained beyond protecting the legitimate interest of another party, the court would not give
effect to the clauses)

→ specific performance would not always be granted

The doctrine of substantial performance (supplement)

The effect of this exception is to entitle a claimant who has substantially performed his
obligations to recover the contract price subject to the defendant’s claim for damages for the
loss he has suffered as a result of the claimant’s breach of contract

→ in Ruxley Electronics & Constructions Ltd v Forsyth, the plaintiffs were entitled to recover the
contract price subject to the defendant’s counterclaim for damages

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