Contract lecture 13 remedies for breach of contract

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Before looking at these possible heads of damages through cases, we should first note some points on the second limb of damages, that is, on how damages are quantified.

securing performance of the contract by someone else, know as ‘cost of cure’; or

he has acquired under the contract thus far and what he expected to acquire.

However, whilst this basis of quantification may have sufficed when the main basis of loss was purely financial, what we shall see is that as the heads of damage have grown, then the approach to quantification of damages has also had to grow. Thus, given the recognition in the heads of damage of types of loss that may be suffered by ‘consumers’ in terms other than just financial terms, the courts have now begun to recognise a basis of quantification of damages called the ‘consumer surplus’.

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In Ruxley Electronics and Construction Ltd v Forsyth 1996, Lord Mustill acknowledged this in reply to the contention that there were only the two methods of quantification when he stated that there was only ‘one’ true method of quantification, ‘the true loss suffered by the promisee’. Thus, it was possible to compensate the plaintiffs for losses other than just financial losses under the notion of the ‘consumer surplus’. This case is considered in detail below.

party only has to take ‘reasonable’ steps to try to mitigate his loss.

Hadley v Baxendale 1854 and Victoria Laundry v Newman Industries Ltd 1949.

We can now explore the heads of damages and the methods of quantification through some of the leading cases.

Addis v Gramophone Co Ltd 1909

This is the leading case on what loss can form the basis of recovering damages. The plaintiff was employed as the manager of the defendant’s business in Calcutta and could be dismissed on 6 months notice. The defendants gave him 6 months notice but at the same time appointed his successor and made sure that only the successor did the managerial work in question. The plaintiff was awarded damages for his lost commissions during this time and damages for wrongful dismissal. In the House of Lords the first head of damages was allowed as loss of salary but the second head was not – Lord Loreburn said that the defendants did not have to compensate the plaintiff for his ‘injured feelings’ or ‘loss of reputation’ at the ‘manner in which’ he was dismissed.

This case has been taken as authority for the proposition that damages are not recoverable for disappointment, hurt feelings, loss of reputation or distress caused by the breach. However, since this case a series of ‘exceptions’ have developed to allow recovery of damages for loss which may not be seen as purely financial.

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With regards to ‘loss of reputation’ there have been inroads into the Addis argument against this. However, such inroads are limited to instances where the loss of reputation is first, caused by the breach of contract, and secondly, where the loss of reputation causes financial loss.

The leading case here is Malik v Bank of Credit and Commerce International SA 1998 (ie. Malik v BCCI). When BCCI went insolvent Malik and other employees were unable to get jobs in the financial services industry because of the stigma attached to former employees of BCCI and so they claimed damages for loss of reputation. Since the company had acted corruptly and the employees here were innocent, the company was in breach of an implied term in their contracts not to carry on a ‘dishonest or corrupt’ business. Thus in principle it was possible to recover damages for financial loss due to damage to reputation caused by the breach of contract.
Damages for loss of reputation may also be recoverable for breach of an advertising or publicity contract where the main purpose of the contract is to promote and publicise. If the breach of contract has the opposite effect, then damages for loss of reputation may be recoverable – see Aerial Advertising Co v Batchelors Peas Ltd (Manchester) 1938. This is the case where the plaintiffs were to advertise Batchelors Peas by flying over towns trailing a banner ‘Eat Batchelors Peas’. The plane flew over the main square in Salford during the 2 minutes silence for Armistice Day and the damage to Batchelors reputation caused a loss of sales.
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Damages for substantial ‘physical inconvenience or discomfort’ have been awarded as seen in the following cases.
In Hobbs v L & S W Railway 1875 a family was taken to the wrong railway station by the railway company, necessitating a walk of several miles on a wet night. The plaintiff was allowed to recover damages for his inconvenience.
In Bailey v Bullock 1950 the plaintiff recovered damages for the physical inconvenience of living with his wife and child for 2 years in discomfort in his wife’s parents house due to the failure of their solicitor to take any effective steps to obtain possession of a house.
Another case that discusses physical inconvenience and distress is Watts v Morrow 1991, discussed below.
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In Watts v Morrow 1991 the court of appeal also awarded damages for the distress caused by the physical inconvenience of living in a house during repairs

Facts of the case:
Mr and Mrs Watts, high earners in London, wanted a weekend retreat and found a house on the market in the countryside for £175,000. It had large gardens and 3 acres of paddocks. They employed Mr Ralph Morrow FRICS a surveyor to survey the house for them. He reported that the house would not need any major repairs, something Mr and Mrs Watts wished to avoid at all costs. On the basis of this report they put in an offer of £177,500, to beat other offers, and were successful – October 1986. They soon discovered that the house needed lots of substantial repairs. Thus, on their weekend visits to the house they were living in a building site but had to supervise the work. They divorced in 1989, Mr Watts claimed, partly due to all this bother.
They brought a claim for breach of contract for the survey having been carried out negligently. At first instance they succeeded and were awarded substantial damages. The appeal by the surveyor was not about liability, but about the amount of damages, that the trial judge had been wrong in law in how he assessed damages under both heads put forward.
The leading judgment in the Court of Appeal is by Ralph Gibson LJ:

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Firstly, his lordship notes how the trial judge came to the conclusions he did in relation to the 2 heads of loss claimed:

i. pure financial loss – seeking special damages

ii. distress and inconvenience – seeking general damages

i. Pure financial loss
The trial judge had said that here there was a choice between the ‘cost of cure approach’ (cost of the repairs to the house) or the ‘diminution in value’ approach (what they paid for the house and what it actually was worth at that time). The trial judge used the cost of cure approach and awarded special damages of £33,961.35 – the cost of the repairs.
ii. on Distress and inconvenience
Here the trial judge said that where the surveyor was negligent and he knew people wanted to live in the house, he was liable not just for pure financial loss but also for the fact that in such contracts he was assuring the clients that they would have ‘peace of mind and freedom from distress’. Thus, he awarded them what he called ‘modest’ damages of £4000 each under this head ie. £8000.
He did not allow any amount for the breakdown of the marriage, for policy reasons.
Also, under special damages, he did not allow anything for the holiday to Scotland, that cost £880, which the Watts’ claimed they had to take because they were unable to holiday in the house. However, he did take the cost of the holiday into account when he awarded ‘general’ damages under the distress and inconvenience head of loss.

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His lordship then responded to each of these heads of damage and what the trial judge had decided.

i. Financial loss
He analysed whether the correct basis in this case was the cost of cure or the diminution in value approach. On page 12 he states:
‘The task of the court is to award to the plaintiffs that sum of money which will, so far as is possible, put the plaintiff into as good a position as if the contract for the survey had been properly fulfilled’.
He concluded, after a survey of leading cases re surveys negligently performed, that the amount of damages for financial loss should be calculated on the diminution in value basis ie. £15,000 plus interest. On page 13 he states that it makes no difference to this amount that the Watts reasonably decided to keep the house and repair it rather than sell it, which could have been difficult in the circumstances. Thus, he set aside the judgment for £33,961, the cost of repairs, and substituted, for the financial loss head, a sum of £15,000 plus interest.


ii. On General damages – for distress and inconvenience
The surveyor was arguing here that either no money was due under this head or that if it was, £8000 was too much.
His lordship said that in his judgment the plaintiffs were entitled to recover general damages for ‘physical discomfort or inconvenience’ resulting from the breach of contract.
Additionally, he states that the trial judge had ‘incorrectly’ said that the surveying contract was to provide ‘peace of mind or freedom from distress’. His lordship said that there was no express term in the contract to this effect, neither had an implied term to this effect been suggested. Thus, in his view, damages were only recoverable for ‘distress caused by the physical consequences of the breach’. Damages were not available for distress per se.
His lordship then had to re-assess the amount of damages under this head.
He noted that the physical discomfort had lasted 8 months but that they only stayed there some weekends. Also, some of their discomfort was not ‘caused’ by the breach of contract eg. the work they decided to carry out in addition to the crucial repairs. He would not take account of the cost of the holiday to Scotland since they had not put in a claim based on ‘loss of use’ of the house. Thus, he awarded them the modest sum of

£750 general damages under this head, plus interest at 15%.

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There are several points that this case highlights. It shows:

i. the 2 main heads of damages at work

ii. the interplay between cost of cure and dim in value

iii. the approach to physical discomfort and distress caused by

physical discomfort

iv. the link between breach of contract and what physical

discomfort the breach ‘caused’

v. mitigation points – that it is based on reasonableness – it

was reasonable for the Watts to stay in the house and repair it

rather than sell it to cut their losses

vi. that in this case they did not succeed in getting damages for pure

distress because this was not seen by his lordship as part of

the surveying contract, either expressly or by implication.

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Another interesting case is Jarvis v Swan Tours Ltd 1973 as it is a case in which damages were paid for losses other than purely financial losses.

In this case the plaintiff booked a 2 week Christmas skiing holiday for £63.45. The holiday brochure described the holiday as a ‘House Party’ and stated that a welcome party, afternoon tea and cakes, a fondue party and a yodelling evening were all included in the price. In the first week there were only 13 people in the hotel and in the second week only the plaintiff. The skiing was not very good and the tea and cakes were just crisps and nut cakes, and the yodeller was a worker who came in in his work clothes, sang a few songs and then left.
The court held that there was a breach of contract and that he was entitled to be compensated for his disappointment and distress for the loss of his holiday and loss of facilities that had been promised in the brochure. He was awarded the amount he had paid for this holiday, financial loss, plus an additional £60 to compensate him for his disappointment. Note, that this disappointment and associated damages, was not linked to any physical discomfort caused by the breach – damages were awarded for the disappointment in its own right.
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Originally, this ability to be awarded damages for disappointment per se, only applied where the ‘sole object’ of the contract was to provide enjoyment, peace of mind or prevent distress. Thus, in Knott v Bolton 1995 a contract with an architect to design a house for a couple who contemplated that it would be their ‘dream home’ did not qualify. In this case the contract had had more than one purpose – it was a contract to build a house and a contract to make it their dream home. As such, the enjoyment factor tied up in the dream home concept was not the ‘sole’ object of the contract.
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However, since the case of Farley v Skinner 2001 it is enough that the provision of peace of mind or the prevention of distress is an ‘important object’ of the contract, not just the sole object of the contract.
In this case the claimant who was starting his retirement had employed a surveyor to survey a house he intended to buy and to report, inter alia, whether the house would be affected by aircraft noise. The house was in Sussex some 15 miles from Gatwick Airport.

It cost £420,000 and was in the heart of the countryside. It had a stream running through the garden, a tennis court, an orchard, paddock and so forth. The claimant was seeking peace and quiet in a country location. The surveyor said that it was unlikely that the house would be affected by aircraft noise and so the claimant bought the house.

It turned out that the house was near to a navigation beacon used by aircraft waiting to land at Gatwick Airport and thus the house was affected by aircraft noise as the aircraft circled waiting for a landing slot.
The House of Lords held that the claimant was entitled to damages for the significant interference with his enjoyment of the property caused by the noise. Thus, although the contract between him and the surveyor was not solely for pleasure as it had the economic aim of him buying a house, nevertheless an important object of the contract was that the plaintiff should get peace of mind about the noise.

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Counsel for the defendant had argued

that the plaintiff could only succeed if the sole object of the contract had been for pleasure and,

that by not moving out of the house, he had forfeited his right to non-pecuniary damages because he had not ‘mitigated’ his loss.

For the first argument, Lord Steyn noted that their argument was strengthened by Knott v Bolton. However, he stated [ at paragraph 24]

That:

‘It is sufficient if a major or important object of the contract is to give pleasure, relaxation or peace of mind. In my view, Knott v Bolton was wrongly decided and should be overruled.’
With regards to the plaintiff not moving from the house, Lord Steyn said that the trial judge had found that the plaintiff had decided to stay and make the best of a bad job and there was no real legal argument to sustain this line of defence. It had thus been a ‘reasonable’ decision to stay in the house.
So, given that there was a head of damage on which to claim damages, the court then had to decide on the method of quantification.
It was held that damages could not be based on the market value tests of diminution in value or cost of cure, the pure financial loss bases.
The plaintiff could not get damages based on the diminution in value basis because the original price of the house had been set to take account of aircraft noise and thus he could have resold the house without making a loss.
Also, it would have been impossible to award damages on the basis of cost of cure because it was impossible to stop the aircraft flying over the beacon.
Thus, the only way in which the plaintiff could have damages assessed was by the ‘consumer surplus’ method.
He had been awarded £10,000 by the trial judge for his disappointment and lack of enjoyment of the house, and this was restored by the House of Lords. Lord Steyn did note that this amount did seem to be excessive and at the ‘very top end’ of what could be regarded as appropriate damages for non-pecuniary loss. He said that awards for non-pecuniary loss should be ‘restrained and modest’ and that ‘it is important that logical and beneficial developments in this corner of the law should not contribute to the creation of a society bent on litigation’.


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Another interesting case that explores the relationship between diminution in value, cost of cure and consumer surplus methods of quantifying damages, is Ruxley Electronics and Construction Ltd v Forsyth 1994.
In this case, Mr Forsyth had a swimming pool built and had requested that the depth be 7’6” at the deep end. As it was, it was it was only 6’9” deep and only 6’ deep where people dived in. He had paid some monies across to the companies concerned as the contract progressed but refused to pay the balance and so the companies sued for it. He counter-claimed damages for breach of contract.
The trial judge held that there was a breach of contract. When looking at what damages might be awarded he held that it was ‘unreasonable’ to award damages at the level of the cost of cure/re-instatement since it was ‘unreasonable’ for Mr Forsyth to insist on this level of damages – and it could not be shown for certain that if he got cost of cure damages he would actually cure the defect by re-building the pool. This aspect of what Mr Forsyth intended to do with the damages was only relevant to how ‘reasonable’ it was to award cost of cure damages. If one then looked at the ‘diminution in value’ of the pool, in fact the pool had not lost value as one could still dive into it.
So, it would seem that Mr Forsyth had not actually suffered any ‘pecuniary’ loss. However, the judge awarded him damages on the basis of ‘loss of amenity’.
In the House of Lords, Lord Mustill said that there were not 2 alternative measures of damages, cost of cure or diminution in value. Rather, he said that there was one, the true loss suffered by the claimant. He said that although quite often in commercial contracts the loss to the claimant is clearly ‘pecuniary’, in consumer contracts quite often the loss to the claimant is difficult to see in monetary terms. This was because the loss may be manifested in non-monetary terms such as pleasure, which is by definition subjective. This is what is known as the ‘Consumer Surplus’.
So, in this case, one did not need to choose between giving Mr Forsyth cost of cure damages, which would probably have been too high, and diminution in value damages, which would be nil. Rather, the court could award him damages for his ‘true loss’ which was the loss of amenity and the trial judge’s award of £2,500 was to be restored.
This judgment has been criticised. One point is that the damages awarded, on an expectation basis, did not really put Mr Forsyth in the position he had expected to be in. The pool was not of the correct depth. Thus, he was forced to accept sub-standard performance from the other side at a relatively low cost to that side.
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Another interesting case is the Scottish case of Diesen v Samson 1970.
This was heard in the Sheriff Court of Lanark at Glasgow.
Mrs Macalister (nee Diesen) booked Samson, a professional photographer, to photograph her wedding and reception and paid a deposit of £2, the full contract price being £12. Unfortunately, Samson forgot about the wedding and failed to turn up. The press photographer at the wedding took a few shots at the wedding itself but not at the reception because his equipment failed. When Samson was contacted by telephone he offered to come but it was too late as the bride and groom were about to leave. Therefore, the bride sued him for breach of contract for not turning up and claimed damages for injury to her feelings as she had no record of the wedding and reception.
The photographer was held to be in breach of contract and the main issue was whether the court could award damages for injury to feelings. Although the Addis case was quoted to say that you cannot award damages for injured feelings, the Sheriff said that there were exceptions to this rule. He said that the Addis rule was mainly for ‘commercial’ contracts where injured feelings are not contemplated by the parties when the contracts are made in the event of breach of contract.
However, in ‘non-commercial’ contracts, if the court thinks injured feelings were in the contemplation of the parties in the event of breach of contract, then damages could be awarded. Clearly in this case, it must have been in the contemplation of both parties that if the photographer did not turn up then the bride would have injured feelings if she had no photographs of her wedding day. As such a moderate sum of £30 was awarded in damages.
We can see how this sits nicely with the Jarvis case where it must have been in the contemplation of the parties that if the holiday was sub-standard then such a breach of contract would cause disappointment.
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A case that explores ‘speculative’ damages is the Australian case of McRae v Commonwealth Disposals Commission 1951.
Generally, when trying to assess damages on the basis of expectation loss, the courts will struggle to quantify the damages, no matter how difficult the task may seem. This can really be seen in Watts v Morrow and Farley v Skinner, for instance. However, when the court thinks the quantification is not possible because it involves too much ‘speculation’ on their part, they may not award expectation loss damages.
This does not mean that the claimant necessarily will not get any damages. This is because it may be possible for the court to award damages on either the ‘reliance’ basis or the ‘restitutionary’ basis. Under these methods, the claimant stands to get far less damages than under the expectation loss formulae. Reliance loss damages compensate the claimant for expenses incurred by reliance on the contract, whereas restitutionary damages are based on the idea that the party in breach should not be ‘unjustly enriched’ at the expense of the innocent party.
In the McRae case the plaintiff, McRae, contracted with the defendants to retrieve a sunken tanker. However, it became apparent that the tanker had never existed and so the Commission was in breach of contract for promising that a tanker was at a certain place. The High Court in Australia said that it would be too speculative to try to assess expectation loss in terms of lost profit since the contract had not detailed the size of the tanker or how much oil it still contained. So instead the court awarded ‘reliance’ loss damages – the expenses the plaintiff had incurred in going to search for the tanker. In addition, they awarded damages based on the ‘restitutionary interest’ - the price they had paid to get the contract – so that the defendants were not unjustly enriched.

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The line taken in the McRae case is rare as the judges will try to work out expectation loss damages where possible. This can be seen in the cases of

Chaplin v Hicks 1911 and

Allied Maples Group Ltd v Simmons & Simmons 1995.
In the Chaplin case there was a contract between a woman and a theatrical manager that if she attended for interview he would take on 12 out of 50 applicants. He was in breach of contract when he failed to give her a reasonable opportunity to attend the interview. She succeeded in winning damages for her ‘lost opportunity’ because the court held that this was quantifiable. This was different to the McRae case considered earlier because in that case there was no way of quantifying profit. In the Court of Appeal it was held that when you belong to a ‘limited’ group of competitors you have ‘something of value’ and it was the job of the jury to estimate the pecuniary value of that advantage if it was taken away from one of the group.
In the Allied Maples case the claimants successfully sued a firm of solicitors for breach of contract and were awarded damages on the basis that had the solicitors firm advised them properly they would have been able to make a better deal than the one they had made in relation to buying businesses and shop premises. The court held that to award damages the claimants only had to show that they had a ‘substantial chance’ of negotiating a better deal had they been advised properly. This was not seen as too speculative for the court to handle.
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A case that demonstrates reliance loss damages and the need to prove causation between the breach and loss is C & P Haulage v Middleton 1983.
In this case the claimant had a contract to lease a garage for six months at a time for his business. In the contract he was allowed to put fixtures in the garage but it said in the contract that such fixtures would become the property of the garage owner at the end of the contract. The garage owner was in breach of contract when he ended the lease without proper notice. The claimant sought damages for the cost of the fixtures in the garage, that is, for his reliance loss, but he failed. Although the garage owner made a gain in this respect, the gain was allowed under the terms of the contract – he did not make the gain due to the ‘breach of contract’ merely in accordance with the terms of the contract. Thus, since the loss to the other was not due to the breach of contract, it was not recoverable.

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Two cases can be considered to demonstrate how rare it is for the courts to award damages on the basis of restitution. In addition, the first case shows when nominal damages might be appropriate.

In Surrey County Council v Bredero Homes Ltd 1993 the Court of Appeal demonstrated how rare it would be for someone to get restitutionary damages even when the defendant ‘deliberately’ breaches the contract and in doing so makes a profit. In this case Bredero Homes built more houses on the plot of land it was sold by the council than it was supposed to under a covenant and so made a bigger profit. The initial covenant had been to build 72 houses and they built 77. Despite this breach of contract , the Court of Appeal held that the council could not recover any part of the extra profit made by Bredero Homes – they could only get nominal damages because they had not suffered any ‘loss’ due to the breach. Nevertheless, Bredero Homes seemed to have been unjustly enriched at the expense of the council.

It is possible that the case of Attorney General v Blake 1998 has opened the way for some exceptions to this rule, but just when is unclear. Even the Blake case confirms that even when the defendant is in deliberate breach of contract and this allows him to enter into a more profitable contract with someone else, this does not allow the claimant to get restitutionary damages. In such cases the claimant can usually be compensated for their ‘loss’ in the normal expectation way.

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We can now consider two cases that explore the need for the loss not to be too remote from the breach of contract.
The key cases here are Hadley v Baxendale 1854 and Victoria Laundry v Newman Industries Ltd 1949.
In the Hadley case it was stated that a claimant can recover damages as follows:
i. for losses that ‘occur naturally’ from the breach of contract –

‘normal loss’ – losses that must ‘inevitably’ have been in the contemplation of

the parties when the contract was made.

ii. for losses other than normal loss where the loss can reasonably be supposed to have been in the contemplation of both parties when the contract was made

We can see how this works in the Victoria laundry case.
The defendants had been contracted to deliver a boiler to the plaintiffs for immediate use in the laundry. However, it was delivered 5 months late. The plaintiffs sued for loss of profits for the late delivery. They were allowed to recover normal profits which came from the lack of normal trade but were not allowed to recover the loss of profit of especially lucrative contracts which the defendants had not known about when the contract was made.
Thus, to recover damages for more than just normal loss, the claimant must make the other side aware of exceptional circumstances, such as special/very lucrative contracts that are dependant on the contract with them. In this way, such loss will be in the contemplation of ‘both’ sides when the contract is made.
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Specific performance, injunctions, agreed sum and quantum meruit shall be discussed in a separate lecture.

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