Damages

Notes:

If the C wins his court case he is entitled to claim damages. You will need to be able to answer a question covering the follow issues related to damages:

 

  • Compensatory damages.

  • Describe the rules for calculation of damages for damage to property.

  • Describe the rules for calculation of damages where there is a market for the goods involved.

  • Describe the principle of mitigation of loss.

  • Describe the rules on causation and remoteness of damage.

  • Apply the above rules to a given situation.

     

Damages in contract are compensatory. The purpose is to put the claimant in the position he would have been in had the contract been properly performed. This means that the claimant is entitled to the benefit of his bargain. The law is not concerned with punishing the defendant, only with compensating the victim of the defendant’s breach of contract.

 

 

 

Calculation of damages

 

The court has to take into account a number of factors when awarding damages:

 

The amount payable for what is known as the ‘loss of the bargain': In other words money will be awarded to the money lost as a result of the contract not be carried out properly. The idea is to put the claimant in the same situation as if the contract had been-performed. This will usually involve the return of any money paid and the difference between the contract price and the general selling price of the goods or services not delivered under the contract.

 

Consequential losses: The extent of the losses that can be claimed depends on whether the consequence is too remote to be recovered or not. The basic principle is that if the loss is foreseeable to a reasonable person then compensation can be claimed.

 

For example, if you bought a new tv and it caught fire because a part was defective. You could recover for loss of bargain, the cost of the tv. You could also recover damages for any property damaged such as a tv stand. This would be a consequential loss because a reasonable person would be able to foresee that a tv stand would be damaged by a fire caused by a defective tv. However it wouldn’t be foreseeable to a reasonable person that your car parked in your drive would damaged because the tv set on fire in your living room due to the same defective.

 

Where a business is claiming a loss of profit, it will have to show how the broken contract affected its earnings. This is usually done by calculating the loss of profits on the basis of previous profits, contracts made and the consequences of those contracts being broken.

 

Losses claimed through emotional distress: In exceptional cases there can also be damages for emotional distress following a breach of contract. This relates mainly to consumer contracts and particularly holidays. For example, the hotel is a building site and you can’t sleep for a week.

 

Mitigation of loss

 

The C has to mitigate the loss he suffers. This means he must do his best to keep the losses he has suffered to a minimum. In practice, the claimant does not have to be too careful about ensuring mitigation of loss; the important issue is that the action taken by the claimant is reasonable.

 

Causation and remoteness

 

The general principle is that the loss complained of must have been caused by the breach and not be too remote. In other words causation is that the breach of contract must be the main cause of the claimant's loss.

 

Remoteness is the test used by the courts to decide whether losses resulting from a breach of contract are recoverable. With remoteness of damage, it would clearly be impossible to make the defendant liable for all the consequences of his breach as they could be, arguably never ending. The decision the law has to make is where to draw the line. In other words the further away the losses are the C suffers from the main part of the contract the less likely it is the courts will say the D is liable for damages.

 

There are two categories of loss the courts look at to establish whether losses are remote developed in the case of Hadley v Baxendale. The decision was based on the ‘foreseeability' test for contract breaches: you cannot be held liable for losses that you could not reasonably have anticipated. The two categories of loss are:

 

  • Direct or normal loss: loss of a type that would usually arise from a breach of contract. This is assumed to have been in the ‘reasonable contemplation' of the parties at the time they made the contract.

  • Indirect or abnormal loss: loss of a type that is out of the ordinary. This is recoverable if, at the time of making the contract, the defendant knew it could happen in the event of breach. The defendant must also have accepted responsibility for that risk. Acceptance of risk is often implied from knowledge that the defendant has in relation to the situation.

Issue

Case name

Facts

Legal point

Calculation of damages

 

Loss of profit

Wiseman v Virgin Atlantic Airways

Where the claimant was wrongly not let on board an aircraft in Port Harcourt, Nigeria, flying to Stansted airport in England. It was another 12 days before he could return to England.

The successful claim resulted in damages of around £2,300 all related to a loss of profit to the C’s business.

However expenses that were not related directly to a loss of profit such as the breakdown of his relationship with his fiancée was not awarded as damages.

Calculation of damages

 

Emotional distress

Jarvis v Swan Tours

Where a winter sports holiday had failed to live up to expectations with respect to the activities on offer and caused emotional distress

Damages could be awarded for mental distress following a breach of contract. This was particularly relevant to holidays.

Issue

Case name

Facts

Legal point

Remoteness of damages

Hadley v Baxendale

The claimants needed to have the main shaft that powered their mill repaired, as it had broken. Until it was repaired, the mill could do no work, and so they were losing money. It could be repaired only in London; they hired the defendant to take it from Gloucester by the next day. For some unexplained reason, the shaft took several days to arrive. The delay caused continuing losses. The question before the court was whether the defendant was liable for the money that the Hadley’s had lost while the mill was without its shaft

Damages for breach of contract will cover naturally occurring consequences of the breach and those that are in the contemplation of the parties to the contract.

 

The court decided that since the defendant did not necessarily know that the mill would be idle until the shaft could be returned (they might have had a spare shaft), the defendant was not liable for the loss.

 

Victoria Laundry v Newman Industries

The defendants contracted to sell a new larger, boiler to the claimants, which the defendants knew was required for immediate use. Delivery was made five months late. The claimants lost not only the £16 a week profit that they could have made from normal customers, but also a £262 a week dyeing contract with a Government department, The government contract was deemed too remote and not recoverable.

The claimant could recover damages for their natural lost profit, but not for an especially valuable contract the defendant did not know about as this was not foreseeable and too remote.

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