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Contract Law Vitiating Factors Damages Notes

BCL Law Notes > Contract Law: Vitiating Factors Notes

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DAMAGES

1. 2.

When advising a client, ultimately, they want to know:
Will I be able to win my case?
If I do win my case: what will I get?
The usual remedy for breach of contract is an award of damages.
in tort, damages are calculated to restore a plaintiff to the position in which she would have been in had the tort not occurred. In contract,
damages are assessed with the

- Aim of putting the plaintiff in the position in which she would have been in had the contract been performed

Robinson v Harman 1848
Set out this principle.''where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."
REMOTENESS OF DAMAGE

• The consequences of a breach are endless.

• Chain of consequences… how far do the damages go to be paid.

• At some point, the adverse consequence is too remote from the breach of contract to be compensated for

British Columbia Saw Mill Ltd v Nettleship 1969
Reference made to a 17th century case. A man was going to be married to a heiress, and along the way the horses shoe needed repair. This was done so unskilfully that the horse was rendered lame. By the time the rider got there,
the lady had married someone else. The man sought to recover for the loss of the marriage from the Blacksmith, and he succeeded.
However, common law has developed since.

Hadley v Baxendale 1854
Facts relatively trivial. Concerned owner of a mill in Gloucester. He sent away a piece of machinery - an engine shaft of the mill - for repair. The repairs were meant to be completed overnight, but took a week. For this week, the owner of the mill was out of business. Should D be held liable for the loss caused by the closure of the entire mill, for the entire week?
This particular loss > the closure of the entire mill for the entire week, did not flow naturally from the breach. Why?
If there's such a vital component part as a mill owner, that puts you out of business if it's gone > you should probably have a spare part? Secondly, while it may have been in the contemplation of one party, it would not have been in the contemplation of the repair man.
THE RULE IN HADLEY V BAXENDALE:
To recover, damage must
(i)

Flow naturally from the particular breach

according to the usual course of things
(ii)

OR
Been in the contemplation of both parties at the time the contract was made.

'the amount of injury which would ordinarily follow from a breach of contract under those special circumstances so known and communicated'
- The key to contemplation = communication.
e.g the owner of the mill, should have communicated the urgency of not having the part to the Defendant, before the contract is concluded.

Balfour Beatty construction v Scottish Power plc 1995
Concerns a massive infrastructural project. P are main contractors for the construction of the Edinburgh bypass. D were to supply electricity of the site.
While P were constructing an aqueduct, which required constant electricity supply, the supply failed. The cut out rendered the work worthless and it had to be demolished. So here, a temporary power cut was fatal. What can the P
recover?
The court said they can't recover for all of them in applying the Hadley test.
Destruction of aqueduct didn't flow naturally from the breach. - Most people wouldn't think a mere temporary cut out would result in complete demolition - unlikely
Might well have been in contemplation of the Plaintiffs, but if so
- they should have communicated it so it would be contemplated by both.

Parsons Ltd v Utley Ingham 1978
P was a pig farmer and he ordered a storage hopper > used to feed pigs.
Automatically releases food for feed. Here, it was installed incorrectly. When the food was released, it had decayed and the pigs became ill. So ill, that 254 pigs died from intestinal disease. D said that the deaths were too remote as a consequence of the breach. They said it was too unforeseen and unprecedented. Under first leg of Hadley, its proper to think that decayed food would cause illness, but the amount of deaths of the pigs was too remote.
All you must do is satisfy the test.
- Severity doesn't have a bearing on recovery.
once loss falls within Hadley test, the fact it's more severe than anticipated,
doesn't mean you cannot recover.
➢ As we know, key is communication to make the breach In contemplation of both parties upon entry.
Does the communication have to have some element of formality? Can it be in general chit-chat?

Kemp v Instasun 1987
Booking of a holiday concerned > in 1980s, this involved going to the travel agent. Here, Mrs.Kemp and her daughter go to Thomas Cooks travel agents.
They book a room in 'the America 1' hotel in Mallorca. N the booking form,
there was a box - any special requirements - which was left blank. However, it appears that in general chit-chat w/ the sales assistant, she mentioned that her husband was asthmatic. When they turn up, the America 1 hotel is already full,
so the family are taken to an inferior hotel. Here, they're put in the staff quarters which are dusty and unclean. Consequently, Mr.Kemp suffers an asthma attack. When they come back they sue Instasun, who are in effect the organisers. They will receive an award of damages for the change in hotel as clearly,
there's been a breach of contract. Question was could they sue for the asthma attack or to remote? Court of Appeal appealed 800 pounds for asthma attack consequences and allowed 400 for inconvenience and disappointment.
- Asthma was mentioned, but only in general conversation.
- Wrong to attribute any contractual consequences to that chit-chat
- On actual form, box was left unticked - this was the contract

Transfield Shipping or the Achilles case. (name of ship)
In simple terms, the case concerns the hire of a ship and the hirer was supposed to return the ship on the 2nd of May. They returned It on the 11th. 9 days late. Clearly breach and liable for damages in this respect.
Ship owner though he was getting it back on 2nd, and based on this assumption, he enters another contract for hire on the 8th of May. Come this day, he is in trouble because the new hirer of the ship cannot take possession.
Therefore, owner has to re-negotiate this contract. Unluckily, freight charges went down since contract initially negotiated > meaning it now cost less to hire a ship. So, with the re-negotiated contract he lost money due to decrease in charges, money which he would have gotten had the D returned the ship on time. First hirers agree to compensate for price at the time - the overrun period which was from the 2-11 may. This was 158,301. Owners said they had to compensate for the reduced rate which they now get for the entire duration of the next contract. HOL -
- Liable for the 9 days they had the ship, when they should not have
- Not liable for the remainder of the duration of the next contract.
Importance:

• If you read judgements carefully, the 5 judges use very different reasoning in reaching their conclusions.
Lord Roger and Baroness Hale have one reasoning
- Apply 'conventional remoteness test'
- Was it seriously contemplatable as a serious possibility at time of contract that in the event of breach by late return, a follow charter might be lost. They said no. Hoffman and Hope have another:
Added requirement that
- the D must have accepted liability or responsibility for the loss as in, D must have positively communicated at the time of the contract that he will accept liability for the specific loss in question - the loss of profits due to late return relating to a future vessel.
radical difference from Hadley Baxendale rule.
Walker agrees with all of them.

John Grimes Partnership v Gubbins 2013
No details of facts necessary.
'If there is no express term dealing with what types of losses a party is accepting potential liability for if he breaks the contract, then the law in effect implies a term to determine the answer'
- But if there is evidence in a particular case that the nature of the contract and the commercial background, or indeed other relevant special circumstances, render that implied assumption of responsibility inappropriate for a type of loss, then the contract-breaker escapes liability. Such was the case in The Achilleas.HEADS OF LOSS
Categorise them:
(i)
(ii)
(iii)

Expectation loss
Reliance loss
Restitutionary loss

1- Expectation loss

• Compensates losses for expected profit had the contract been carried out

2- Reliance loss

• You entered a contract and you relied on the party performing their part of the contract, and due to that reliance, you spent money.

3- Restitutionary loss

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