Lecture notes
Complete Notes on Contractual Damages for Ulaw PgDL
- Module
- Contract
- Institution
- University Of Law (ULaw)
Complete Notes on Contractual Damages for Ulaw PgDL
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Contractual DamagesMarch 19, 2023
1 Damages
• Breach of any term of the contract gives the innocent party the right to
claim damages; however, if the claimant has not suffered any loss, the
damages will only be nominal - usually about £5-£10.
• To recover damages, the claimant must prove that loss has been suffered
as a result of the defendant’s breach, and that the loss or damage must
not be too remote.
• The object of awarding damages is to compensate the claimant for their
loss and not to punish the defendant.
• Although punitive damages can be awarded in certain tort cases to pun-
ish the defendant, they cannot as a general rule be awarded in a purely
contractual claim.
• Where a claim will only bring about nominal damages, it is not in the
claimant’s interest to pursue such a claim. This is because the claimant,
if they succeed, may be ordered to pay the defendant’s costs (see Obagi v
Stanborough (Developments) Ltd [1993] TLR 646 ).
2 Measuring Damages
• The normal aim of the court in assessing damages is the following: ‘[T]he
rule at common law is that where a party sustains 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’
(Robinson v Harman (1848) 1 Exch 850 ).
• So, to achieve this aim, the loss in question is quantified by using an
appropriate measure of the loss.
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,3 Loss of Expectation: Difference in Value
• The first method of determining the damages to be awarded is by consid-
ering the loss of expectation but with respect to difference in value.
• Suppose that Bob sells a vase to Merna for £50,000. A term of the contract
is that this vase is Ming. However, it turns out that the vase is a replica
Ming vase, and is worth £1,000.
• In this case, Merna could claim damages to the effect of £59,000.
• If the contract had been properly performed, Merna would have received a
Ming vase worth £60,000. As Mina has a replica Ming vase worth £1,000,
she needs another £59,000 to buy new Ming vase.
• So, if goods are defective, the basic rule is that the amount of damages
awarded will be the difference in value between the actual value of the
goods and the value the goods would have had if they had not been de-
fective.
• In other words, the claimant is able to recover for loss of the benefit
which the claimant would have obtained had the contract been properly
performed.
• When working out the benefit which the claimant would have obtained
from performance of the contract, the court will take into account the
costs the claimant would have incurred in order to obtain the benefit.
• Business expenses, for example, will be taken into account.
4 Loss of Expectation: Cost of Cure
• Again, when assessing damages on an expectation loss basis, the court will
try to put the claimant in the position the claimant would have been in if
the contract had been properly performed.
• And, again, how will this be achieved?
• Aside from considering the difference in value, as we saw above, the courts
can determine the loss of expectation with respect to the cost of cure.
• Suppose that Bob builds a house for Merna, but the house is negligently
build such that there are structural issues which will cost £1000 to repair.
• In this case, Merna could claim damages to the effect of £1000.
• So, if services are defective, the basic rule is that the amount of damages
awarded will be the cost of putting the work right, that is, the cost of
cure.
• That said, the court would award the difference in value for defective goods
and the cost of cure for defective services only if it is reasonable to do so.
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, 5 Case: Forsyth
• Let us consider Ruxley Electronics and Construction v Forsyth [1996] AC
344.
• There was an express term in the contract for the construction of a pool
that it be a certain depth; however, the company that constructed the
pool breached this express term by building a pool that was 1.5 metres
short of the agreed depth.
• The trial judge decided that the shortfall in depth had not decreased the
value of the pool so the difference in value was nil. The cost of cure would
be £21,560 since the existing pool would have to be demolished and a new
one built.
• Lord Mustill did not accept the argument that the court had only two
options: to award the cost of cure (£21,560) or the difference in value
(nil).
• Lord Mustill recognised that in some circumstances the cost of the work
may not be fully reflected by an increase in the value of the property.
The householder may not have had the work done with the objective of
increasing the value of his property but because he wanted to ‘...more
conformable to his own particular tastes.’
• Lord Mustill refers to this as the ‘consumer surplus’ and says that it is
usually incapable of precise valuation in terms of money; it represents a
personal, subjective and non-monetary gain.
• However, Lord Mustill says that where it exists, the law should recognise
it and compensate the householder if the defective performance takes it
away.
• In Lord Mustill’s view the test of reasonableness plays a central part in
determining the basis of recovery.
• Lord Jauncey thought it would be unreasonable to award the cost of build-
ing a new pool; the claimant had acquired a perfectly serviceable swim-
ming pool, albeit one lacking the specified depth. The loss, that is, was
not the lack of a usable pool with the consequent need to construct a new
one.
• Lord Lloyd said that the case of Addis v Gramophone Co Ltd [1909] AC
488 established the general rule that in claims for breach of contract, the
claimant cannot recover damages for injured feelings.
• But the rule has exceptions, and one of which is when the object of the
contract is to afford pleasure.
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