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Tutorial – Week 23: Damages scenarios II
Objectives:
• To ensure an understanding of the general principles of damages and the case law on
remoteness and claims for physical damage/loss.
• To apply the principles from the case law
• To develop your essay technique for the main exam.
Your task:
Write a basic essay plan for the question below. Identify what cases you would use; their significance (principles) and how these principles could be applied.
a. Sheldon contracted to deliver ten Audi S8 cars for Raj’s new car hire business. The
cars were delivered two weeks late and as a result of this breach of contract, Raj has
lost £8500 in profits he would have made from standard car hire charges. Also, Raj
lost the chance to lease three of the Audi S8 cars to a film director who wanted to use
them in a new film. This would have made Raj a further £20000 from the payment
and increase in future profits from the associated advertising. Raj would like to know
if Sheldon is liable for all of the loss caused by the breach of contract.
b. Bodgit & Leggit contracted to build a garage for Mr Bashir at price of £5000. The
contract specified that the garage was to be 7m long. However, when the building was
completed, it was only 6m 70cm long. Mr Bashir wants to claim £4000 in damages
which is the amount required to correct the breach of contract. There is no difference
in value between the garage built and the garage described in the contract.
Introduction: The primary remedy for the innocent party is damages (compensation) for the loss caused by the breach. However, there various limits on the type of losses that can be claimed for.
Whilst the cases show a right to damages, in practice claiming such damages can be time consuming and expensive as a result of lawyers fees and court costs. As a result, the best
remedy is one that the parties agree upon by resolving their dispute informally.
Aim of damages : Parke B in Robinson v Harman.
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 .”
Damages aim to put the innocent party in the position s/he would have been in had the contract been performed. Such compensation will reflect the innocent party’s loss of bargain (the expectation interest).
Typically, the loss of bargain (the expectation interest) can be identified as: the profit lost as a result of the breach or the difference in value between the contract price and the market price.
Where the breach causes damage to property, the innocent party’s lost bargain could be reflected by the cost of correcting the breach (the cost of cure) or damages to reflect the difference in value between what the innocent party got and what was contracted for.
Remoteness
Parties are liable for the losses that were in the reasonable contemplation at the time of contracting , and should be liable for the kind of losses that at the time of the contract, could have been (objectively) foreseen as a consequence of a breach.
Hadley v Baxendale (1854) 156 ER 145 (loss of profit)
Victoria Laundry v Newman Industries [1949] 2 KB 528
Balfour Beatty v Scottish Power
So, if the loss would not normally arise in general as a result of the breach in question, a lot depends upon what the party has been told at the time of the contract by the other as to his/ her plans and circumstances.
Most of the difficulty in applying the test has revolved around the exact level of foreseeability that is required. A rather low level of foreseeability was suggested in Victoria Laundry. this low standard is the same one used in the tort of negligence.
Higher degree of foreseeability in The Heron II [1969] 1 AC 350.
This reasoning apply to losses from physical damage too? Parsons v Uttley Ingam Balfour Beatty v Scottish Power ≠ HL approach in Transfield Shipping v Mercator Shipping [2009] AC 61.
