7.2 Damages S02Y24.pptx

Principles of Business Law Semester 2 2024 TOPIC 7: REMEDIES FOR BREACH DAMAGES Common law remedies Damages: Overview  Damages consist of an award of money to be paid by the breaching party to the non-breaching party.  Damages for breach of contract are not intended to be punitive; t...

Principles of Business Law Semester 2 2024 TOPIC 7: REMEDIES FOR BREACH DAMAGES Common law remedies Damages: Overview  Damages consist of an award of money to be paid by the breaching party to the non-breaching party.  Damages for breach of contract are not intended to be punitive; they are compensatory. They compensate for a loss suffered by the non- breaching party because of the breach of contract.  Damages aim to put the non-breaching party in the position she would have been in had the contract been properly performed.  Tabcorp Holdings v Bowen Investments  Radford v de Froberville Common law remedies Damages: Overview When determining whether a person is entitled to damages, it is not necessary to consider the nature of the term nor the nature of the breach.  This is only relevant to whether breach gives rise to a right to terminate. Damages: Radford v de Froberville FPBCL p 409 Facts  R owned two blocks of land.  R sold one block of land to F on the condition that she build an expensive brick wall on the boundary.  F failed to build the wall.  R sued for breach of contract, claiming the full costs of building the wall.  F argued that damages should be limited to the reduction in the value of R’s property caused by the absence of a wall. Issue  What was the appropriate measure of damages? Damages: Radford v de Froberville (ctd) Decision  R could recover damages measured by reference to the cost of building the wall. Reason  Contractual damages aim to put the non- breaching party in the position they would have been in had the breach not occurred.  Had the breach not occurred, the wall would have been built on the boundary.  R was therefore entitled to damages equal to the cost of building the wall. Damages: Tabcorp Holdings v Bowen Investments FPBCL p 424 Facts  B leased a building to T for ten years.  It was a term of the lease that T would not make substantial alterations to the building without B’s consent.  T, in breach of this term, demolished and then rebuilt the building foyer. Issue  Was B entitled to recover the full cost of restoring the foyer to its previous state?  Or, was B only entitled to damages if the building was worth less because of the T’s changes? Damages: Tabcorp Holdings v Bowen Investments (ctd) Decision  B was entitled to recover the full costs of restoring the foyer to its previous state. Reason  The aim is to put the non-breaching party in the position she would have been in had there been no breach – this does not simply mean financial position but rather the same actual position.  Damages should thus cover the cost of restoring the foyer. Common law remedies: Damages Compensable loss Damages can be claimed to compensate for two types of loss: 1. Direct loss  Koufos v C Czarnikow Ltd 2. Consequential loss  Hadley v Baxendale Damages: Direct loss  A party who suffers direct loss because of the breach is entitled to recover that loss from the party in breach.  A direct loss arises naturally from the breach.  The Koufos case provides examples of direct loss. Direct loss: Koufos v Czarnikow Ltd FPBCL p 376 Facts  C chartered K’s ship to carry cargo.  The ship ran late and, when it arrived, the market price of the cargo was lower than the market price on the day that the cargo should have arrived.  C sued for compensation for loss it suffered because it received a lower price for the cargo. Issue  Was C entitled to damages to compensate for the loss flowing from the lower price? Direct loss: Koufos v Czarnikow Ltd (ctd) Decision  Damages were payable to compensate for the losses caused by the drop in market price. Reason  A direct loss is compensable.  A direct loss is a loss that naturally arises from the breach according to the usual course of things.  Given the fluctuation in market prices, the loss is a natural consequence of the breach.  The loss was a direct loss and thus recoverable. Damages: Consequential loss  A party who suffers consequential loss because of a breach is entitled to recover that loss from the party in breach.  Consequential loss is more remote than direct loss.  A consequential loss is a loss that may reasonably be supposed to have been in the contemplation of both parties (at the time of formation) as a probable result of a breach. Consequential loss: Hadley v Baxendale FPBCL p 360 Facts  H engaged B to deliver a broken mill shaft to the mill manufacturer (so that the manufacturer could make a replacement shaft).  B said he would make the delivery the following day but in fact took several days.  During the periods of delay H’s mill stood idle. Issue  Was H entitled to compensation for profits lost while the mill stood idle? Decision  H was not entitled to compensation for lost profits. Consequential loss: Hadley v Baxendale (ctd) Reason  The loss was not a direct loss.  It does not flow naturally from the breach. Ordinarily one would expect that a mill operator would have, or could acquire, a spare mill shaft.  The loss was not a consequential loss.  Damages for consequential loss can only be claimed if the losses may reasonably be supposed to have been in the contemplation of both parties (at the time the contract was made) as a probable result of such a breach.  It was not within the common contemplation of the parties that the mill would stand idle while the broken shaft was being delivered to the mill manufacturer – H had in no way indicated to B that this would be the case, nor was it something that a reasonable person in B’s position would assume to be the case. Damages: Wasted expenses  Damages can be claimed for expenses reasonably incurred in anticipation of the other party performing his or her obligations.  Damages will not be payable if the breaching party can prove that the expenses would have been wasted even if there had been no breach of contract.  McRae v Cth Disposals Commission Wasted expenses: McRae v Commonwealth Disposals Commission FPBCL p 388-9 Facts  The CDC invited tenders for the purchase of an oil tanker said to be lying on the Jourmaund Reef.  M won the tender and was told of the tanker’s location.  M embarked on a salvage operation.  There was, in fact, no oil tanker lying anywhere near the location stated by the CDC.  The court concluded that the CDC had made a contractual promise that the tanker was at that location and that this promise had been breached. Issue  Could McRae recover damages to compensate for wasted expenditure on the salvage operation? Wasted expenses: McRae v Commonwealth Disposals Commission Decision  McRae was entitled to recover the costs of the wasted salvage operation. Reason  The parties must have contemplated, when contracting, that such expenses would be incurred.  Had there been a tanker where CDC promised, these expenses would not have been wasted. Damages: Stress and disappointment  Generally speaking, damages cannot be sought to compensate for disappointment or distress caused by the breach.  One exception to this rule was recognised in Baltic Shipping v Dillon  Where a contract is for the provision of services designed to confer enjoyment, entertainment or pleasure, damages can be recovered where the breach causes disappointment or distress. Damages: Stress and disappointment Baltic shipping v Dillon FPBCL p 314-5 Facts  D was a passenger on a cruise ship who sought damages for losses caused by the cruise ship sinking on the tenth day of a fourteen-day cruise.  B admitted liability for breach of contract, but disputed D’s claim for damages based on distress and disappointment said to be caused by the breach. Issue  Was D entitled to damages for distress and disappointment? Stress and disappointment Baltic shipping v Dillon (ctd) Decision  D could recover damages for loss in the form of distress or disappointment caused by the breach. Held  The general rule is that a plaintiff cannot claim contractual damages for disappointment, distress or injured feelings.  However, damages of this kind were payable in this instance as D had contracted for a trip meant to provide pleasure, relaxation and entertainment. Damages: Duty to mitigate  A plaintiff is under a duty to mitigate (minimise) the losses that flow from a breach of contract.  A plaintiff cannot claim damages from a defendant if the loss could have been avoided by the plaintiff taking reasonable steps to avoid it.  A party is entitled to recover money, reasonably spent on mitigation attempts flowing from the breach. Duty to mitigate: Burns v MAN Automotive (Aust) Pty Ltd FPBCL p 325-6 Facts  MAN supplied a defective commercial vehicle to B (which amounted to a breach of contract).  The defects could have been remedied if B had the vehicle’s engine repaired or replaced.  B sued MAN to recover profits lost over a four- year period (the expected operating life of the vehicle). Issue  Had B taken reasonable steps to mitigate his loss even though he did not repair or replace the engine? Duty to mitigate: Burns v MAN Automotive (Aust) Pty Ltd (ctd) Decision  B had taken adequate steps to mitigate the loss. Reason  The faulty engine could have been repaired or replaced.  However, B could not afford to pay for the engine to be repaired or replaced.  A person is only obliged to take reasonable steps to mitigate loss.  Given B’s financial position, B had not acted unreasonably in not getting the engine repaired.  Therefore, although B had not mitigated the loss, he was nevertheless entitled to damages. Agreed penalty clauses  Parties are, within limits, free to define the scope of the remedies that will be available in the event of breach.  Parties may agree in advance what losses are likely to be suffered in the event of breach and insert a ‘liquidated damages’ clause into the contract which defines the quantum of damages that will be paid in the event of breach.  Liquidated damages clauses must not penalise (impose damages that bear no relationship to any loss likely to be suffered).