The Reasons for Awarding Damages in Respect of Breach of a Contract - Essay Example

BUSINESS LAW The question at hand requires an analysis of the purposes or the reasons for awarding damages in respect of breach of a contract. The main reason for an award of damages is compensation to claimant for loss suffered due to the defendant’s breach of contract, thus the aim is not of punishment. The fact that damages are compensatory leads to the next question of the entitlement that the claimant can claim/is to be compensated. There are various different grounds on which compensation can be claimed. The first one is that of the protection of the claimant’s ‘expectation interest’ that is the defendant in breach of his promise to perform his contractual obligation and claimant’s expectations of such performance and thus the claimant should be entitled to claim for his disappointed expectations thereby restoring the claimant to the position he would have been had the promise been performed. Parke B, in Robinson v. Harman1 illustrated the principle by stating the ‘the rule of the common law is, that where 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’. The main justification for granting an award under the expectation interest is the fact that a binding promise resultantly creates an expectation as to performance and the remedy merely tends to protect or fulfill such expectation. However, in respect of the damages of expectation interest, that is the identification and measurement of loss. The general proposition that is that financial loss and the financial situation is taken into account when such damages are being granted. This can be seen from the case of White Arrow Express Ltd. v. Lamey’s Distribution Ltd.2 where Lord Bingham MR, interpreted that the Robinson ‘formulation assumes that the breach has injured [the claimant’s] financial position; if he cannot show that it has, he will recover nominal damages only’. Furthermore, Lord Clyde in Alfred McAlpine Construction Ltd. v. Panatown Ltd.3 said that ‘when one refers to a loss in the context of a breach of contract, one is in my view referring to the incidence of some personal or patrimonial damage’. The circumstances of the contract have also been taken into account for e.g. the financial position would be important where the contract is entered into with a view to profit and thus such protection would resultantly need to be protected so as to attain the expectation interest. There can be difficulty when the contract had been entered without the aim of making a profit. However, the courts have stated that ‘the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure’ (Lord Mustill in Ruxley Electronics and Construction Ltd v. Forsyth)4. This proposition clearly requires more from the court that is the broader perspective for which the contract had been entered into. The second problem is the measuring of damages. The two measures that would possibly restore the claimant to his original position are an order of the payment of the difference in value that he has been paid and the value that he was actually supposed to receive and the cost of putting him in the position of the contract having been fully performed. The different result that these measures can have can be seen by looking into the decision of Ruxley whereby the defendant was merely awarded amenity damages. McKendrick argues that there are dangers of the decision in Ruxley, one of them being that it might be diggicult for a party to achieve the performance that was required rather than the economic-end-result-of-performance. The second way of claim is by the ‘reliance interest’ which tends to state that because of the reliance that the claimant entered into the contract on the basis of reliance on the defendant’s promise to fulfill his obligations and thereby acted to his detriment by entering into the said contract, he should be compensated by way of damages for the reliance placed on such promise. The intent here is to restore the claimant back to the position where he had been before the promise had been made. The general rule in respect of the reliance interest can be found in the case of CCC Films (London) Ltd. v. Impact Quadrant Films Ltd.5 whereby the claimant has a right to claim loss of bargain damages or wasted expenditure. The courts in Anglia Television Ltd. v. Reed6 refused to allow a claim for expenditure that had been incurred before the conclusion of contract. Furthermore, there may be confinement in respect of the reliance loss of the claimant where he cannot prove the expectation that he would have had. There are a number of factors which are also taken into account when granting the expectation interest one of them is the duty of the claimant to mitigate his loss. Furthermore it is important to mention that the remoteness of damage would also be taken into account that is whether the loss that was suffered was too remote a consequence of the defendant’s breach of contract. The final way is where the claimant claims his restitution interest to be protected. This is where the claimant asks the defendant to be removed of the gain that he has made as a result of the claimant’s expense. A person can claim a restitutionary remedy if he can show enrichment and prove that this had been done at his expense and therefore if such restitution is not allowed then it would be unjust on the claimant. There are two grounds upon which such interest may be claimed if there has been a breach of contract. The first one being that there had been a benefit that had been conferred upon the defendant by the claimant in order to perform the contract and such has failed because of the failure of the defendant to perform the contract and therefore breach of the contract. However, it is pertinent to mention that it has been said that restitutionary claim cannot be referred to where there is a valid contract which is existent and governs the remedies that are to be provided. Thus for this restitutionary claim it is necessary that there has been a total failure of consideration on the part of the defendant and thus if partial consideration is found or a minimal extent is found then there can be no restitutionary claim (Whincup v. Hughes)7. White Arrow also distinguished between partial and total failure of consideration. The approach of courts to allow claims in respect of total failure has been criticized by lawyer. Furthermore, the courts have at times arbitrary when deciding upon the fact of total consideration. The courts have now moved in a direction away from the total failure of consideration (Gover v. Chilcott)8. McKendrick suggests that the law should adjust so as to allow claims in respect of restitutionary claim for partial failure of consideration. Difficulties also tend to arise where the return is not for money but is for goods. There is sufficient clarity on the point that where termination of contract has occurred because of the fact that the defendant had been in breach of the contract then there is claim of either restitution or proceeding in contract. The second way of claim under restitution is where the defendant has enriched by way of breach of contract and has therefore got an unjust benefit. Causation has also been said to be an important because without a causal link being established the claimant cannot in any way recover the amount that he is claiming under the breach of contract. (London Joint Stock Bank v. Macmillan)9. Thus if the act of the claimant is found to be so unreasonable that it breaks the chin of causation then the claimant would not be entitled to claim damages in respect of his claim against the defendant. Finally the assessment of damages is generally undertaken by placing reference on the market value in respect of the contractual promised performance. Consumer surplus has been at times given, there can be damages for mental distress as well. The main purpose has therefore been divided into three distinct groups of interests that can be claimed by a party, but it is important to understand that the approach that has been used is to restore the claimant to a position he would have been had contract been performed. Another way of putting this would be that the purpose of damages has been differentiated on the basis of the interest that have been claimed References POOLE, J. (2010). Textbook on contract law. Oxford, Oxford University Press. MCKENDRICK, E. (2010). Contract law: text, cases, and materials. Oxford, Oxford University Press PEEL, E., & TREITEL, G. H. (2007). Treitel on the law of contract. London, Sweet & Maxwell. FURMSTON, M. P., CHESHIRE, G. C., FIFOOT, C. H., & SIMPSON, A. W. B. (2007). Cheshire, Fifoot and Furmstons law of contract. Historical introduction / A. W. B. Simpson. Oxford [u.a.], Oxford Univ. Press. POOLE, J. (2010). Casebook on contract law. Oxford, Oxford University Press ATIYAH, P. S., & SMITH, S. A. (2006). Atiyahs introduction to the law of contract. Clarendon law series. Oxford, Oxford University Press. RICHARDS, P. (2009). Law of contract. Harlow, Pearson Longman. KOFFMAN, L., & MACDONALD, E. (2010). The law of contract. New York, Oxford University Press. OSULLIVAN, J., & HILLIARD, J. (2010). The law of contract. New York, Oxford University Press. COLLINS, H. (2008). The law of contract. Law in context. Cambridge, Cambridge University Press. Read More