Damages Lecture - Hands on Example
The following section will test your knowledge of damages as a remedy under the law of contract. You should be able to identify when can damages can be claimed, how they are ascertained and how they are calculated. After studying the chapter on damages you should be able to identify the issues in these questions and apply the law correctly. The answers for the questions can be found at the very bottom of this page.
A question involving damages can be identified relatively easily. There will be a breach of contract and you will be asked to consider the potential calculation of damages. You also may be asked more generally about the potential remedies, which will usually include damages. The below example should allow you to get a general idea of how questions involving damages for a breach of contract may appear.
When addressing an issue involving the calculation of damages for a contract, this would be an appropriate approach:
- Has the claimant suffered a loss?
- Is the loss suffered actionable?
- Did the breach of contract cause the loss?
- Was the type of loss foreseeable or was it too remote?
- Did the claimant mitigate the loss?
- Did the claimant contribute to the loss?
- Is there anything in the contract which agrees to a particular amount of damages?
This step-by-step approach will ensure you consider all the relevant elements of a claim for damages. You will need to know the legal principles which relate to each step in order to apply them to the facts.
Scenario
John has entered into a contract with Joe for the sale of some of his land. John sells the land on the condition that Joe builds a wall between the two pieces of land to separate the property. Joe later resells the property without building the wall. John wants to claim for the cost of building the wall, and the cost of his loss of privacy due to the lack of the wall.
Can John claim damages for the cost of building the wall, and the loss of his privacy?
John has contracted with Robert for the purchase of some yarn. John intends to knit the yarn into jumpers and sell them to a clothes retailer. When John negotiated the contract he said to Robert ‘please ensure the yarn is of the required quality, I will need it to knit into jumpers and sell on in another contract’. When John receives the yarn and attempts to knit it, it is impossible due to the poor quality of it. As a result, John loses the contract with the clothes retailer.
Focusing on forseeability, what can John claim damages for in this case?
- First, you should consider the cost of building the wall. Clearly, John has suffered a loss which can be calculated by the ‘cost of cure’ expectation measure. The cost of curing the breach (building the wall) would not be disproportionate the value the cure would add to the land. The loss is clearly actionable as it is a financial loss, as he should have had a wall build on his land under the contract, and the wall has not been built.
It is clear the breach of contract caused the loss, as ‘but for’ Joe not breaching the contract, John would have had a wall on his land. There is clearly no break in the causation, therefore satisfying legal causation. Forseeability and remoteness are not at issue here - the building of the wall was part of the contract and therefore the loss flows naturally from the breach as per the first limb of the Hadley v Baxendale test. It is clear there is no way John could have mitigated this loss, and there is no contributory negligence on John’s part. Therefore, John could claim the ‘cost of cure’ for building the wall in damages.
The second claim for ‘loss of privacy’ is a question of whether the type of loss is actionable or not. The type of loss would be classified as a consumer surplus, as it is the particular value John places on the privacy the wall will provide him with. The relevant test for a consumer surplus comes from Watts v Morrow - if the contractual objective is to provide relaxation, pleasure or peace of mind damages may be awarded. In this case, the building of a wall would not have this objective. Farley v Skinner may have broadened this approach, and it does not need to be the sole objective of the contract.
It could be argued that the purpose of the building of the wall was to provide peace for John, meaning he may be able to claim damages for the loss of privacy. However, this amount would likely be small. There is no question of causation, forseeability, mitigation or contribution for this point - it is clear the breach caused the loss of privacy, and that it would be foreseeable that a loss of privacy would result from the breach of contract due to the natural consequences of the breach.
- The test for forseeability of damages comes from Hadley v Baxendale. There are two types of loss which can result in claims for damages - losses which arise naturally from the breach, and losses which are in the reasonable contemplation of both parties at the time the contract was made.
In John’s situation, the loss relating to the actual contract (the value of the yarn), would fall under the first type of loss, as it is a natural result of the breach, and would therefore definitely be foreseeable for the purposes of damages. The loss relating the loss of the subsequent contract would not be a natural result of the breach, and therefore it would need to be shown that that type of loss was in the reasonable contemplation of the parties at the time of contracting. In this case, it is clear that John informed Robert of the sub-contract, and it would therefore be in both parties’ reasonable contemplation. The case of Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd confirms that only the type of loss must be contemplated, not the extent. Therefore John could claim damages relating to the consequential loss of the second contract.
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