UCL FACULTY OF LAWS

LAW OF CONTRACT 2009/10

DR PRINCE SAPRAI

REMEDIES FOR BREACH OF CONTRACT PART 1 DAMAGES

General Reading: E McKendrick, Contract Law: Text, Cases and Materials (3rd edn
OUP, Oxford 2008) pp 829-889
Essential Further Reading is * in the Handout
Learning Outcomes:
• Identify the different kinds of interests damages can protect
• Understand that expectation damages are the primary remedy for breach
• See how the courts choose between different measures of expectation
damages, in particular diminution of value and cost of cure
• Identify the principles that govern the award of non-pecuniary damages
• See when claims for reliance damages are available
Red = My notes
Black = Handout
1 Introduction
Remedies for breach:
• Damages
• Restitution
• Specific remedies:
o action for the agreed sum
o agreed damages
o specific performance or injunction
Primary remedy for breach is damages.
3 interests (*See Fuller and Perdue “The Reliance Interest in Contract Damages” (1936) 46
Yale LJ 52 and 373):
• Expectation (as if the contract were performed)
• Reliance (as if the contract was never entered)
• Restitution (giving back or giving up)
Where good bargain C better off claiming expectation damages.
Where bad bargain C better off claiming reliance or restitution.
Protecting the expectation interest is contract law’s primary concern.
2 Expectation Damages
2.1 Compensatory
Robinson v Harman (1848) 1 Ex 850, 855
‘… the rule of the 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’.
Leads to:
• Nominal damages
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• C not safe from a bad bargain

• No recover of D’s profits from breach (unless exceptional case, see AG v Blake [2000]
3 WLR 625 (HL))
• No punishment (Addis v Gramophone Co Ltd [1909] AC 488 (HL))
2 stage assessment:
a. Prima facie measure determined (see 2.2 below)
b. Limiting factors (see next lecture)
2.2 Measuring Loss
GH Treitel, The Law of Contract (11 th edn Sweet & Maxwell, London 2003) 940
‘A contract can… give rise to two quite separate expectations: that of receiving the
promised performance and that of being able to put it to some particular use’.
Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 71 (CA)
The Promised Performance
• Diminution in value (compare performance given to market value of promised
performance)
• Cost of cure (cost of paying for a substitute)
Can lead to divergent results:
Tito v Waddell (no 2) [1977] Ch 106 (Ch)
Peevyhouse v Garland Co Ltd 382 P. 2d 109
Diminution in value or cost of cure?
S 18 Landlord and Tenant Act 1927
S 53(3) Sale of Goods Act 1979
Buildings contracts (Mertens v Home Freeholds [1921] 2 KB 526 (KB))
Radford v de Froberville [1977] 1 WLR 1262 (Ch)
2.3 Loss of Amenity
*Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL)
‘A failure to achieve the precise contractual objective does not necessarily result in the
loss which is occasioned by a total failure…’(357).
Available in circumstances where ‘the value of the promise to the promisee exceeds
the financial enhancement of his position which full performance will secure’. (360)
Loss of amenity ‘is incapable of precise valuation in terms of money, exactly because
it represents a personal, subjective and non-monetary gain…’ (360-361).
Cf the US case Jacob & Youngs v Kent 230 NY 239; 129 NE 889 (1921) (no pecuniary OR
non-pecuniary loss)
2.4 Non-Pecuniary Loss
2.4.1 Generally Damages Unavailable
Robinson v Harman (1848) 1 Ex 850
Addis v Gramophone Co Ltd [1909] AC 488 (HL)
Johnson v Gore Wood & Co (no 1) [2001] 2 WLR 72 (HL)
Farley v Skinner (No 2) [2001] 3 WLR 899 (HL)
‘The general principle is that compensation is only awarded for financial losses
resulting from breach… “a contract breaker is not in general liable for any distress,
frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of
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contract may cause to the innocent party”’.

2.4.2 Exceptions
2.4.2.1 Ruxley
2.4.2.2 Contracts for Enjoyment or Damages for Distress
Jarvis v Swan’s Tours Ltd [1973] QB 233 (QB)
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 (CA)
Diesen v Samson 1971 SLT (Sh Ct) 49
Lamm v Shingleton 231 NC 10; 55 SE 2d 810 (1949)
Watts v Morrow [1991] 1 WLR 1421 (CA) (sole object of contract must be to avoid distress)
Knott v Bolton (1995) 45 Con LR 127 (CA)
Farley v Skinner (No 2) [2001] 3 WLR 899 (HL) (sufficient if pleasure is ‘a distinct and
important’ contractual obligation (my emphasis)).
Farley wished to sue for his no-pecuniary loss (bought a house with a navigation beacon nearby). He
claimed that he navigation beacon interfered with his intention of achieving quiet peaceful weekends
away. The Watts v Morrow rule would suggest that as another reason for buying the house - an
economic one. However, the court decided in favour of Farley – ‘it is sufficient if the contractual
agreement is a distinct obligation.’ This widened the situations in which relief for non-pecuniary
losses is available. This case saw the courts dispense with the predominant reason test. Here, it merely
had to be a considerable discomfort.
Exceptions:
i) If there are two businesses one cannot sue the other for non-pecuniary breach
ii) The breach has to be very important to the claimant
iii) The non-pecuniary loss must have been caused by the defendant and the defendant must have been
clearly aware of the claimant’s non-pecuniary interest.
iv) In general, the courts make very low levels of damages for non-pecuniary breach (£10k is top end
of scale)
v) Such damages are only available where other damages aren’t available. [E.g. Farley – Farley had
brought the house so he could not now remove the navigation beacon and there had been no diminish
in value so he couldn’t sue for pecuniary losses]

2.4.2.3 Distress as a Result of Physical Injury, Inconvenience or Discomfort

When the breach of a contract makes one party worse off/ more unhappy. This may be physical
inconvenience, injury or discomfort.
Godley v Perry [1960] 1 WLR 9
Hobbs v L&S Railway Co (1875) LR 10 QB 111 (QB)
Railway company takes a family to the wrong station. Family then had to walk 4 miles home on a
rainy night. Family could sure for damages.
Farley v Skinner (No 2) [2001] 3 WLR 899 (HL) (includes aircraft noise, but not mere
disappointment)
Mr Farley wanted the house for quiet peaceful weekends. This had been frustrated. Second ground:
The inconvenience and distress that the airport noise was causing Mr Farley was a second ground for
non-pecuniary breach and therefore justified the £10k of damages.
In general it is very hard to claim for non-pecuniary losses
2.4.2.4 Loss of Performance to Third Party
Third Party’s Loss
Promisor breaches contract and doesn’t compare the benefit on the third party. Are damages available
as against the promisor, where the promisee themselves has not suffered any loss themselves? – (but
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instead by third party)

General rule: No because the promisee won’t have suffered any loss as it is suffered by the third party.
Exception: The promisee can now sue the promisor for damages to a third party, but the damages must
be held in trust by the promisee for the third party. This is known as the Albazero exception. However,
what about the non-pecuniary loss of the promisee – that the promisor has not done as they’ve
promised to do? (see Linden Gardens)
Contracts (Rights of Third Parties) Act 1999
Albacruz v Albazero [1977] AC 774 (HL)
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL)
A promisee may be able to sue for their non-pecuniary loss when the promisor has failed in
their obligations to a third party.
Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68 (CA)
Promisee’s Loss
*Read Lord Griffiths’ judgement in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd
[1994] 1 AC 85 (HL)
*Alfred McAlpine Construction Ltd v Panatown Ltd (No 1) [2001] 1 AC 518 (HL)
Linden Gardens rejected. Promisee (Panatown) engaged in a contact with promisor (Alfred McAlpine
Construction) to construct a building on a third party’s (UIPL) land. There was an agreement between
the promisor and the third party that the promisor would pay for any of the third party’s financial
losses if there was a breach on the part of the promisor – this is called a duty of care deed. McAlpine
breached their contract by doing defective work. As a result Panatown wanted to sue McAlpine. H of
L denied the promisee’s claim on the grounds that Panatown had suffered no loss themselves. The
Albazero exception – cannot be relied upon because although the third party had suffered a loss, they
could take care of their own loss through the duty of care deed. Therefore, if the third party have their
own remedy the promisee cannot claim damages if there are no losses to themselves.
Dissenting judgments: Panatown’s claim should be granted. Linden Garden’s judgment. Performance
interests had not been satisfied, therefore Panatown should be entitled to non-pecuniary damages due
to this failure. The loss of satisfaction on imparting a benefit on a third party is the non-pecuniary
damage. This loss is a non-pecuniary interest that Panatown should be able to claim for. Panatown may
be entitled to damages but due to reasonableness (see earlier lecture) these damages should be reduced.
3 Reliance Damages
Generally, Claimant can choose either expectation or reliance damages (CCC Films
(London) Ltd v Impact Quadrant Films [1985] QB 16 (QB)).
Reliance losses aim to put the claimant back in the position that they would be in had they never joined
the contract. E.g. buying a car - £500 for car, £50 for MOT, £100 for road tax – reliance losses would
be £650 as this would be putting the claimant back into the position that they were in before the
contract. This type of damages is only preferable to expectation damages when the claimant has
entered into a bad bargain (however, see below).
Exceptions (to the choice between expectation and reliance damages):
• Bad bargain (C & P Haulage v Middleton [1983] 1 WLR 1461 (CA))
The claimant cannot use reliance damages in cases of a bad bargain
C&P Haulage: Claimant ejected from the premises (not proper termination of contract). Wanted to
claim expenses incurred in kitting out the premises. The contract prevented the lessee from removing
any improvements made at the end of the lease. Had the contract been terminated correctly (10 weeks
later) the claimant would have suffered exactly the same loss, therefore, they could not use reliance
damages to escape a bad contract.
• Expectation damages speculative (Anglia TV v Reed [1972] 1 QB 60 (QB); McRae v
Commonwealth Disposals Commission (1951) 84 CLR 377))
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Where expectation damages are too speculative, the promisee has to claim reliance losses.
Anglia TV v Reed: Reed had contracted to star in a film that Anglia TV were going to put on. Reed
backed out at the last minute – Anglia had to abandon as they could not find a replacement for Reed in
time. Anglia wished to claim expectation damages. Court: Anglia cannot claim expectation damages
because the profit that the film would have made is too speculative. Instead Anglia had to rely on their
reliance losses – the cost of getting the film ready to go – costumes, marketing etc.