On 1 June the gallery entered an agreement to sell a Margaret Olley painting to Client B for $100,000.

The painting was to be collected by Client B on 1 August. Following Margaret Olleys death in July, the value of the painting increased substantially. Clive received a call from Client C offering to buy the painting for $200,000. Clive then informed Client B of this offer and told Client B that he would sell the painting to Client C unless Client B would agree to pay at least $180,000. Client B refused, insisting that the gallery was already bound to sell the painting for $100,000. The gallery then sold the painting to Client C for $200,000. You may assume that the sale of the painting to Client C was valid and effective to pass ownership to Client C. You need only advise about any liability to Client B in respect of a claim for damages against the gallery. The First issue to consider is whether the gallery caused the damage incurred by client B. In March v Stramare the court stated that the relevant question is whether the defednats breach was so coinnected with the plaintiffs loss or damage that as a matter of ordinary common sense and experience it should be regarded as a cause of it. The court in this case applied the but for test. More notably however the courts have now provided for the case where multiple causes result in the plaintiffs loss. The court determined in Alexander v Cambridge that it is sufficient that the breach be a cause of the loss or damage. In this case the Gallery was a cause of Bs loss as they failed to perform under the provisions of the contract by not delivering the painting to the Plaintiff. The second issue to consider is whether the Gallerys actions were are too remote from the Plaintiffs loss. When considering the issue of remoteness it is necessary to refer to the two limbs of knowledge attributed to a defendant with regards to the potential loss of the plaintiff. The court in Hadley v Baxendale stated that the first limb of knowledge refers to the damages claimed that arise according to the usual course of things from the defendants breach. The court in Victoria Laundry refer to this as imputed knowledge. The court in Koufos v Czarnikow Lord Reid stated that The D will be liable for any type of damage which is reasonably foresseable at the formation of contract as liable to happen even in the most unusal case unless the risk is so small that a reasonable man would in the whole circumstances feel justified in negelecting it. He defined foreseeability as likely to result. In this case it is foreseeable or likely to result that Client B will suffer loss and damage as a result of the breach of the contract particularly as the Gallery failed to deliver the painting by 1 August. With regards to the second limb discussed in Hadley v Baxendale the court stated that he should have acquired this knowledge from the plaintiff, or at least that he should know that the plaintiff knew that he was possessed if it at the time the contract was entered into. There is little to suggest from the facts that the gallery had special knowledge that would lead them to foresee the loss incurred by B. With regards to the type of damages sort the Plaintiff may have recourse to four categories of loss. Expectation Loss Expectation loss refers to the loss incurred as a result of the expectation fo receiving the Defendants performance. Thus the plaintiff must be put in a position as if the contract had been performed. As per S 52 (3) of the Sale of Goods Act 1923 the measure of damages is prima facie to be determined by the difference between the contract price and the market or current price at the time when the goods ought to have been expected.

The court in Hoffman v Cali stated that the date of assessment begins from the day of the breach. The court in Howe v Teefy proposed that the test in every case is whether the plaintiff was possessed of something which had monetary value, and of which he was deprived by the defendants breach of contract. In this case the painting is of monetary value and damages should be assessed by the difference between the market price at the breach of contract which may or may not exceed $200,000 and the contract price of $100,000. Expert evidence will need to be adduced to determine the true market value of the painting at the time of the breach. Reliance Damages A second type of loss incurred may be based on the reliance by one party of another to perform. The court in McRae stated that the Plaintiff may be compensated for wasted expenditure. The facts in this case do not outline whether B made any expenditures in reliance of the painting being delivered, however if it was proved that they did expend a monetary sum then the onus would shift to the Gallery to prove that this sum was excessive. Restitution damages The Plaintiff may also claim damages arising from the profit attained by the Defendant in selling the Painting to C for a greater price. The court in Surrey County Council stated that such damages may be awarded provided that the plaintiff has suffered some quantifiable loss or damage. In the alternative the party can only expect nominal damages. The Court in Attorney General v Blake proposed that if a party has a fiduciary obligation to another then the award of profits as damages for the breach is sufficient.

Causation Reg Glass But for test: The loss or damage would not have been suffered but for the defendants breach. Alexander v Cambridge pg 819 of textbook can be a cause In this case was a cause because they sold painting to someone else. Remoteness: Hadley v Baxendale and Koufos Cases First limb Damages must flow according to the usual course of things from the Defendants breach.

These and other similar measures give content to the usual course of things so that a plaintiff who seeks to recover on a different basis may be required to justify the claim under the second limb. In Koufos Defendants knew that plaintiffs were sugar merchants and that there was a market for sugar at destination. In Koufos took the view that reasonably foreseeable from Victoria Laundry is defined as not unlikely to result. In H Parsons livestock once it illness was foreseeable as a serious possibility it did not matter that the degree of illness suffered could not have been contemplated.

Second Limb Hadley v Baxendale Knowledge actually possessed by the Defendant See McRae and Victoria Laundry cases. Acceptance of risk by Defendant His actual knowledge of the special circumstances is relevant. The second factor is that eh should have acquired this knowledge from the plaintiff or at least he should know that the plaintiff knew that he was possessed of it at the time the contract was entered into and so could reasonably foresee at that time that an enhanced loss was liable to result from a breach. Damages in general Restitution damages for q 1see Surrey County case. Injured feelings.

The gallery had ordered from Art Supplies Ltd 40 dozen rolls of special bubble wrapping, with delivery due by 24 June. The wrapping was not delivered until 14 July. This wrapping was essential for sending artwork overseas to meet orders from customers. As a result of the late delivery of the wrapping, the gallery was unable to fulfill several existing orders which had to be sent by the end of the financial year (that is, 30 June). The customers (rightfully) cancelled those orders and the gallery missed out on $20,000 profit from the sales. It was a term of the contract with Art Supplies Ltd that if it did not deliver the wrapping by the due date, it would pay the gallery $700 per day for each day that the delivery was late. In addition, Clive tells you that he is himself a successful installation artist, and that he had ordered half of this wrapping to complete an ironic installation depicting the turmoil of the art world which he had planned to enter in this years competition for the lucrative Museum of Modern Art prize, a prize he had won on previous occasions. Due to the delay he missed the deadline for submissions.

Causation As stated by the court in Reg ... the but for test is used to determine whether the Defendants breach was a cause of the Plaintiffs loss. When applied to the facts it can be established that had it not been for the late delivery of the special bubble wrapping. Remoteness As stated in Hadley v Baxendale remoteness is established if it falls under the two limbs of knowledge. The court stated that a breach is not remote if the damages claimed flow according to the usual course of things from the defendants breach. The court Victoria Laundry stated that the loss incurred must be reasonably foreseeable at the time of the contract. Lord Reid in Koufos v Czarnikow affirmed this and stated that reasonably foreseeable can be equated with likely to result. This reasonable foreseeability is with reference to what the parties contemplated at the formation of the contract. The question to consider is whether the losses incurred by the Gallery naturally flow from the breach. Lord Upjohn stated in Koufos that the parties must be assumed to have contemplated tgat there would be a punctual delivery to the port of call and that port of discharge having a market in sugar there was a real danger that as result of a delay in breach contract the charterer would miss the market and would suffer loss accordingly. The court in H Parsons v Uttley Ingham stated that the defendant ought reasonably to have foreseen that, if mouldy pignuts were fed to the pigs, there was a possibility that they might become ill. Not a serious possibility. Nor a real danger. But still a slight possibility. In this case the order was for 40 rolls of special bubble wrapping to be delivered to a gallery. At the formation of the contract Art Supplies were reasonable business people (Koufos) and would have reasonably foreseen that in all likeliness their special bubble wrapping would be used to cover and deliver paintings particularly to customers. It follows that there is at least a slight possibility that the Gallery would suffer some loss as a result of the late delivery as their lack of special wrapping would prevent the Gallery from transporting the paintings. As a reasonable business men they would also be aware that June 30 is an important financial date due to the end of financial year stock take and as such there would be a need for the Gallery to deliver such paintings prior to that date. In the alternative suppose the court in Hadley v Baxendale proposed the second limb of knowledge whereby the defendant had some special knowledge imparted to them. The court Victoria Laundry stated that one would have to consider whether a reasonable man would have concluded that the loss in question was liable to result. It is unclear from the facts whether the Defendants had special knowledge that the paintings were to be delivered by 30 June and that a failure to deliver would result in the customers cancelling their contracts. It is difficult to argue that the inability to enter into the contest was a loss that would naturally flow from the breach Cite case. Thus it is necessary to consider whether Art supply had special knowledge. FIND CASE ON MISSING CONTEST (Pageant) Clive is a successful installation artist however there is nothing to suggest that Art supply had special knowledge of this fact. Loss of Chance

Damages The parties have stipulated that it be a term of the contract that in the event of a delay in delivery, Art Supplies would pay the Gallery $700 for each day that the delivery of the goods is delayed. The question to consider is whether is constitutes a liquidated damage clause. The Lord Dunedin in Dunlop stated that for a clause to be classified as liquidated damages it must be a genuine covenanted pre-estimate of damage. He stated that the determination of the clause as a panelaty or a liqudated damages clause will depend upon the circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach. He proposed four other conditions that would make a clause a penalty: if the amount is extravagant and unconscionable, where the sum stipulated is greater than the sum which ought have been paid, where a single lump sum is made payable for multiple breaches and finally the mere impossibility of determining a precise estimation does not imply that the sum is a penalty. Looking to the facts of this case, the clause stipulates that $700 must be paid per day. Thus the payment for damages is not a lump sum but an accumulation of instalments for each day of breach. The sum has been calculated from the time of the construction of the contract and amounts to a total payment of $14000. This sum is less than the estimate of loss of profits of $20,000 and would thus appear to not be extravagant. In terms of unconscionability, the mere fact that the sum is less than the loss incurred does not necessarily deem it to be unconscionable. Provided that at the time of making the contract the sum was fair and reasonable then the sum is considered to be a sufficient pre-estimate of damages. The sum of $20,000 cannot be deemed to be an estimation of loss as this estimation was determined at the breach of contract and not when the contract was formed. Hence the term is a liqudated damages clause and not a penalty and the Gallery are entitled to the $14000 as stipulated under the contract.

First consider the liquidated damages clause: Dunlop v New Garage Genuine liquidated damages clause. How do you determine if something is punitive or not? Test: Was the amount payable under the clause extravagant and unconscionable compared to greatest loss that could conceivably follow from the breach? Is the loss out of proportion from the loss that would likely to happen from the breach? Ask these questions at the time of making the contract. Stand back at time of contract and look at all potential breaches and ask in relation to them if the clause is extravagant.

Amount payable under contract amounts to 14000. Loss of profits amounts to 20000. Loss of Chance The Court in Howe v Teefy stated that a plaintiff is entitled to claim for a loss of chance if the plaintif is possessed of something which had a monetary value and of which he was deprived by the defendants breach. The Court in Chaplin v Hicks stated that right which the plainitiff had to belong

to the limited class of competitors was something of monetary value. In Hicks the loss of the plaintiffs right to train and race the horse was of monetary value. In this matter the deprivation of the right to create and enter an art piece in the competition had monetary value. Deane J in Cth v Amann stated that the plaintiff may still claim for a loss of chance even where there is a less than 50 per cent but none the less real and valuable chance of winning some contest or prize. In this case Clive has won the prize on several other occasions and as such regardless of his chance of success this year there is a real and avalauble chance he may win. Furthermore the Dean J stated that the plaintiff is entitled to recover damages equivalent to the value of the lost chance itself. Thus Clive could claim the value of the prize. Mitigate loss The counter argument to the above is that a plaintiff must take all reasonable steps to mitigate their loss. (British Westinghouse Case). Hence it could be argued that Clive should have used other materials to create his artwork. Had he done so he may have made the deadline.

The gallery engaged Jade Constructions Ltd to perform resurfacing of the internal and external walls of its east wing. The contract price was $250,000. The work has turned out to be defective and cracks have now begun to appear in the walls, allowing moisture to intrude and making them unfit to exhibit paintings. The structure of the building, however, remains fundamentally sound. Clive has been told that the repair work would require chiseling and resurfacing, at a cost of $400,000. Can the gallery recover this sum from Jade Constructions Ltd? Reinstatement costs.

Because of this defective work, the gallery is unable to hold a planned exhibition of the work of an important emerging young artist, Damian Thirst. (His work depicting stuffed lizards suspended in boxes of air or formaldehyde has taken the art world by storm in Europe.) The gallery wanted to impress Thirst, who is able to produce extraordinary amounts of this art very quickly for an everincreasing market, and sign him up for future exhibitions. The gallery had already spent $80,000 on advertising the exhibition in the press and in magazines. The gallery would have had to spend a further $120,000 to get the exhibition mounted and staffed. Clive tells you that he does not know how the exhibition would have gone down in Australia. He hoped that it would be a sellout which would have netted the gallery $300,000, but he was prepared just to break even or risk even making a slight loss of $20,000 as he knew that in future years he would have made a profit from this artist. Thirst has now taken his work to another gallery. Clive is also now really upset at having lost this valued new artist and at missing out on the experience of holding the first Australian exhibition of Thirsts work at his gallery. Your instructing partner wants to you to discuss the basis on which any damages recoverable from Jade Constructions Ltd might be assessed, without discussing remoteness of damage.