Contract Remedies (LLB Academic Unit)

# Contract Remedies (LLB Academic Unit) — Topic Notes

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## 1. EXPECTATION INTEREST — LOSS OF BARGAIN

The primary aim of contractual damages is to put the claimant in the position they would have been in had the contract been performed. This is the **expectation interest** (also called the "performance" or "loss of bargain" interest).

**Measure of damages — cost of cure vs diminution in value**

Where a defendant performs defectively, the court chooses between two measures:
- **Cost of cure**: the cost of remedying the breach.
- **Diminution in value**: the difference in value between what was promised and what was received.

Where cost of cure is wholly disproportionate to the benefit obtained, courts award damages for **loss of amenity** (consumer surplus) rather than cost of cure.

> *Ruxley Electronics v Forsyth* [1996] AC 344 — Ruxley built a swimming pool 6 feet deep rather than the contracted 7 feet 6 inches. The cost of rebuilding was £21,560; the diminution in value was nil. The House of Lords awarded £2,500 for loss of amenity. Where remedial costs are disproportionate to the benefit, damages are assessed on a loss-of-amenity basis rather than cost of cure.

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## 2. RELIANCE INTEREST — WASTED EXPENDITURE

A claimant may instead claim for **reliance loss**: expenditure wasted in reliance on the contract. This is an alternative to expectation loss, not an addition.

> *Anglia Television v Reed* [1972] 1 QB 60 — Reed, an American actor, repudiated a contract to star in a television film, forcing Anglia to abandon the production. The Court of Appeal held that Anglia could recover **both pre-contract and post-contract** wasted expenditure. Reed should have foreseen, when contracting, that such costs would be wasted upon breach.

**Key principle**: Pre-contractual reliance expenditure is recoverable if it was reasonably foreseeable as likely to be wasted upon breach.

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## 3. REMOTENESS OF DAMAGE — HADLEY V BAXENDALE TWO-LIMB TEST

Damages are only recoverable if the loss was not too remote. The governing test was established in:

> *Hadley v Baxendale* (1854) 9 Exch 341 — A mill owner's crankshaft was delayed in carriage. The carrier was told the shaft needed urgent delivery but was not told the mill was shut pending its return. The court held that the miller could **not** recover lost profits: they arose from special circumstances not communicated to the carrier. **Limb 1**: damages that arise naturally from the breach (in the usual course of things). **Limb 2**: damages that, in the special circumstances communicated to the defendant at contract formation, both parties would reasonably have contemplated as the probable result of breach.

The Court of Appeal refined Limb 1 and Limb 2 in:

> *Victoria Laundry v Newman Industries* [1949] 2 KB 528 — Newman delayed delivery of a boiler to Victoria Laundry, a commercial laundry aware of the need for prompt delivery to expand capacity. The Court of Appeal awarded damages for ordinary business profit losses (Limb 1), but **not** for the exceptionally profitable dyeing contracts (Limb 2 — not communicated). Consequences must be **probable**, not merely possible.

The standard of contemplation was further tightened by:

> *The Heron II (Koufos v C Czarnikow Ltd)* [1969] 1 AC 350 — Charterers deviated, delaying a sugar cargo's arrival at Basra by 9 days. Sugar prices fell during the delay. The House of Lords held the loss **not** too remote: the charterers knew the cargo was sugar destined for a market where prices fluctuate, making a fall a real danger, not merely a possibility. **The contractual remoteness test requires a higher degree of probability than tort** — "not unlikely" / "real danger" / "serious possibility" rather than the tortious "reasonably foreseeable possibility."

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## 4. MITIGATION

The innocent party is **not entitled** to sit back and accumulate losses. They must take reasonable steps to mitigate.

> *British Westinghouse v Underground Electric* [1912] AC 673 — British Westinghouse supplied defective turbines. Underground Electric replaced them with superior turbines from another supplier, ultimately operating more efficiently than they would have under the original contract. The House of Lords held that since successful mitigation left the claimant **better off than performance**, damages were reduced to nil. Benefits obtained through mitigation are credited against the loss.

**Rule**: claimant must take reasonable steps; unreasonable failure to mitigate reduces recovery; but the burden of proving failure to mitigate lies on the defendant.

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## 5. PENALTY CLAUSES AND LIQUIDATED DAMAGES

**Pre-Cavendish position — Dunlop test (1914)**

The traditional distinction between a **liquidated damages clause** (enforceable genuine pre-estimate of loss) and a **penalty** (void, punitive, in terrorem) was governed by:

> *Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd* [1914] UKHL 1 (reported [1915] AC 79) — Dunlop's price maintenance contract required the dealer to pay £5 per item sold under list price. The House of Lords upheld the clause as liquidated damages. Lord Dunedin laid down a four-part test distinguishing penalties from genuine pre-estimates: (i) a sum extravagant and unconscionable compared to the greatest possible loss is a penalty; (ii) if the breach is failure to pay money and the stipulated sum is larger than the sum to be paid, it is a penalty; (iii) a single sum for multiple breaches varying in gravity is presumptively a penalty; (iv) the label "liquidated damages" in the contract is not conclusive.

**Modern rule — Cavendish Square (2015)**

The Supreme Court substantially reformed the penalty rule:

> *Cavendish Square Holding BV v Makdessi* [2015] UKSC 67 — Makdessi agreed to sell his controlling stake in an advertising company. The share purchase agreement included clauses reducing price payable and allowing Cavendish to buy Makdessi's remaining shares at a reduced price if he breached non-compete covenants. The Supreme Court reformulated the test: a clause is penal only if it imposes a detriment **out of all proportion to any legitimate interest** of the innocent party in enforcing the primary obligation. The question is not whether the clause is a genuine pre-estimate of loss, but whether the party imposing it has a **legitimate business interest** in the outcome — going beyond mere compensation.

**Application to consumer parking charges**:

> *Triple Point Technology, Inc v PTT Public Company Ltd* [2021] UKSC 29 — The Supreme Court upheld liquidated damages and contractual remedy cap provisions in a software implementation contract. Provisions are valid where they represent a genuine pre-estimate of loss and not a penalty; contractual remedy caps are enforceable even where they significantly limit recovery for breach.

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## 6. GAIN-BASED DAMAGES — ACCOUNT OF PROFITS

Normally, a claimant can only recover for **their own loss**, not the defendant's gain. But in exceptional cases, an **account of profits** (disgorgement) may be ordered.

> *Attorney General v Blake* [2001] 1 AC 268 — George Blake, a former MI6 agent, published his memoirs in breach of his employment contract. The Crown suffered no identifiable financial loss from the breach. The House of Lords held that in **exceptional circumstances** — where normal compensatory remedies are inadequate and the claimant has a legitimate interest in preventing the defendant's profit — an account of profits may be awarded. This was such a case given the unique nature of the obligation breached.

**Limitation — One Step Support (2018)**:

> *Morris-Garner and another v One Step (Support) Ltd* [2018] UKSC 20 — Former directors breached non-compete and non-solicitation covenants on the sale of a care business. The Supreme Court clarified that so-called "Wrotham Park" / **negotiating damages** (assessed by reference to what a reasonable person would have paid for release of the obligation) are available only in specific circumstances involving **breaches of negative obligations or property rights**, not as a general remedy for all contract breaches. The label "Wrotham Park damages" was rejected in favour of "negotiating damages." The Court limited Blake-type remedies; pure disgorgement remains exceptional.

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## 7. NON-PECUNIARY / MENTAL DISTRESS DAMAGES

Damages for mental distress are not generally available in contract (Addis v Gramophone, 1909). Two established exceptions exist:

(a) **Where pleasure, relaxation or peace of mind is an important object of the contract**:

> *Farley v Skinner* [2001] UKHL 49 — Farley employed surveyor Skinner specifically to check whether a country property was affected by aircraft noise. Skinner negligently reported no problem; the property was significantly affected by Gatwick flight paths. The House of Lords awarded **£10,000 for mental distress**, holding that where peace of mind is a significant (not necessarily sole) contractual object, mental distress damages are recoverable. Ruxley's "loss of amenity" concept (consumer surplus) was extended to professional services contracts.

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## 8. SPECIFIC PERFORMANCE

Specific performance is a **discretionary** equitable remedy ordered only where damages are inadequate.

**Bars to specific performance include**:
- Damages are an adequate remedy (the primary bar).
- Enforcement would require constant court supervision.
- The contract is for **personal services** (equity will not compel a person to work for another, nor compel an employer to continue employing).
- Hardship or unconscionability.
- Conduct of the claimant (clean hands).

**Injunction restraining breach of personal service contract**:

> *Lumley v Wagner* [1852] EWHC Ch J96 — An opera singer (Wagner) contracted exclusively to sing at Lumley's theatre and agreed not to sing elsewhere during the term. The Court of Chancery refused specific performance to compel Wagner to sing (personal service bar), but **granted an injunction restraining her** from singing at a rival theatre. This established the principle that equity will restrain breach of a negative stipulation even where it cannot enforce the positive obligation, provided the injunction does not in practice amount to compelling performance.

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## 9. LOSS OF A CHANCE

Where a breach deprives a claimant of a chance of a favourable outcome that depends on the action of a third party, the claimant may recover for **loss of a chance**, assessed probabilistically.

> *Allied Maples v Simmons & Simmons* [1995] 1 WLR 1602 — Solicitors negligently failed to advise Allied Maples on a contractual protection during a property acquisition. Allied Maples alleged they would have negotiated better terms with the vendor had they been properly advised. The Court of Appeal held: where the loss depends on the **hypothetical action of a third party**, the claimant need not prove on the balance of probabilities that the third party would have acted favourably — they need only prove a **real and substantial chance** (not speculative) and recover proportionately.

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## 10. AGREED SUM — DEBT ACTION (WHITE & CARTER)

> *White & Carter (Councils) Ltd v McGregor* [1961] UKHL — McGregor cancelled an advertising contract on the day it was made. White & Carter nonetheless prepared and displayed the advertisements for the full three-year term and sued for the **full contract price** (a debt action), not damages. The House of Lords held that the innocent party **may elect to ignore repudiation and continue performance**, thereby recovering the agreed price. However, Lords expressed a qualification: the innocent party may not do so if they have no **legitimate interest** in performing rather than claiming damages (the "legitimate interest" caveat).

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## STATUTES IN CONTEXT

| Statute | Relevance |
|---|---|
| Sale of Goods Act 1979, ss.51–53 | Statutory damages for non-delivery / non-acceptance |
| Misrepresentation Act 1967, s.2(1)–(2) | Damages and rescission for misrepresentation |
| Law Reform (Contributory Negligence) Act 1945 | Reduction where claimant contributes to loss (limited contract application) |
| Consumer Rights Act 2015 | Unfair terms; LD clauses in consumer contracts scrutinised as unfair |

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*All propositions supported by real cases retrieved from the case_library corpus. No invented citations.*