Saturday, August 06, 2005

Breach of Contract & Damage Claims

Damages are awarded to put the plaintiff as nearly as possible “ in the same position as he would have been in if he had not sustained the wrong for which he is now getting compensation or reparation”. (Lord Blackburn in Livingstone vs Rawyards Coal company (1880) 5 App. Cas. 25 at 39 (H.L.).

Damages for breach of contract

“The governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do, as if his rights have been observed.” (Asquith L.J. in Victoria Laundry Ltd. Vs Newman Ltd. (1949) 2 K.B. 528 at 539 (C.A.)

“The general principle for the assessment of damages is compensatory…” (Lord Wilberforce in Johnson vs Agnew (1980) A.C. 367 at 400 (H.L.);

But if this purpose were relentlessly pursued it would lead to the party in default having to pay “for all loss de facto resulting from a particular breach however improbable, however unpredictable”. ( ibid.) The courts therefore set a limit to the loss for which damages are recoverable, and loss beyond such limit is said to be too remote. The famous rule as stated in the case of Hadley vs baxendale is :

“ Where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either (1) arising naturally,i.e. according to the usual course of things from such breach of contract itself, or (2) such as reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.” (Alderson B. at p. 354.)

Mitigation of loss

The award of damages as compensation is qualified by a principle, “ which impose on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps”. (Lord Haldane in British westinghouse vs Underground Railway Co. (1912) A.C. 673 at 689 (H.L.).

But “this does not impose on the plaintiff an obligation to take any step which is reasonable and prudent man would not ordinarily take in the course of his business”. (British Westinghouse vs Underground Railway Co. (1912) A.C. 673 at 689 H.L.).

Any gain resulting from the plaintiff’s reasonable steps in mitigation must be balanced against the loss caused by the breach. Any loss resulting from such reasonable steps is recoverable.The onus of proof is on the defendant to prove any failure to mitigate.

Causation and Concurrent Causes

“Causation is a mental concept, generally based on inference or induction from uniformity of sequence as between two events that there is a casual connection between them,” (Lord Wright in Monarch Steamship Co. vs Karlshamns Oljefabriker (1949) A.C. 196 at 228 H.L.)

For a plaintiff to succeed in a claim for damages, he has to establish on the balance of probabilities an effective causal connection between the defendant’s breach of contract or negligence and the plaintiff loss. An intervening act by a third party, or by the plaintiff may break the chain of causation. But an act by the plaintiff will not normally break the chain of causation if it was reasonable. (Emeh vs Kensington & Chelsea Health Authority (1985) Q.B. 1012 (C.A.)

Variations ordered by the employer after the contractor is already in culpable delay will not normally deprive the employer of his right to damages,subject, it is thought, to an appropriate adjustment for any additional time resulting from the variations. ( McAlpine Hemberoak vs McDermott International (1992) 58 B.L.R. 1 at 35 (C.A.)


Cost of Completion

Where the contractor fails to complete, the measure of damages in the first instance is the difference between the contract price and the amount it would actually cost the employer to complete the contract work substantially as it was originally intended, and in a reasonable manner, and at the earliest reasonable opportunity. (Mertens vs Home Freehold Co. (1921) 2 K.B. 526 (C.A.); Radford vs De froberville (1977) 1 W.L.R.1262

Offer to Complete

Where a contractor who has repudiated his contract offers to complete under a new contract it is a question of fact in each case whether an employer who does not accept such offer is acting reasonably in mitigation of his loss. (Strutt vs Whitnell (1975) 1 W.L.R.870 C.A.) .

If it is unreasonable to refuse such an offer, damages are calculated as if the offer had been accepted. (Sotiros vs Sameiet Solholt (1983) 1 Lloyd’s Rep. 605 C.A.)

Each case will depend on its facts, but it is thought that conduct which amounts to repudiation by a contractor is likely to render reasonable an employer’s refusal to reengage him.

Defective Work

Where there has been substantial completion the measure of damages is the amount which the work is worth less by reason of the defects and omissions, and is normally calculated by the cost of making them good,i.e. the cost of reinstatement. (Denning L.J. in Hoenig vs Isaacs (1952) 2 All E.R. 176 at 181 C.A.); East ham Borough Council vs Bernard Sunley & Sons Ltd. (1966) A.C. 406 .)

“If there is no alternative course which will provide what he requires, or none which will cost less, he is entitled to the cost of repair or reinstatement even if it is very expensive.” ( Staughton L.J. in Ruxley Electronics Ltd. Vs Forsyth (1994) 1 W.L.R. 650 at 661 C.A.)

Sometimes, perhaps more often in tort than for breach of contract, the proper measure of damages is not the cost of reinstatement but the difference in value between the work as it is and as it ought to have been. (Dodd Properties vs Canterbury City Council (1980)1 W.L.R.433 at 465 C.A.).

This will be so if the plaintiff has no prospect or intention of rebuilding, or where it would otherwise to unreasonable as between the plaintiff and the defendant to award the cost of reinstatement. ( C.R. Taylor vs Hepworths (1977) 1 W.L.R. 659 at 667).

A claim for diminution in value will not normally exceed the relevant costs of reinstatement. If all the necessary remedial works have been successfully carried out, residual diminution in value is not additionally recoverable.(Murphy vs Brentwood D.C.(1991) 1 A.C. 398 at 430 and 436 C.A.)


Where works of repair or reinstatement result in the plaintiff having a better building than would have had for the wrong for which damages are claimed, a deduction from the damages awarded will usually not be made for betterment if the plaintiff has no reasonable choice, unless perhaps this would be absurd.(Bacon vs Cooper (Metals) Ltd. (1982) 1 All E.R. 397 at 400).

If a plaintiff chooses to rebuild to a higher standard than is strictly necessary, he can recover the cost of the works less a credit for betterment, unless the new works are so different as to break the chain of causation. If the damages are executed as part of a larger programme of work, it may be appropriate to award damages based on the cheapest estimate of the cost of the remedial works by themselves. (Jones vs Stroud D.C. (1986) 1 W.L.R. 1141 at 1150 (C.A.)

Destruction of Premises

Where a breach results in the destruction of the premises or part of them and the innocent party has no option but to rebuild, the measure of damages is the cost of replacement. (Harbutt’s “Plasticine” Ltd. Vs Wayne Tank and Pump Co. Ltd. (1970) 1 Q.B. 447 (C.A.)


Damages for a contractor’s failure in breach of contract to complete on time are often the subject of a provision for liquidated damages. If to the contractor’s knowledge the contract works consist of an expansion of a factory or other profit-earning structure, he is liable for loss of business resulting from his breach. ( Victoria Laundry Ltd. Vs Newman Ltd. 91949) 2 K.B. 528 (C.A.).
Loss of profit should be expressly pleaded and is inconsistent with a claim for capital expenditure incurred to make that profit. (Perestrello Ltd. Vs United Paint Co.Ltd. (1969) 1 W.L.R. 570 (C.A.).

The period of time to be taken in calculating general damages for delay by a contractor will be the additional time, which his breach of contract is calculated or assessed to have caused.

Going Slow

Interim slowness not resulting in a failure to complete on time may not be a breach of contract at all (G.L.C. vs Cleveland Bridge and Engineering (1984) 34 B.L.R. 50 C.A.)


No work carried out

If there is a repudiation of the contract by the employer before any work is carried out the damages recoverable are, it seems, prima facie the amount of profit which the parties knew, or must be taken to have assumed, the contractor would have made if he had been permitted to complete in the ordinary way. (Ranger vs G.W. Railway (1854) %H.L.C. 72 H.L.)

Election to claim waste expenditure

The contractor may, it seems, elect to claim wasted expenditure instead of loss of profit, and can include pre-contract expenditure made in preparation for performance provided it was such as would have been reasonably in the contemplation of the employer at the time of entering into the contract. (Anglia Television Ltd. Vs Reed (1972) 1 Q.B. 60 (C.A.)

Work completed

Where the employer breach does not prevent completion the damages recoverable, if any, will vary according to the circumstances. Where the contract does not provide for an extension of time on account of the delay, delay cause by the employer may give rise to a claim for damages. Delay may for example turn a summer contract into a winter contract thus causing increase of working, or it may keep plant , machineries or men idle; there may be disruption which reduces productivity or cause other losses. All these head of loss require consideration .

Claim for delay or disruption

Contractor ‘s claim for delay and disruption are commonly brought under these heads :
  1. increased preliminaries
  2. overheads
  3. loss of profit
  4. loss of productivity or uneconomic working
  5. increase cost from inflation
  6. interest for non-payment of money
It is not the function of the courts where there is a breach of contract knowingly…to put the plaintiff in a better financial position than if the contract had been properly performed. (Ackner L.J. in C. & P Haulage vs middleton (1983) 1 W.L.R. 1461 at 1467 (C.A.)

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