MKTG1000 Lecture : Module 7 - Remedies for a Breach of Contract
Module 7 - Remedies for a Breach of Contract
Common Law
Remedies
Termination of performance Electing to Terminate
If a condition of the contract has been breached, the
innocent party has the right to terminate the contract,
but they may elect not to do so and keep it on foot
If they do elect to terminate, they must communicate this
decision to the defaulting party in an unambiguous manner
In clear and certain language
Once the decision has been
made it cannot be changed
Once the decision to terminate is
made they cannot change their mind
The contract itself could also detail
what the rights/obligations of the
terminating party are
Holland v Wiltshire
At common law, termination
allows the innocent party to
Reject the attempted
performance and/or
Put an end to any further
specific performance of
outstanding obligations
What is terminated is not the
contract itself, but the offending
party's right to perform under it
After termination, the underperformed obligations
of the defendant must be discharged by the
payment of damages to the extend that the failure
to perform has caused loss
McDonald v
Denny Lascelles
An innocent party who seeks to
terminate performance must be able to
prove a breach of a condition
Associated Newspapers v Bancks
Tramways Advertising v Luna Park
If it is a condition that is broken, that is, an essential promise, the
innocent party, when he becomes aware of the breach, had ordinarily
the right at his option whether to treat himself as discharged from the
contract and to recover damages for loss of the contract, or else to keep
the contract on foot and recover damages for the particular breach
Damages
Direct and consequential loss
Only those losses flowing
from the breach of contract
can be compensated
Losses that are too remote,
unforeseeable, will not be
claimable as damages
There are two types of loss that will be
compensated by an award of damages
Direct loss Loss occurring in the usual or normal
course of things from the breach
Consequential loss
Loss occurring as a result of special or exceptional
circumstances where the risk of such loss was made known
to the other party at the time the contract was entered into
Hadley v Baxendale
Damages for Disappointment
and Distress
Damages are not usually awarded to compensate a party who suffered
disappointment and distress as a result of a breach of contract
The exception to this is when the contract was for the provision
of enjoyment, relation or pleasure e.g. pleasure cruise or day spa
Baltic Shipping Co v Dillon
Mitigation of Damages
The plaintiff will not be able to recover any loss that could
have been avoided by the exercise of reasonable care
If the plaintiff takes reasonable steps to avoid loss but suffers
further loss, the defendant will be liable for that further loss
Where the plaintiff successfully avoids loss by taking mitigating
action, the defendant is only liable for the reduced loss
Burns v MAN Automotive
Is the primary remedy for a breach of contract
Damages are an award of money to compensate for a loss suffered
Damages are never punitive in contract
Are a substitute for actual performance
Damages assessed at date of breach
Must be established that the breach of contract
caused the innocent party to suffer loss
Objective: to put the innocent party in the financial position they
would have been in had the contract properly performed
Radford v de Froberville
Tabcorp Holdings Ltd v
Bowen Investments Pty Ltd
Equitable Remedies
Specific performance
A court order to perform as promised under contract
Used when damages is inadequate
Not available for contracts of personal service
Not available if continual supervision of courts necessary
Matter of court's discretion; court does not have to
provide such a remedy unless deemed necessary
Lumley v Wagner
Dougan v Ley
Injunction
Equitable remedy available to a person who can show
that the other party is about to breach contract
It is prohibitory and restrains the breach
Before injunction is granted, plaintiff must show:
Legal right of a proprietary nature
Infringement is likely to continue or be repeated
Damages are an inadequate remedy
Contract is final expression of parties' rights
Buckenara v Hawthorn FC
Codelfa Construction v State Rail Authority
Associated Newspaper v Bancks
(Termination of Performance)
Facts
Bancks, a cartoonist, agreed to
produce a weekly full-page drawing
for Associated Newspapers
Associated Newspapers agreed to pay Bancks a
salary and to publish the drawing on the front page
of the newspaper's comic section
However, for three weeks, because of paper
shortages and consequent production
problems, Bancks' drawings appeared on
page 3 of the comic section
Bancks protested but Associated
Newspapers ignored him
Bancks then decided to termination
further performance of the contract
Issue
Was the promise to publish Backs' drawings on the front page
of the comic section of an essential term, such that a breach
would justify terminating further performance of the contract?
Decision The term was an essential one (a condition) and Bancks was
therefore justified in terminating further performance
Holland v Whilshire
(Termination of Performance) Facts
Wiltshire sold some land to
Holland for £3,750
The written agreement provided for payment
to be made 'on the day fixed for settlement
namely January 14th 1952'.
At Holland's request, Wiltshire agreed to
an extended deadline, but Holland failed
to meet the extension
Holland then informed
Wiltshire he did not intend to
proceed with the sale at all
Wiltshire did not immediately terminate performance of
the contract but said that if Holland did not settle by 28
March, he (Wiltshire) would commence legal action for
breach of contract
Issue
Was Wiltshire entitled, failing payment by 28
March, to terminate further performance of the
sale, resell the land to a third party and claim
any loss from Holland?
Had Wiltshire done what was
required to terminate further
performance of the contract?
Decision
Wiltshire was entitled
to these remedies
The contract had been
effectively terminated
Radford v de Froberville
(Damages)
Decision
Radford was entitled to claim damages equal
to the cost of actually constructing the wall
Damages aim to put the plaintiff in the same financial
position as if the contract had been properly performed
Reason
The objective of an award of damages is to put the
non-defaulting party in the position that would have
been occupied had the breach of contract not occurred
If de Froberville had performed the contract, the wall would have been
built, and it was the cost of this that Radford was entitled to claim
Facts
Radford owned two
adjacent blocks of land
He sold one to de Froberville on the condition that
she build an expensive brick wall on the boundary
She failed to build the wall, and resold her property to a third party
Radford sued de Froberville for damages for breach of contract
He claimed the cost of actually constructing the promised brick wall
De Froberville argued that Radford was only entitled to be
compensated for the reduction in the value of Radford's
property as a result of her failure to build the wall
This was less than the cost of actually building the wall
IssueWhat was the appropriate measure of damages?
Tabcorp Holdings v Bowen Investments
(Damages)
Facts
Bowen Investments leased a building to Tabcorp Holdings for 10 years
It was a term of the lease that the tenant would not make any substantial alternation or
addition to the building without first obtaining the landlord's written constent
Six months into the lease, and without first obtaining the landlord's content, the
tenant deloused the foyer of the building and rebuilt it in a way they preferred
The landlord sued for the cost of restoring the foyer to
its previous state, which amounted to just over $1.3m
The trial judge held the tenant in breach of contract but only awarded
damages of $34,820, bring the difference between the value of the building
with the old foyer and the value of the building with the new foyer
On appeal, Bowen claimed that they were entitled to the higher amount
Issue
Was the landlord entitled, on grounds of the tenant's
breach of contract, to claim the full cost of restoring
the foyer to its previous state?
Decision The appropriate measure of damages was the
cost of restoring the foyer to its previous state
Reason
The relevant principle is that, when a party suffers a loss because of a
breach of contract, damages may be claimed to put that party in the same
situation as if the contract had been performed, so far as money can do it
This does not mean simply in the same 'financial' position, but in the same actual position,
so that meant the cost of actually restoring the foyer to its original state, because this is
the position the landlord would have been in if the contract had not been breached
There may be exceptional cases where to award such damages
becomes unreasonable, but that was not so in the present case
Hadley v Baxendale
(Consequential Loss)
Facts
During this whole period the mill stood idle
Hadley claimed damages for breach of contract from Baxendale,
to compensate for the loss of profits caused by the delay
The crankshaft of Hadley's mill
broke, bringing milling
operations to a complete halt
The manufacturers of the shaft said that they
could make a replacement, but they needed
the broken shaft to copy it
Hadley consigned the broken shaft to Baxendale, a
carrier, telling him it was the broken shaft of a mill
and instructing him to take it to the manufacturer
Baxendale said he would deliver it to the manufacturer the next day,
but then he carelessly delayed for several days before transporting it
Issue
Was Hadley entitled to compensation for the lost profits?
Decision
In the circumstances, Hadley was not entitled to such damages
Reason
A plaintiff who establishes a breach of contract is not restricted
to claiming damages only for direct (immediate) losses
In appropriate circumstances, they may also claim damages
to compensate for more remote (or consequential) losses
However, damages for consequential loss can only be
claimed if the losses may reasonably be supposed to have
been in the contemplation of both parties, at the time they
made the contract, as a probable result of such a breach
Hadley's loss of profits was not direct loss because normally
it would be expected that a mill would have, or could acquire,
a spare shaft and so it was not reasonably foreseeable that a
broken shaft would cause a complete halt of production
The court also decided that the lost profits could not be claimed as
consequential loss because Baxendale had not been told that the mill
would remain completely out of operation until the shaft was replaced
This meant that the loss of profits was not something both
parties would have contemplated at the time of contracting
Victoria Laundry v Newman Industries
(Direct/Consequential Loss)
Facts
Newman Industries sold a boiler to Victoria Laundry
The delivery of the boiler was five months late
As a result of not having enough laundry capacity, Victoria
Laundry lost ordinary profits from their business, and missed
out on a lucrative cleaning contract with the Government
Victorian Laundry sued Newman Industries
and sought to claim for both theses losses
Issue
Could Victoria Laundry claim for both the loss of
ordinary profits from their business, and the missed
lucrative cleaning contract with the Government?
Decision
No. They could only claim the loss of ordinary profits from their
business (direct loss). The loss of the cleaning contract with the
government was too remote to be claimed, especially considering that
not notice of it had been brought to the attention of Newman Industries
Baltic Shipping v Dillon
(Distress & Disappointment)
Facts
Dillon booked and paid for a 14-day
cruise on a passenger ship
Eight days after the cruise began, the
ship struck a rock and sank
Apart from physical injuries and
psychological trauma, Dillon suffered from
disappointment and distress when her
planned holiday ended in catastrophe
She sued Baltic Shipping for
damages to compensate for this
Issue
Was Dillon entitled to damages for
distress and disappointment following
from a breach of contract?
Decision
The damages
should be awarded
Reason
This type of case provides an exception to the
general rule that a plaintiff cannot claim damages for
disappointment, distress or injured feelings by
reason of a breach of contract
Where the defaulting party has expressly or impliedly agreed
to provide pleasure, relaxation and entertainment, or to prevent
molestation or vexation, then damages of this type are
recoverable following a breach
The same principle applies in cases of a breach of
contract that causes a physical injury, or a breach that
causes physical inconvenience
Burns v Man Automotive
(Mitigation of Loss)
Facts
MAN Automotive supplied a large commercial vehicle to Burns
The vehicle supplied was defective
The defects became apparent after a year, but Burns persisted in trying to use it
and, by doing so, accumulated substantial operating losses in the process
Burns sued for damages to compensate for lost profits calculated over the four years
during with the vehicle would have been expected to have a useful operating life
IssueHad the plaintiff taken appropriate steps to mitigate the loss suffered?
Decision
A plaintiff is not required to take steps to mitigate loss if the
plaintiff does not have the necessary means to do so
Lumley v Wagner
(Injunction - Limitations)
Facts
Wagner, a singer, contracted to sing
in Lumley's theatre for a certain
number of performances
She also promised that, during
this period, she would not
perform anywhere else
Wagner breached the first of these
promises and was threatening to
breach the second
Issue
Would the court issue an order to prevent a
breach of Wagner's second promise not to
sing elsewhere during the period of her
contract with Lumley?
Decision
In the circumstances, the court would issue
an order (injunction) to stop Wagner singing
elsewhere for that period
Reason
An injunction will be issued in appropriate
circumstances to prevent a likely breach of the
law, including a breach of contract
While an injunction will not be issued if it has the indirect effect of enforcing a
contractual promise that the court would not enforce directly, by means of an
order of specific performance, the court was satisfied in this case that the
injunction would not indirectly force Wagner to sing in Lumley's theatre
This was because she was able to make a
living in other ways for the period in question
Dougan v Ley (Orders of specific
performance - damages are not an
adequate remedy)
Facts
Dougan sold a taxi cab, together with his operating licence, to Ley for £1850
After agreeing to the sale, Dougan changed his mind and refused to perform the contract
Ley sued for specific performance
Dougan argued that he was only liable to pay damages for his failure to perform the contract
IssueWas an order of specific performance an available remedy in these circumstances?
DecisionLey was entitled to an order of specific performance
Reason
Normally, the courts will not decree specific performance if damages are an adequate remedy
Damages are adequate where ordinary goods are purchased
because equivalent goods can easily be purchased elsewhere
Specific performance will be ordered if the goods purchased
are in some way unique, or have a special or particular value
The same true of goods of unusual beauty, rarity or distinction,
or where goods are sold as part of the equipment of a business
In the present case, what was bought was not just a car but a
specially adapted car together with the operating licence
At the time, taxi licences were issued in limited numbers and were not readily
available on the market, even to those with the money to pay for them
Accordingly, an award of damages was not an adequate remedy for
breach of contract and an order of specific performance was appropriate
Buckenara v Hawthorn FC
(Injunction to prevent threatened
breach)
Facts
Buckenara was a football player
contracted to play for the Hawthorn FC
As part of the agreement, Buckenara promised not to play for
any competing club while contracted to play for Hawthorn
When it seemed that Buckenara intended to play for a competing club,
Hawthorn sought an injunction to prevent the threatened breach of contract
Issue
Would the court issue an injunction to
prevent a breach of contract?
Decision
The court issued an injunction ordering Buckenara not to play
for any other club that was in competition with Hawthorn
Reason
An injunction is an order issued to prevent a likely breach
of the law, including a threatened breach of contract
However, an injunction will not be issued of it has the indirect
effect of enforcing a contractual promise that the court would be
reluctant to enforce directly by an order of specific performance
(e.g. performance of a promise to render personal services)
In this case, the court was prepared to issue the injunction sought
because preventing Buckenara from playing for competing clubs
would not indirectly force him to actually play football for
Hawthorn - he could earn his living in some other way if necessary
Codelfa Construction v
State Rail Authority
Injunction was issued by neighbouring home owners
Limited amount of hours Codelfa could work
An injunction was the best remedy
Approach the court because of the noise - an award of
compensation will not be enough, put a stop/injunction to the noise
What is going to be best for the plaintiff
Remedies for
breach of contract
When a breach of contract has
occurred, the innocent party is
entitles to claim a remedy
The remedies for breach of contract take different
forms and the innocent party is entitled to ask the
court for a particular remedy
Whether or not that remedy is awarded will be
determined by the legal principles you will learn here and
the particular circumstances of the case
Choosing a remedy
The innocent party can choose
what remedy/remedies they
seek from the court
They can ask for a combination of remedies, or
an alternate remedy should the court not
entertain their preferred choice
The nature of the contract may
impact the remedy that is awarded
for failed performance
One off transaction versus an
on-going agreement
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Document Summary
In the circumstances, hadley was not entitled to such damages. A plaintiff who establishes a breach of contract is not restricted to claiming damages only for direct (immediate) losses. In appropriate circumstances, they may also claim damages to compensate for more remote (or consequential) losses. During this whole period the mill stood idle. Hadley claimed damages for breach of contract from baxendale, to compensate for the loss of profits caused by the delay. The crankshaft of hadley"s mill broke, bringing milling operations to a complete halt. The manufacturers of the shaft said that they could make a replacement, but they needed the broken shaft to copy it. Hadley consigned the broken shaft to baxendale, a carrier, telling him it was the broken shaft of a mill and instructing him to take it to the manufacturer. Baxendale said he would deliver it to the manufacturer the next day, but then he carelessly delayed for several days before transporting it.
