Damages and Breach of Contract

This paper aims to discuss and examine the case law, Wrotham Park Estate Co Ltd v Parkside Homes Ltd. and analyse the reasons why Brightman J in this case believe that there will be unjust if the nominal sum is awarded to the plaintiffs. The measure of damages (restitution interest/remedy(remedy Campbell,restitution for breach of contract) and damages in lieu of injunction will also be explained. Furthermore, the relevant case laws will be included.

Before considering the decision of Brightman J in the Wrotham Park Estate Co Ltd v Parkside Homes Ltd case, the remedies available for breaches of contract will be analysed. A breach of contract gives rise to an action for damages. There are three different measures of damages that can be recovered on a breach of contract. First, the contract law might protect ‘the expectation interest’. Secondly, the interest protected is ‘the reliance interest’. Thirdly, ‘the restitution interest’ is protected. However, the reliance interest will not be explored in this paper.

The claimant’s expectation interest is commonly protected by an award of damages for breach of contract. The award of damages aims to compensate the claimant’s loss which he has derived as a result of the defendant’s breach of contract. Parke B stated this principle in Robinson v Harman that the claimant who suffers a loss as a result of a breach of contract ‘….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.’ The expectation interest concentrates on the claimant’s loss. The claimant will not be awarded damages more than his actual loss. Where the claimant suffers no loss, the damages awarded will (,in,most,circumstances,)be nominal. This situation can be seen in Surrey County Council v Bredero Homes Ltd. In this case, the defendants purchased a land from the plaintiffs, the councils, for a housing estate development. The defendants covenanted with the councils to develop the land in accordance with the existing planning permission. Under the planning permission, the defendants were allowed to develop 72 houses. Subsequently, the defendants acquired the second planning permission allowing them to build 5 additional houses. The defendants completed the development of 77 houses which then have been sold. Although the councils knew that the defendants were in breach of covenant, they had not sought for an injunction relief to prevent such breach or to demolish the houses. But the councils sued the defendants to recover the profit that the defendants had made by building extra houses as damages in breach of covenant. The councils accepted that no any other damages occurred to them or to their adjoining property. The Court of Appeal held that the remedy for breach of contract aims to award damages to compensate the injured party for his loss. Where the injured party suffers no loss, he will not be transferred the benefit which the wrongdoer gained from his breach of contract. The injured party was to be put in the same monetary position he would have been in had the contract been performed. Since there was no loss that the plaintiffs suffered as a result of the defendant’s breach of covenant, the councils were entitled to only nominal damages.

However, an award of damages assessed by the claimant’s financial loss is sometimes inadequate remedy for a breach of contract. An interest in performance of a party to a contract may not be calculated in terms of money but it is important for him not less than financially measurable loss. Though he suffers loss from a breach of the other party to a contract, such an award of damages which is assessed by reference to financial loss will not adequately compensate him. A contract for a sale of land is an example of this case.

Unlike the expectation interest, the restitution interest is measured by the defendant’s gain. Does the claimant have a free choice to seek the restitution interest rather than the expectation interest? The answer is the claimant is not free to choose the protection between these two interests. In practise, the expectation interest is a norm whereas the restitution interest might not always available to the claimant but sometimes is preferable.

The restitution interest sought by the claimant bases upon which the defendant has been enriched or benefited as a result of his breach of contract, and the claimant should be paid by the defendant for such benefit. There are two types of the restitution interest which would be sought by the claimant. The first type is the restitution of benefits conferred. The second type is the restitutionary disgorgement of profits from breach. For the restitution of benefits conferred, the defendant has been enriched by obtaining a benefit which passed from the claimant to the defendant. This type of the restitution interest is available for failure of consideration, that is where the other party has failed to perform his consideration.

For the restitutionary disgorgement of the profits from breach, the defendant has been enriched by his breach of contract which is his wrongdoing. The enrichment is not required to be by subtraction from the claimant, but is distinct from or in excess of the wealth which was wrongly transferred (if any) from the claimant. However, there are cases where no loss has been caused to the claimant as a result of the defendant’s breach, but such breach allows the defendant to make a profit. The court may, in exceptional case, order the defendant to account to the claimant for the profit received. There are two types of the disgorgement of the profits from breach of contract. The first type is the partial disgorgement of the profits from breach of contract which can be seen in the decision of Brightman J in Wrotham Park Estate Co Ltd v Parkside Homes Ltd. The second type is total disgorgement of the profits from breach of contract.

In Wrotham Park Estate Co Ltd v Parkside Homes Ltd, the defendant, the developer, purchased a part of land subject to a restrictive covenant that had been imposed in favour of the claimants, the neighbouring estate owners. The covenant had been registered under the Land Charges Act 1925as a land charge class D (ii). The restrictive covenant is a right in rem which applies to land. The defendant who purchased this land was bound by this covenant.(น่าจะตัดออก) The defendant had to conform with the covenant by not developing the land without the lay-out approval by the claimants. The lay-out plan should include buildings’ plots, road’s position, and the line of drain and sewers. In breach of the covenant, the defendant built 14 houses without submitting lay-out plans to the claimants for approval. After the preliminary erecting work, the claimants sought a mandatory injunction to demolish the houses which had been built in breach of the covenant. The application for injunction was rejected by Brightman J on the grounds that it would be oppressive to pull down the houses as it would cause an economic waste and would put the claimants in advantageous position. To preserve the restrictive covenant, the demolition of the houses is not essential. He took the view that:

‘the erection of the houses, whether one likes it or not, is a fait accompli and the houses are now the homes of people. I accept that this particular fait accompli is reversible and could be undone. But I cannot close my eyes to the fact that the houses now exist. It would be an unpardonable waste of much needed houses to direct that they now be pulled down…such [a mandatory injunction] order ought to be refused.’

The houses which had been erected by the defendant in breach of the restrictive covenant had not caused financial damages, loss of amenity or depreciation to the claimants. The use of the claimant’s Estate has not been disturbed. Hence, the 14 houses would not be demolished by granting a mandatory injunction. But the claimants were awarded substantial damages in lieu of injunction under the Chancery Amendment Act 1858 (Lord Cairn’s Act).

As previously discussed, the basic remedy available for breach of contract is an award of damages which protect the claimant’s expectation interest. The measure of damages for breach of contract is, as a general rule, compensatory rather than restitutionary. Therefore, damages will be assessed by reference to the loss suffered. Such damages would place the claimant in the same position as if the defendant was not in breach of the contract. If the claimant suffered no loss, the damages would be nominal. In the Wrotham Park case, the defendant argued that ‘the damages are nil or purely nominal, because the value of the Wrotham Park Estate as the plaintiffs concede is not diminished by one farthing in consequence of the construction of a road and the erection of 14 houses on the allotment site.’ According to the basic rule of law of damages and the defendant’s argument, nominal sum would be awarded to the claimants since no loss had been sustained by the claimants as a result of the defendant’s breach. Nevertheless, Brightman J opined that for social and economic reasons, the exercise of his discretion to pull down 14 houses is not suitable, and awarding nominal sum in substitution for injunction to the claimants is unfair. He stated that if ‘the plaintiffs are given a nominal sum, or no sum, in substitution for injunction, it seems to me that justice will manifestly not have been done.’

From the above statement of Brightman J, there are two issues which will be examined. The first issue is the reasons which Brightman J believed that if the nominal sum is awarded to the claimants, it seems that there will clearly be injustice. The second issue to be considered is whether or not the opinion (and decisionถ้าตอนหลังเขียนแล้วไม่ใช่ก็ตัดออกได้) of Brightman J was right.

The first issue will now be considered. Brightman J had refused the mandatory injunction for pulling down the houses and believed that if ‘the plaintiffs are given a nominal sum, it seems to me that justice will manifestly not have been done.’ The reasons which Brightman J believed that it will not be injustice to award the plaintiffs a nominal sum are as follows:

– though the refuse to award nominal sum to the plaintiffs might not be in accordance with the principle of law of damages(an,award,of,damages), Brightman J thought that if the plaintiffs were awarded nominal sum or no compensation at all, ‘the defendants would be left in undisturbed possession of the fruits of their wrongdoing’. This would be clearly unfair to the plaintiffs because the defendant had infringed the plaintiffs’ right so as to obtain the defendant’s own profit but he paid no compensation to the plaintiffs.(p.13fullcase) Accordingly, the defendant can enjoy of the fruits of their wrongdoing.(ดาเขียนเอง) This situation can compare with way-leave cases where the claimant’s underground ways had been trespassed and used by the defendant in order to make his own profits, but the value of the underground ways were not diminished. The damages which were assessed by reference to an appropriate way-leave rent had been awarded to the claimant. The extension and consideration of this principle can be seen in Whitwham v. Westminster Brymbo Coal and Coke Co. The plaintiffs’ land had been trespassed by the defendants for 6 years in order to tipping colliery spoil. The value of the plaintiffs’ land had been diminished only £200 but the value of using the plaintiffs’ land for tipping the waste was £900. The court held that the amount of damages was the higher sum on the ground that a trespasser who had used the land of another person should compensate that person for such user. According to the principle in way-leave case and Whitwham v. Westminster Brymbo Coal and Coke Co., the defendant in Wrotham Park case should compensate the claimants for building the houses in breach of covenant in order to restore the claimants’ right though there was no diminution in value of the claimants’ land. An award of nominal damages would, therefore, be unjust for the claimants.(น่าจะเอาไฮไลท์สีเทาหน้า267campbellใส่)

– if nominal damages were awarded, it is apparent that the defendant would have costless permission to breach the contract and would be in an advantageous position. This may lead to the increasing of the breach of contract in the future.

It can be seen that Brightman J did not award nominal damages to the claimants, which was not in accordance with the basic rule of law of damages. He thought that if he had done so, it would not manifestly be justice. This is because the court refused a mandatory injunction to demolish the houses, and if the claimants were awarded nominal sum, it seems that the defendant can keep the profit from the houses which had been built in breach of covenant, without paying anything to the claimant for relaxing the covenant. The defendant would, therefore, be in an advantageous position which is unfair for the claimants.

The second issue to be considered is Brightman J’s opo for not awarding nominal sum and his decision were right. Before considering this issue, we shall examine what damages were awarded to the claimants.

As earlier discussed, the court refused to order the mandatory injunction, and to award nominal sum to the claimants in lieu of injunction. Brightman J thought what damages should be just to award the claimants in place of the mandatory injunction. He referred to the way-leave cases, and Penarth Dock Engineering Co Ltd v Pounds in order to reaching the amount of damages to be paid to the claimants. In the Penarth Dock case, the defendant had bought a floating pontoon from the plaintiff. The defendant, under the terms of the contract, had duty to remove the pontoon from the plaintiff’s dock. The defendant failed to do so. No damage had been sustained by the plaintiff because the dock is no use to the plaintiff and the profit would not have been made from it. A mandatory injunction to remove the pontoon and damages were sought by the plaintiff. Lord Denning stated that ‘the test of the measure of damages is not what the plaintiffs have lost, but what benefit the defendant obtained by having the use of the berth.’ The court awarded damages in the amount of £32 per week for a reasonable berthing fee from the time which the defendant should remove the pontoon onwards. In all the mentioned cases, the damages were awarded on the basis of a ‘reasonable fee’ (or ‘reasonable hire’). These are the ‘user principle’ which the defendant who used the property of the plaintiff without the plaintiff’s consent must pay the plaintiff the damages assessed by reference to a reasonable fee for such use.