Legal Principles of Damages for Breach

Simon Cuddle entered into three separate contracts with the following companies: Best Builders Ltd (BBL) Ravishing Rooms Ltd (RRL) and Perfect Print Ltd (PPL). In order to be able to advise the parties involved, I will examine each contract individually, considering any legal claims the parties may have and providing an application of the law.

The first contract with BBL

This problem question relates to the legal principles of damages for breach of contract and in particular the subject of expectation loss.

The issue concerns whether Simon Cuddle is entitled to receive damages from BBL for expectation loss following their breach of contract. Simon’s losses consisted of £20,000 advertising costs, £10,000 advanced ticket sales and £30,000 expected sales from C.D’s and t-shirts of the band.

BBL had contracted with Simon Cuddle to complete the work by 1st May for the grand opening of Taylor Caldwell mansions but due to the cement mixer not working this date had to be put back until 1st June.

Every breach of a valid and enforceable contract gives to the innocent party a right to recover damages in respect of the loss suffered as a result of the breach, unless the liability for breach has been effectively excluded by an appropriately drafted exclusion clause [1] .

Expectation loss is where the claimant’s expectations, following the promise of the other party to perform his contractual obligations, have not been fulfilled and the claimant is entitled to recover damages in respect of the loss.

In Radford v De Froberville [2] the cost of cure was awarded even though a cheaper alternative could have been granted this is in contrast to Ruxley Electronics v Forsyth [3] where the court felt the cost of cure was unreasonable.

Two cases of damages for the loss of a chance are Chaplin v Hicks [4] and Simpson v London Railway. [5]

A claimant must take reasonable steps to minimise his losses there is a duty to mitigate as in British Westinghouse v Underground Electric [6] .

Although there is a breach of contract this does not mean the claimant can recover endless damages, however a claimant should not unreasonably incur expense Banco de Portugal v Waterlow [7] .

Damages cannot be recovered where a claimant’s losses are too remote. Losses must be within reasonable contemplation of the parties. The test of remoteness is set out in Hadley v Baxendale [8] (1854) such loss as may reasonably be in contemplation of the party at the time of making the contract, as a probable result of the breach Victoria Laundry v Newman Industries [9] [1949] 2 KB 528). Reasonable contemplation will be a question of fact in the circumstances Koufos v C. Czarnikow Ltd [10]

The case of Jackson v Royal Bank of Scotland [11] confirmed the test in Hadley v Baxendale stating it is the date of making the contract and not the date of breach which is the relevant date for applying the test as at the point of making the contract the parties have the opportunity to limit their liability in damages. If there is no limit on liability in damages for breach of contract, there is no arbitrary limit that can be set to the amount of the damages once the test of remoteness has been satisfied.

Considering the facts it would appear that BBL breached their contract with Simon Cuddle. Simon Cuddle is therefore entitled to recover damages in respect of his loss. Simon did attempt to mitigate his losses by contacting another builder but he was unsuccessful.

BBL could argue that the loss of £30,000 was not within their contemplation as they did not realise t-shirts and C.D’s would be on sale. However they were aware of the fact the band were performing at the opening and it is common practice to sell merchandise at concerts so it is not unreasonable for this to be within their contemplation. BBL did not limit their liability when entering into the contract so Simon Cuddle it entitled to claim for the entire amount and may prove successful.

The 2nd contract with RRL

This problem question concerns negligence liability and the validity of exclusion clauses incorporated into a contract.

The principle issue is whether RRL can rely on the exclusion clause, which stated that they do not accept responsibility for any damage or injuries whatsoever, following the breach of the contract they entered into with Simon Cuddle. The contract was breached by a negligent fitting of the wardrobe which fell down causing £15,000 damage and the negligent action of leaving the computer wire which caused Simon to trip and fall.

Incorporation and construction – Common law places certain restrictions on exclusion clauses:

Signature – once a document containing an exclusion clause has signed then the parties are bound by the terms L’Estrange v Graucob [12] an exception to this rule is where a term has been misrepresented Curtis v Chemical Cleaning & Dyeing. [13]

Reasonable notice – notice of the conditions must be given before or at time of making the contract Olley v Marlborough Court [14] and Interfoto Picture Library v Stiletto Visual Programmes. [15]

Course of dealing – this only applies where the parties have had previous dealings with one another. This course of dealing has to be consistent for a sufficiently long period and have been reasonably frequent. There must be both frequency and consistency for the term to be incorporated by course of dealing. In Hollier v Rambler Motors [16] four transactions over five years was not sufficient frequency whereas in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [17] there transactions per month over 3 years was sufficient. No consistency in dealing was shown in McCutcheon v Macbrayne. [18]

Once it has been established that the particular exemption clause has been incorporated into the contract, it must be shown that the defendant’s exemption clause covers the breach complained of by the claimants. Courts will not imply any exemption clause greater than that contained in the words used [19] Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [20] and Williams v Travel Promotions Ltd. [21]

Contra Proferentum Rule – with ambiguous meaning the courts will rule against the party relying on the clause Beck & Co v Szymanowski & Co [22] and Houghton v Trafalgar Insurance Co Ltd. [23]

Exclusion of negligence liability – courts dislike exclusion clauses that try to exclude negligence liability Canada Steamship Lines v The King [24] and Smith v South Wales Switchgear Co Ltd. [25] The ordinary meaning of the words was construed to cover the breach in Rutter v Palmer [26] whereas in Hollier v Rambler Motors Ltd [27] the words was narrowly construed so it did not cover the breach.

Unfair Contract Terms Act 1977

Statutory provision was created to regulate and restrict the legality of certain terms within contract. This is to ensure they are fair and reasonable.

s2 Negligence liability for personal injury cannot be excluded under any situation.

S11 (1) the terms should be fair and reasonable Stewart Gill Ltd v Horatio Myer & Co Ltd. [28]

Considering the facts RRL may possibly establish that the exclusion clause has been incorporated into the contract through course of dealing, as Simon Cuddle had contracted with RRL on six separate occasions over the past three years. Thereby the clause effectively covers the breach complained of by Simon.

However Simon may possibly claim there was no consistency or frequency in dealing with RRL as the contracts were as and when required so not cover breach.

The other points Simon is likely raise are relating to negligence liability. Due to RRL’s negligence both damage and injury was caused to Simon. Firstly by the negligent fitting of a wardrobe causing damage to a £15,000 Persian rug and secondly Simon tripping over the abandoned computer wire and breaking both his legs.

If RRL were able to establish the clause was incorporated into the contract then the courts may agree that Simon agreed to the clause at the time of entering the contract.

In response to that Simon may refer to the UCTA 1977 s11 to state that the terms were not fair and reasonable as the damage would not have been caused without the shoddy workmanship.

Personal injury cannot be excluded from contracts s2 UCTA so RRL would not be able to use their exclusion clause against Simon in regards to the injury.

Simon therefore would most likely be successful in a claim for damages against RRL.

The 3rd contract with PPL

This problem question relates to actionable misrepresentation and the available remedies.

The issues here are whether the statements made by PPL were misrepresentations that induced Simon Cuddle to enter into the contract and if this is established what remedies Simon does have.

Actionable misrepresentation

A misrepresentation must be an unambiguous statement of present fact which is false and which induces the other party to enter into contract, and which is not a term of the contract. [29] Misrepresentation makes contracts voidable not void.

An advert is not normally a misrepresentation as it is sales talk and not to be taken seriously Dimmock v Hallett. A statement of opinion is not a fact and therefore not a misrepresentation Economides v Commercial Union Assurance Co Plc. [30] An exception to the rule is where the statement is made by an expert, not necessarily a professional but someone in a position to know the facts as in Smith v Land & House Property Corporation [31] and once again in Esso v Marden. [32]

A common law is there no general duty to disclose facts to improve your bargaining position information can be hidden. Active concealment can however be a misrepresentation Gordon v Sellico. [33]

There are exceptions to the rule of disclosure:

When a statement during negotiations then becomes a untrue

When a true statement suggests a falsehood (half-truths)

Contracts uberimae fidei (utmost good faith)

Contracts for land have a limited duty of disclosure

The misrepresentation need not have been the only reason for inducing the party into entering the contract but it must have been a material inducement, in Redgrave v Hurd [34] the claimant did not check the facts but it was held he could rely on it.

Remedies for misrepresentation come in two forms: rescission and damages. Rescission means where the misrepresentation has been proven the contract then ceases to exist, this effectively returns the parties to the position they were in prior to forming the contract. Damages are awarded according to the type of misrepresentation proven; misrepresentation is an action in tort not contract.

Fraud is the most serious type D’Oyle v Olby Ironmongers. [35] As with fraud, negligent misrepresentation can be awarded damages as well as rescission Royscott Trust v Rogerson [36]

The Misrepresentation Act 1967 broadened the spectrum, s2 extended damages to negligent misrepresentation as well as fraudulent.

In considering the evidence it would appear that PPL’s statements of being the leading specialists, with the latest printing machines on the market and being the cheapest were unambiguous, present facts, false, not terms of the contract and they induced Simon Cuddle into entering the contract.

PPL may possibly argue that the statements were not fact but merely matter of opinion and they offered Simon the chance to check their claim of being the cheapest. PPL would want Simon to continue with the contract as they would want payment for the leaflets they had printed.

However PPL had expert knowledge and were fully aware that their equipment was not the latest on the market nor were they the cheapest, this expert knowledge puts them in a better position to know the market than Simon. The leaflets received by Simon were also not of good quality, 3000 out the 10,000 ordered were blurred.

Simon later went on to discover that the statements were all untrue. PPL were not leading specialists, their printing machines were over 7 years old and their prices were very expensive.

These facts establish that PPL’s statements were fraudulent. As Simon does not appear to have paid any money to PPL and therefore there are no losses, Simon would most likely be able to rescind the contract with PPL.