Obligations will be Breached

As long as obligations exist in our everyday lives, it is reasonable to assume that these obligations –whether they arise out of contract or any other aspect – will be breached. “Once the plaintiff has established that the defendant is in breach of an obligation, he will normally seek damages to compensate for the loss flowing from the breach” [1] : It is necessary, however, when discussing compensatory damages, to make a “simple inquiry toward what end is this activity directed?” [2] The aim of contractual damages are to look forward to what the claimant was expecting if the contract had been fulfilled – the damages are protecting the claimant’s expectation interest. Per Parke B in Robinson v Harman: –

“The rule at common law is that where a party sustains a loss by reason of a breach of

contract he 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.” [3]

Charles Fried [4] offers the opinion that contracts are enforceable because they are essentially promises, and that promises are enforceable because: -“There exists a convention that defines the practice of promising and its entailments. This convention provides a way that a person may create expectations in others. By virtue of …basic … principles of trust and respect, it is wrong to invoke that convention in order to make a promise, and then to break it.” [5]

There were many changes in application of awarding damages in 1848 and 2010. On 20 December 2009, the Public Contracts (Amendment) Regulations 2009 [6] and the Utilities Contracts (Amendment) Regulations 2009 [7]   entered into force.  These two Regulations, which amend the Public Contracts Regulations 2006 (“PCR”) and the Utilities Contracts Regulations 2006 (“UCR”) respectively, implement Directive 2007/66/EC of 11 December 2007 (“New Remedies Directive”), [8] which is designed to the improve the effectiveness of review procedures concerning the award of public contracts.  In a previous update, we provided an overview of the draft amendments to the remedies regime proposed by the UK Office of Government Commerce. [9]  These amendments implement a comprehensive overhaul of the existing remedies regime set out in PCR and UCR.  Some of these changes have a profound consequence for bidders and contracting authorities alike.  Contracting authorities in particular need to ensure that their internal processes and procedures are ready for the increased scrutiny to which they will be subject under the new regime.

Most importantly:

a public body can no longer assume that the courts in the UK are limited to awarding only damages in respect of an improperly concluded contract;

the set-aside of contracts has become mandatory in certain cases of impropriety;

public bodies now face the prospect of being fined for breach of the procurement rules, or having the term of an improperly awarded contract shortened; and

a contracting authority will now be compelled to suspend its procurement process where an aggrieved bidder challenges the contracting authority’s decision.

Previously, once a contracting authority decided to whom it intended to award a contract or framework agreement, it had to notify all of the bidders (including the unsuccessful ones) of its decision using “the most rapid means of communication practicable”, and then allow at least 10 days to elapse before it actually concluded the contract or framework agreement.

The purpose of this 10-day standstill period was to allow the aggrieved bidder(s) to challenge the contracting authority’s decision to not award the contract or framework agreement to him or her.  However, the 10-day standstill period did not apply to all contract awards and, notably, it did not apply to award of specific contracts under a framework agreement.

Once informed of the contracting authority’s decision, an aggrieved bidder was entitled to request in writing an explanation for the decision from the contracting authority, and the contracting authority had to respond to such request within 15 days of the receipt of request, unless such request was received by midnight at the end of the second working day of the 10-day standstill period, in which case the contracting authority had to respond at least three working days before the end of the 10-day standstill period; and if it couldn’t do so, the 10-day standstill period had to be extended to allow for the delay.

After it received the explanation from the contracting authority, if it was dissatisfied with the explanation, an aggrieved bidder could challenge the contracting authority’s decision in the High Court, on the ground that the contracting authority had breached its statutory duty to comply with the procurement rules.  However, in most cases, such challenge had to be launched within three months from the date when the grounds for challenge first arose, and crucially, prior to the recent amendment, the law provided that “the Court does not have power to order any remedy other than an award of damages… if the contract in relation to which the breach occurred has been entered into”.

Under certain circumstances, particularly in respect of framework agreements, a court could still take the view that it was entitled to grant to an aggrieved bidder a remedy that went beyond the award of mere damages, including the setting aside of an already-awarded framework agreement, [10]  but generally speaking, under the previous remedies regime, an aggrieved bidder had very little time within which to prepare and mount a legal challenge, and if it did not act promptly, it could not expect to receive any meaningful remedy.

Remoteness of damage

There are two part test: loss than can be recovered and quantity. Firstly causation in fact, as rep in the case of Stansbie –v- Troman [1948] [11] , where a painter in breach of contract after he had completed decorations, left unlocked a house, which was later burgled by thieves. The defendant was held liable for the value of goods taken as this was exactly the sort of loss he should have guarded against and foreseen. Secondly remoteness of damage. According to the case Hadley –v- Baxendale [1854] [12] and the fact of the case as followed , the delivery of mill crankshaft late. Claimant sued unsuccessfully as B unaware that the mill was not working. It set the basic rule for how to determine the scope of consequential damages arising from a breach of contract, that one is liable for all losses that ought to have been in the contemplation of the contracting parties. Followed by the next case Parsons –v- Uttley Ingram [1978], [13] the facts is Sale and installation of animal feed hopper. Ventilation hatch secured, feed mouldy, 254 pigs died, loss too remote according to COA but HOL disagreed and the majority courts held that losses for breach of contract are recoverable is the type or kind of loss is a likely result of the breach of contract. Lord Denning MR, dissenting on the reasoning, held that a distinction should be drawn between losses for physical damage (for which the same, restrictive test as in tort applies) and economic losses (where a wider remoteness rule applies).

Quantification of damages

Firstly, nominal damages. Nominal damages are very small damages awarded to show that the loss or harm suffered was technical rather than actual.  In the English jurisdiction, nominal damages are generally fixed at £2. According to Staniforth –v- Lyall [1830] [14] , L to load cargo, S hired boat out for greater profit so after L breached contract, nominal damages awarded. Bases of assessment is loss of a bargain where place claimant in same financial position had breach not have occurred. The difference in value between indicated and actual is the difference between contract price and the price obtained in an “available market”. As per Charter –v- Sullivan [1957] [15] ,the defendant bought a Hillman Minx car from the plaintiff but refused to accept it. The plaintiff’s profit would have been £97. However, only nominal damages were awarded because he could only sell as many cars as he could get from the makers. Where as in Thompson –v- Robinson Gunmakers [1955] [16] the defendant bought a Vanguard car from the plaintiff, and later refused to accept and pay for it. The plaintiff’s profit would have been £61. It was held that where, as here, the supply of Vanguard cars exceeded the demand, had the plaintiff found another customer and sold to him as well as the defendant, then there would have been two sales and two profits. Therefore, the defendant was liable for £61.

Consequential damages, include loss of product and loss of profit or revenue and may be recovered if it is determined such damages were reasonably foreseeable or “within the contemplation of the parties” at the time of contract formation. This is a factual determination that could lead to the contractor’s liability for an enormous loss. For example, the cost to complete unfinished work on time may pale in comparison to the loss of operating

revenue an owner might claim as a result of late completion.The Supreme Court has held that consequential damages are not available in Federal takings.

Loss of chance refers to a particular problem of causation, which arises in tort and contract. The law is invited to assess hypothetical outcomes, either affecting the claimant or a third party, where the defendant’s breach of contract or of the duty of care for the purposes of negligence deprived the claimant of the opportunity to obtain a benefit and/or avoid a loss. For these purposes, the remedy of damages is normally intended to compensate for the claimant’s loss of expectation (alternative rationales include restitution and reliance). The general rule is that while a loss of chance is compensable when the chance was something promised on a contract it is not generally so in the law of tort, where most cases thus far have been concerned with medical negligence in the public health system. As per Chaplin –v- Hicks [1911], [17] actress had duty to attend audition, wherein 12 actresses would be chosen of 50 present. She was wrongly prevented from attending and was able to recover.

Reliance damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligation. Reliance damages are valued by a party’s reliance interest for the foreseeable amount. They put the injured party in the same dollar position as if the contract had never been formed. In Anglia Television –v- Reed [1972], [18] at incurred expenses in preparation for film. R backed out in breach and AT able to recover expenses as these were easier to calculate than loss of profit. Generally, not possible to claim for both loss of profit and reliance lost, but it can be possible to recover damages for the loss of a valuable amenity. Besides that, Farley –v- Skinner [2001], [19] claimant hired a surveyor to report on aircraft noise, wrong and negligent – successfully sued surveyor for damages for loss of an amenity

Restitution is a remedy which aims to restore to an innocent person the gains which someone else has. Restitution, which focuses on gains, is meant to be the counterpart of compensation, which focuses on losses and it has link with consideration ( repayment of any sums paid in advance of the breach). As per in the case of Stocznia –v- Latvian Shipping [1998] [20] , shipyard to design and build a ship for the buyers. Shipyard rescinded before ownership passed. Buyers claimed for return of an instalment, claiming failure of consideration. Unsuccessful: based on whether seller had done something rather than buyer received nothing.

Duty to mitigate is a plaintiff has a duty to mitigate damages and cannot recover losses it could have avoided through reasonable efforts. Whereas, duty to minimise the effects of a breach have been illustrated in the case of Underground Electric Railways [1912] [21] , supply of turbines did not match specification, purchased from another supplier, so efficient, only losses sustained before the originals were recoverable but claimant not bound to go to extraordinary lengths. As per, Pilkington –v- Wood [1953] [22] Negligent solicitor claimed P could have sued vendor, when P claimed for hotels and travel after defective title prevented him living in residence. Rejected.

Anticipatory breach is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract. In White & Carter –v- McGregor [1962] [23] , M argued that WC might have mitigated loss by not continuing to fit the bins. Failed.

Other common law remedies

Liquidated damages is only where sum identified in the contract represents an accurate and proper assessment of the loss, in Bridge –v- Campbell Discount [1962] [24] has a depreciation clause void as it had no relation to actual depreciation value and in Dunlop Pneumatic Tyre –v- New garage & Motor Co [1914] [25] tyres are sold for £5 and it is recommended price reasonable. The test that encounter: extravagant sum always a penalty; large sum for small debt is probably a penalty; single sum for a variety is likely to be a penalty; wording used by parties is not necessarily conclusive

Quantum meruit is a Latin phrase meaning “what one has earned”. It means something along the lines of “reasonable value of services”. In the United States, the elements of quantum meruit are determined by state common law. For example, to state a claim for unjust enrichment in New York, a plaintiff must allege that (1) defendant was enriched; (2) the enrichment was at plaintiff’s expense; and (3) the circumstances were such that equity and good conscience require defendants to make restitution. According to Upton RDC –v- Powell [1942], [26] the retained fireman provided services with no fixed wage agreement. Reasonable sum awarded. Fresh agreement can be implied to overrule original one and it was stated in Steven –v- Bromley [1919], [27] S carried steel at agreed rate, and was able to claim more when delivery included extra goods. There possible to claim for work done after other party wrongfully considers the contract discharged or prevents performance,De Barnady –v- Harding [1853] [28] stated that the principal wrongly revoked agent’s authority to act on his behalf. Agent able to recover expenses and work done.

Equitable remedies in contract law

Equitable remedies are judicial remedies developed and granted by courts of equity, as opposed to courts of common law. Equitable remedies were granted by the Court of Chancery in England, and remain available today in most common law jurisdictions. In many jurisdictions, legal and equitable remedies have been merged and a single court can issue either-or both remedies. Despite widespread judicial merger, the distinction between equitable and legal remedies remains relevant in a number of significant instances. Notably, the United States Constitution’s Seventh Amendment preserves the right to a jury trial rights in civil cases over $20 to cases “at common law”.

The distinction between types of relief granted by the courts is due to the courts of equity, such as the Court of Chancery in England, and still available today in common law jurisdictions. [29]  Equity is said to operate on the conscience of the defendant, so an equitable remedy is always directed at a particular person, and his knowledge, state of mind and motives may be relevant to whether a remedy should be granted or not. Equitable remedies are distinguished from “legal” remedies (which are available to a successful claimant as of right) by the discretion of the court to grant them. In common law jurisdictions, there are a variety of equitable remedies, but the principal remedies are:

Injunctions

An injunction is an equitable remedy in the form of a court order that requires a party to do, or to refrain from doing, certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions. In some cases, breaches of injunctions are considered serious criminal offenses that merit arrest and possible prison sentences. Fitch –v- Dewes [1921], [30] lifelong restraint of clerk for taking up employment within 7 mile radius was reasonable. Besides that,Fellowes –v- Fisher [1976] [31] there was 5 year restraint on conveyancing clerk was unreasonable – clerk relatively unknown in a densely populated area of Walthamstow.

Specific performance

Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. Under the common law, specific performance was not a remedy, with the rights of a litigant being limited to the collection of damages. However, the court of equity developed the remedy of specific performance as damages often could not adequately compensate someone for the inability to own a particular piece of real property, land being regarded as unique. Specific performance is often guaranteed through the remedy of a right of possession, giving the plaintiff the right to take possession of the property in dispute. However, in the case of personal performance contracts, it may also be ensured through the threat of proceedings for contempt of court.

The conclusion is the solution obtainable in a exacting breach of contract situation will be different depending upon the law of the jurisdiction in question, the terms of the contract and the realistic situation. Despite the consequences of the remedies available, a breach of contract may effect in a lawsuit. Litigation is often time overriding and expensive to both parties, however, and therefore it is fitting more popular to resolve contract disputes through substitute methods such as mediation or arbitration. If you believe you have a breach of contract claim or if you are facing a breach of contract claim alongside you, it is important to seek the advice of a business-contract lawyer.