Two Interests Model: Remedies for Breach of Contract, Exams of Remedies

Download Two Interests Model: Remedies for Breach of Contract and more Exams Remedies in PDF only on Docsity! Better than Fuller: A Two Interests Model of Remedies for Breach of Contract David Campbell recovery, quantum meruit, quasi-contract, restitution, Lon Fuller 3 The basic architecture of Fuller’s conception of remedies is, of course, the three interests model set out in his 1936-37 paper written with his then student William Perdue Jr on ‘The Reliance Interest in Contract Damages’.4 Though my own understanding of remedies remains based on Fuller and Perdue’s thinking,5 it will be argued that the three interests model fails to coherently combine the contractual interests proper, expectation and reliance, with the restitution interest, and that this can be remedied only by the complete elimination of the restitution interest from the law of contract to leave a two interests model of remedies for breach of contract. This two interests model has the attraction that it brings an essential coherence to Fuller’s architecture. However, it is put forward, not in pursuit of coherence in itself, but because this coherence has the practical result of improving the remedies for breach by placing them on a purely contractual basis. SOME LOGICAL PROBLEMS WITH THE THREE INTERESTS MODEL By focusing on the inadequacy of the relationship of the expectation and reliance interests to the restitution interest, I would not wish to be thought to believe that the three interests model has no other inadequacies. A now enormous literature testifies to the fact that it certainly does, though, of course, to some extent this simply reflects the significance the model rightly has assumed. No doubt the way it has perpetuated a confusion between ‘reliance’ as a doctrine of liability and ‘reliance’ as one part of the 4 L.L. Fuller and W.R. Perdue Jr, ‘The Reliance Interest in Contract Damages’ (1936) 46(1) Yale Law Journal 52 and (1937) 46(3) Yale Law Journal 373. 5 D. Harris et al, Remedies in Contract and Tort (Cambridge: Cambridge University Press, 2nd edn, 2005) 6. 4 doctrine of remedies is the most important of these.6 But within the doctrine of remedies itself, it has been incontrovertibly argued that Fuller and Perdue’s understanding of the reliance interest, particularly of its relationship to the expectation interest, also is inadequate.7 As it cannot be argued here, it will merely be claimed that this inadequacy can be overcome, and must be overcome. Though in my conception of the contractual interests the expectation interest is markedly dominant in a way that cuts against the ‘scale of enforceability’8 which Fuller and Perdue themselves put forward, essentially their concepts of expectation and reliance are necessary to our understanding of the contractual interests properly so-called. The inadequacies which attend the restitution interest, which, to state the obvious, is not a contractual interest properly so-called, cannot be overcome. These specific inadequacies arise from a fundamental logical inconsistency intrinsic to the attempt to combine the contractual interests properly so-called with the restitution interest, the radically different jurisprudential foundation of which has always made it a most uncomfortable, quasi-contractual, graft onto the law of remedies for breach of contract. Now, Lon Fuller was highly respectful of that aspect of the wisdom of the common law that has as its leading expression Holmes’ famous claim that ‘the life of 6 This is the basis of Atiyah’s difficulties with the ‘pure expectation’ award of damages: P.S. Atiyah, ‘Contracts, Promises and the Law of Obligations’ in Essays on Contract (Oxford: Clarendon Press, rev edn, 1990) 33-34. 7 eg in the US R. Craswell, ‘Against Fuller and Perdue’ (2000) 67 University of Chicago Law Review 99 and in the Commonwealth D. McLaughlan, ‘Reliance Damages for Breach of Contract’ [2007] New Zealand Law Review 417. Professor McLaughlan regards the reliance interest as ‘redundant’: D. McLaughlan, ‘The Redundant Reliance Interest in Contract Damages’ (2011) 127 Law Quarterly Review 23. 8 L.L. Fuller, ‘To K.N. Llewellyn, 8 December 1938’ in R.S. Summers, Lon L. Fuller (London: Edward Arnold, 1984) 133. 5 the law has not been logic: it has been experience’.9 In his essentially realistic conception of the issues, Fuller conceived of law as one of the foundations of the ‘workable social arrangements’ which he proposed to examine in a new science of ‘eunomics’.10 He was not much disturbed when legal categories were not neat, either in general or in his three interests model, and indeed he and Perdue insisted upon the overlapping character of the interests, particularly in respect of the issues addressed here.11 Strongly influenced by Fuller’s attitude towards adjudication in contract and in legal philosophy generally,12 I have previously perceived, but not baulked at accepting, the overlap and inconsistency that is implicit in including the remedies discussed in this paper within the three interests model.13 But I have come to believe that it is both necessary and, what is more, readily possible (in fact the law has already effectively done it) to eliminate the restitution interest from the model of contractual interests, leaving a two interest, expectation and reliance model which is a potentially coherent conceptual foundation for remedies for breach of contract. This conclusion has been reached by reflection on the implications of what I have called the ‘very expensive mischief’ caused by the procession through the law of 9 O.W. Holmes, The Common Law (Boston MA: Little Brown and Co, 1881) 1. Holmes had coined this phrase a year earlier in an overall disapproving review of Langdell’s casebook: Anon, ‘Book Notices’ (1880) 14 American Law Review 233, 234. 10 L.L. Fuller, ‘American Legal Philosophy at Mid-century: Review of E.W. Paterson, Jurisprudence’ (1954) 6 Journal of Legal Education 457, 477. 11 See n 41 and accompanying text below. 12 As was the contract theorist who I regard as the successor in significance to Fuller, Ian Macneil: I.R. Macneil, ‘Lon Fuller: Nexusist’ (1981) 26 American Journal of Jurisprudence 219. 13 See nn 56, 104 and 130 and accompanying text below. 8 have agreed.23 As it happens, I believe that the argument of this paper would lead parties never to frame their remedies in quasi-contractual terms, but if they did so frame them, in principle I could have no objection to this.24 My objection, or rather advice to those parties, would be that this framing would not work well. But, except in a restricted sense which will emerge, gain-based damages are not the subject of this paper. Such damages need not, of course, hinge on situations in which the gain is the result of breach of contract, and, indeed, in Birks’ extremely influential formulations they came to be part of an argument for a law of unjust enrichment encompassing the entire law of obligations, into which contract would be subsumed. Largely because it was only a part of Birks’ enormous ambition, the attempt to expand the availability of gain-based damages for breach has become so convoluted that the simplicity of the original argument for this extension, which was the belief that breach is a legal and moral wrong, has become rather obscured.25 But within contract the argument for such damages initially claimed the purchase of being an extension of two remedies the availability and the restitutionary nature of which were both regarded as uncontroversial.26 These were the quasi-contractual action for 23 For a detailed examination of an exaggerated but nevertheless illustrative example see D. Campbell, ‘The Extinguishing of Contract’ (2004) 67 Modern Law Review 817. 24 On the correct attitude the courts should generally adopt towards commercial parties’ stipulation of their remedies see S. Rowan, Remedies for Breach of Contract (Oxford: Oxford University Press, 2012) ch 5 25 Campbell, n 18 above, 1090-91. 26 Goff and Jones, n 16 above, paras 20.007-20.023 and S.J. Stoljar, The Law of Quasi-contract (Sydney: Law Book Company, 2nd edn, 1989) ch 8. Dr Swain has brought it to my attention that recent legal historical research raises a question mark against even this claim to an absence of controversy: W. Swain, ‘Unjust Enrichment and the Role of Legal History in England and Australia’ (2013) 36 University of New South Wales Law Journal 1030. 9 monies had and received following a total failure of consideration27 and the action for a quantum meruit for goods delivered or services rendered without payment.28 These remedies have a jurisprudential foundation in correction of unjust enrichment, but it must be added that in their specific case that foundation is, in the pellucid terms of Birks’ early analysis of the issues, the restitution of ‘subtraction’, because the unjust enrichment of the defendant is ‘at the expense of’ the claimant, being the result of an illegitimate conveyance of a valuable benefit from the latter to the former.29 Birks’ introduction of the category of restitution of wrongs led to the emergence of a very expansive concept of gain-based damages (or disgorgement, or unjust enrichment, etc) because its whole point is that it extends restitution after breach of contract, originally based on subtraction, beyond subtraction.30 Restitution for wrongs is directed at the correction of the abstract wrong of breach, regardless of whether the claimant suffers a loss by subtraction. This can cover the case where the defendant breaches to maximise gain, the case normally called efficient breach. But it also covers the normal case of breach in which the defendant (with varying degrees of self-consciousness)31 seeks to make a saving by breaching and paying damages rather than continuing with performance. Disastrously for the argument for gain-based 27 Hudson v Robinson (1816) 4 M and S 475, 478 per Lord Ellenborough CJ: ‘An action for money had and received is maintainable wherever the money of one man has, without consideration, gone into the pocket of another’. 28 De Bernardy v Harding (1853) 8 Exch 822, 824 per Alderson B: ‘Where one party has absolutely refused to perform, or has rendered himself incapable of performing, his part of the contract, he puts it in the power of the other party to sue for a breach of it, or to rescind the contract and sue on a quantum meruit for the work actually done’. I ignore as obsolete the various sub-divisions of these remedies which contract students of my now venerable generation were perhaps the last to have to study. 29 Birks, An Introduction to the Law of Restitution, n 15 above, 23-24. 30 Campbell, n 18 above, 1082-83. 31 ibid, 1103. 10 damages, as it is impossible to prevent treating savings as negative gains, the savings that underlie the normal breach of contract therefore fall foul of restitution for wrongs,32 with the consequence that the extension of restitution for breach of contract from restitution of subtraction to restitution for wrongs is completely inimical to the law of contract.33 In the most valuable remarks on contract he ever made, Birks powerfully criticised the incoherence of the concept of ‘quasi-contract’34 and wished to expunge it from his revised law of obligations.35 In his earlier analysis, having contrasted restitution of subtraction to restitution of wrongs, Birks went on to seek to subsume restitution of the former under the latter. This was logically possible, though it was bound to and did (with other causes) lead to the abandonment of a jurisprudence of restitution for a jurisprudence of gain-based damages as, absent subtraction, it is impossible to see of what valuable benefit restitution is being made.36 The initially brilliantly clear restatement of the quasi-contractual remedies as restitution of subtraction has therefore now transmogrified into a somewhat less impressive attempt to generally reconceive those remedies as part of a general law of unjust enrichment. Except insofar as the argument of this paper makes it unavoidable, nothing more will be said about an issue on which I have previously commented at length. But though I have previously accepted the need for restitution of subtraction, 32 ibid, 1107-09. 33 ibid, 1093-1106. 34 Birks, An Introduction to the Law of Restitution, n 15 above, 22: ‘If cuckoos had to be quasi-thrushes or constructive blackbirds, we should know less about them’. This analysis survived the restarts Birks later made: P. Birks, Unjust Enrichment (Oxford: Clarendon Press, 2003) 233; (2nd edn, 2005) 271. 35 Birks, An Introduction to the Law of Restitution, n 15 above, 29-39. 36 Campbell, n 18 above, 1079-93. 13 However, the nature of quantum meruit is quite different. Some work of independent quantification is always required to express the valuable benefit conveyed in quantum meruit in terms of a sum of money, and this quantification may be very difficult. But, as I shall argue, this difficulty is greatly exacerbated by regarding the task as of a restitutionary rather than a contractual nature. First, however, recovery. Recovery as reliance On the basis of the distinction between recovery and quantum meruit just set out, the first thing that strikes one about the former is that it should be completely redundant in terms of Fuller and Perdue’s three interests model.41 The money paid by the claimant conveys an identical valuable benefit to the defendant and so restitution is made by a payment by the defendant identical to the payment by the claimant. As the money payment by the claimant constitutes a reliance expenditure and so generates a reliance interest, and as the payment by the claimant is identical to the valuable benefit, this means that the reliance interest and the restitution interest in actions for monies had and received are identical. In the interests of theoretical economy, then, it would appear that the action for monies had and received could be eliminated and replaced with a contractual claim in reliance to identical effect. Of course, if the claimant wishes to claim any element of expectation in addition to reliance, it will 41 eg Fuller and Perdue, n 4 above, 71: ‘The reliance interest is … generally broad enough to cover all the cases coming under the restitution interest’. In terms of the general doctrinal argument ‘that the claim arising on total failure of consideration’ can be reconceptualised in terms of reliance, I have nothing to add to P. Jaffey, The Nature and Scope of Restitution (Oxford: Hart, 2000) 56-61. 14 claim in contract. The elimination of recovery as redundant would yield the very substantial benefit of effectively abolishing one of the most muddled and unhelpful rules in the law of contract, the rule that failure of consideration must be total in order to generate the right for the claimant to elect recovery. The absurdities and injustices which this rule is widely acknowledged to generate will not be discussed.42 They have led to a situation where the rule is so hedged about that, as Treitel has it, it ‘is now much qualified’,43 or, as I would put it, is now lost in its exceptions. However, the acknowledged case for abolition of the rule has foundered,44 and the most telling reason for this is that such abolition would require co-ordinated reform of the whole law of restitution of subtraction. It is, of course, particularly inconsistent (if particularly welcome) that it is settled that the total failure rule should not apply to a quantum meruit.45 Incredibly to me,46 many advocates of basing the entire law of obligations on unjust enrichment are currently seeking to put failure of consideration 42 eg Law Commission, Law of Contract: Pecuniary Restitution on Breach of Contract [1975] EWLC C65, pt 3. 43 E. Peel, Treitel’s Law of Contract (London: Sweet and Maxwell, 13th edn, 2011) 1134. Dawood v Heath is cited at 1133 n 18 as an example of partial recovery allowed because apportionment ‘is in fact easy’. 44 Law Commission and Scottish Law Commission, Sale and Supply of Goods [1987] EWLC 180, paras 6.1-6.5. 45 Birks, An Introduction to the Law of Restitution, n 15 above, 226-234. 46 And, much more significantly, incredibly to Professor Kull, the Reporter for Restatement (Third) Restitution and Unjust Enrichment: A. Kull, ‘A Consideration Which Happens to Fail’ (forthcoming 2015) 51 Osgoode Hall Law Journal. I am grateful to Professor Kull for showing me this paper in draft. Kull has never shared the designs on the whole of the law of obligations pursued by the leading Commonwealth advocates of unjust enrichment: A. Kull, ‘Rationalising Restitution’ (1995) 83 California Law Review 1191 and A. Kull, ‘Disgorgement for Breach, the ‘Restitution Interest’ and the Restatement of Contracts’ (2001) 79 Texas Law Review 2021. See further J. Dietrich. ‘The Third Restatement of Restitution, the Role of Unjust Enrichment and Australian Law’ (2011) 35 Australian Bar Review 160. 15 at the heart of their enterprise.47 This will be put to one side.48 The argument here is that simply eliminating the quasi-contractual remedies from the law of contract is a clearly superior alternative for those whose interest is in the smooth working of the law of contract. Recovery as restitution It follows from what has just been said that it is logically essential for any argument for the retention of recovery to show that it can sometimes yield a valuably different result to an action based on reliance. The only occasion on which this can be argued to take place that raises an issue of real interest is that which Professor Burrows calls ‘escape from a bad bargain’,49 when the claimant may obtain substantial damages in restitution ‘even though its expectation (or reliance) damages … would be nil’.50 Burrows’ principal illustration of this argument is a 1961 sale of goods case heard by McNair J in the Commercial Court: Dawood (Ebrahim) Ltd v Heath (Est 1927).51 The 47 A. Burrows, A Restatement of the English Law of Unjust Enrichment (Oxford: Oxford University Press, 2013) para 15(1). See further A. Burrows, ‘Is There a Defence of Good Consideration’ in C. Mitchell and W. Swadling (eds), The Restatement Third, Restitution and Unjust Enrichment (Oxford: Hart, 2013); F. Wilmot-Smith, ‘§ 38 and the Lost Doctrine of Failure of Consideration’ in Mitchell and Swadling (eds), loc cit; A. Burrows, The Law of Restitution (Oxford: Oxford University Press, 3rd edn, 2011) chs 14-15 and C. Mitchell et al, n 16 above, paras 12.10-12.31. 48 Jaffey has made the essential criticisms in a recent note in this journal on Benedetti v Sawiris [2013] UKSC 50: P Jaffey, ‘Unjust Enrichment and Contract’ (2014) 77 Modern Law Review 983. I am grateful to Professor Jaffey for showing me this casenote in draft. 49 Burrows, The Law of Restitution, n 47 above, 344-5. I put to one side, for reasons of space without argument, Burrows’ claim that there are three other possible advantages of recovery: ibid, 345-346. 50 ibid, 344. 51 [1961] 2 Lloyd’s Rep 512 (Comm Ct). The reported case consolidated two actions 18 difference. It must be stressed that this is the correct outcome on the basis of expectation damages. After performance, the claimant expected to have paid £3248.14s (£3248.70p) for 44.2 tons of steel sheets. Ignoring any incidental damages, the claimant will have had to pay an additional £2475 4s (£2475 20p) for substitute sheets bought at the prevailing market price of £70/ton. Damages quantified at £70/ton would cancel out the £2475 4s (£2475 20p) and so put the claimant in the position it would have been in had the contract had been performed. Market damages calculated at the contract rate of £70.10s (£70.50p) would put the claimant in a £123.15s 2d (£123.76p) better position than it would have been in had the contract been performed. But by correctly not doing this, an expectation award leaves the £123.15s 2d (£123.76p) in the hands of the defendant. This outcome is what Burrows means by a bad bargain and it obviously runs against a wish to correct unjust enrichment. Whilst it is in the end unacceptable that two different rules yielding two different outcomes may be applied to the same set of facts, on this occasion the quantification of damages on a restitutionary basis seems to solve the problem in Dawood v Heath.56 This problem was described, in terms of payment per ton, by McNair J thus: The next point is whether the plaintiff’s right to recover the money which they have paid in advance … stands as a claim to recover the money as money paid … for a consideration which has wholly failed. The contrary view is that the remedy only stands in damages, so that if … the market price at the time of delivery conformed to £70 against the contract price of £73 10s, there would be recovered on this argument £70/ton and not £73 10s [£73.50p]/ton, leaving a profit of £3.10s [£3.50p] in the pockets of the seller.57 56 On my own former acceptance of this argument see Harris et al, n 5 above, 233-35. 57 Dawood v Heath, n 51 above, 518 col 2. 19 And, of course, given this choice, the restitutionary remedy should be chosen: The buyer’s right to recover that part of the purchase price which relates to the goods so properly rejected is clearly … the right to recover money for a consideration which has wholly failed and which, accordingly must be regarded as money paid to the buyer’s use.58 Though it is not mentioned in the case, the possibility of displacing the prima facie rule under section 51(3) and awarding recovery is explicitly provided for under section 54: ‘Nothing in this Act shall affect the right of the buyer … to recover money paid where the consideration for the payment of it has failed’. But, despite this, the choice between expectation and restitution was not, with respect, open to McNair J. The merely partial rejection meant that Dawood v Heath should not have been able to be regarded as a recovery case because there was part performance, ie there was no total failure of consideration, and ‘has failed’ under section 54 should have been read accordingly. In order to read ‘has failed’ as ‘has failed totally in respect of part of the delivery’, as he did in the passage just quoted, McNair J relied on the authority of a number of sale of goods interpretations of section 30(1) of SoGA which he extended to section 30(3), and he did not discuss the problem posed by the general principle. Dawood v Heath has accordingly taken its place amongst the plethora of exceptions to the total failure rule which constitute what should simply be called ‘the sale of goods exceptions’. No doubt this status was conveyed by its being cited as authority for the breach of section 30(3) leading to recovery under section 54 in Chalmers’ Sale of Goods.59 In one of the leading contemporary authorities on sales, it 58 ibid, 519 col 2 - 520 col 1. 59 This was not stated in the 14th edn of 1963 but in M. Mark, Chalmers’ Sale of Goods (London: Butterworths, 15th edn, 1967) 119 n (o) (now M. Mark, Chalmers’ Sale of Goods (London: Butterworths, 18th edn, 1981) 183 n (h)). Without entering 20 is now cited as authority for the proposition that ‘in the event of breach of [section 30 of the Sale of Goods Act 1979], the buyer is entitled to recover a proportionate part of what he has paid as on a total failure of consideration, notwithstanding that he may have accepted and retained a part of the goods’.60 Such a recognition of sale of goods as an exception to the general rule is a brazen acceptance of what ultimately is logically unacceptable. Burrows is in one sense even more brazen, but it is a brazenness that has the advantage of clearly expressing a truth. Taking a line also taken by Birks,61 Burrows simply uses Dawood v Heath as one of many illustrations that the law in general actually is that recovery is available for partial failure of consideration,62 a position which he then goes on to argue is correct in principle.63 I will just put all this to one side. If the argument here is accepted, this problem simply disappears from the law of contract. Having admitted the plausibility of Burrows’ escape from a bad bargain justification for recovery on facts like those in Dawood v Heath, which seem to amount to a justification of recognising the restitution interest, it will now be argued into the detail of section 30, Dawood v Heath was unproblematically cited as one of the authorities for recovery in the case of a short delivery in Law Commission, n 42 above, para 51. 60 J.N. Adams and H. MacQueen, Atiyah’s Sale of Goods (Harlow: Longmans, 12th edn, 2010) 137. 61 McNair J’s argument had been essentially reproduced in P. Birks, ‘Failure of Consideration’ in F.D. Rose (ed), Consensus ad Idem (London: Sweet and Maxwell, 1996) 187. 62 Burrows, The Law of Restitution, n 47 above, 325 n 42. Burrows, ibid, 325, 344 n 21 draws attention to DO Ferguson and Associates v Sohl (1992) 62 BLR 95 (CA) as a case which is similar to Dawood v Heath. But, with respect and without argument, I will simply state that this is not so in one most important respect. For whereas the outcome in Dawood v Heath is correct once one accepts the way it was pleaded, which is why the case is so interesting, Ferguson is simply wrongly decided. 63 Burrows, The Law of Restitution, n 47 above, 342-344. 23 delivered them, and kept the £123.15s 2d (£123.76p) difference. As the seller would not have been in breach, recovery would not have been available to the buyer. So, even in the rare case of advance payment, such assistance as Dawood v Heath affords a claimant can be further nullified by a simple performance tactic. In sum, the rule, if this is the right way to put it, in Dawood v Heath is of no practical significance and can, it is submitted, be dropped. It can easily be avoided and, save in a vanishingly small number of cases, it is. The paucity of authority shows that it has effectively already been dropped. With it goes the escape from a bad bargain justification for recovery and with this goes this element of quasi-contract in the law of remedies for breach of contract. The consequences of recovery in bad bargain cases Though the argument just made disposes of the escape from bad bargain justification of recovery, before leaving recovery it is instructive to ask why, if that argument is accepted, the seller in Dawood v Heath did not adopt the suggested tactic of buying and delivering corresponding goods. The answer is that this was a case of what Goetz and Scott, building upon Llewellyn, called a ‘surprise rejection’.75 The issue of the remedy, though it clearly was to the forefront of McNair J’s thinking (apparently influenced by highly ingenious pleading), was dealt with very briefly. The bulk of his judgment does not address remedy but liability. The parties’ dispute was very predominantly about the description of the goods to be delivered. We have seen that the claimant buyer successfully argued that the contract claim. 75 Goetz and Scott, n 65 above, 997. 24 stipulated delivery of equal tonnages of sheets of five different lengths. On this interpretation of the contract, a delivery of sheets entirely of one length was a breach of section 30(3) of SoGA. The defendant seller’s unsuccessful argument was that the contract allowed delivery of one length only. Though McNair J firmly resolved the dispute in favour of the claimant buyer – we can recall him referring to ‘goods so properly rejected’76 – I believe that any fair reading of the convoluted negotiations described in the judgment would show that the defendant seller’s position had merit, even if it was wrong.77 There can be no reasonable doubt that, when making the delivery, the seller believed it had discharged its obligations by performance. (This is why the seller did not itself buy and deliver substitute goods). This being the case, it is arguable that the availability of recovery allowed the claimant to react to emerging difficulties in a way which should not be encouraged. This argument requires, somewhat unfortunately in a paper which seeks to focus on general principles, further discussion of the sale of goods aspect of Dawood v Heath. Though the mixed delivery aspect of Dawood v Heath made it a SoGA, s 30(3) case in terms of the prevailing sales law, behind a breach of section 30(3) lies a breach of section 13, which, though the law now is different as we shall see, in 1961 read: ‘Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description’ (emphasis added). Section 30 is headed ‘Delivery of wrong quantity’, and its other sub-sections all dealt with delivery of wrong quantities of goods which are themselves in correspondence. Section 30(3) was quite different. The ‘mixed delivery’ is mixed, not 76 See n 58 and accompanying text above. 77 Dawood v Heath, n 51 above, 514 col 2 – 518 col 1. 25 because the delivery is of the wrong quantity, but because some of the goods do not correspond with description, leaving a short quantity of goods which do correspond. Section 30(3) was merely an application of section 13 to the particular situation of a mixed delivery when the singling out of that situation, whatever its original justification, has long been thought to make no sense. As has been mentioned, section 30(3) has been repealed, and what now is section 30 is a deplorable patchwork which is a travesty of Chalmers’ achievement. But if we put to one side the difficulties caused by section 30 and focus on the fundamental section 13 aspect of Dawood v Heath, we can see that the availability of recovery in circumstances like those of that case is, not merely so easily nullified as to be pointless, but would be unhelpful were it not nullified. It has been authoritatively argued that section 13 is itself redundant and should be repealed.78 By effectively saying the seller must deliver what it has undertaken to deliver, section 13 adds nothing, but merely duplicates, in the form of an implied term, the obligation the seller has expressly undertaken by describing the goods in a way on which the buyer relies. However, rather than it being redundant, it is more accurate to say that, certainly in 1961, section 13 did add something, but nothing positive. The duplication was imperfect. For if description was regarded as a matter determined by the statement of the express terms of the contract, the consequences of a failure to correspond would depend on the seriousness of the breach regulated by the 78 eg M.G. Bridge, ‘Reardon Smith Lines Ltd v Yngvar Hansen-Tangen, The Diana Prosperity (1976)’ in C. Mitchell and P. Mitchell (eds), Landmark Cases in the Law of Contract (Oxford: Hart, 2008) 348. Professor Bridge’s latest review of the current state of the law concludes that section 13 ‘is close to being rendered otiose’: M.G. Bridge, Sale of Goods (Oxford: Oxford University Press, 3rd edn, 2014) para 7.32. 28 authors disapprovingly cite Arcos as an illustration of the claim that ‘A party may seek to rely on … a trivial breach to get out of a contract which has proved unprofitable, perhaps because of change in the market’.86 It is submitted that it is very likely (one cannot be sure) that Dawood v Heath is subject to just the same criticism. QUANTUM MERUIT Planché v Colburn Though we shall see that his views are nuanced, Burrows argues that the extensively discussed possibility of a quantum meruit ‘reversing’ the contractual allocation of risk should be allowed when he identifies escape from a bad bargain as the main justification for quantum meruit as well as recovery.87 Unlike in respect of recovery, however, I cannot avoid at least brief discussion of one of the other justifications Burrows gives for quantum meruit, that it is useful in a situation of ‘failure of consideration and an incontrovertible or requested benefit’.88 This is the situation long associated with Planché v Colburn,89 though Burrows specifically says that that case does not belong in his category,90 citing instead De Bernardy v Harding91 as his principal authority for this use of quantum meruit.92 86 J. Beatson et al, Anson’s Law of Contract (Oxford: Oxford University Press, 29th edn, 2010) 145. 87 Burrows, The Law of Restitution, n 47 above, 347-350. 88 ibid, 346-347. 89 (1831) 8 Bing 14. 90 Burrows, The Law of Restitution, n 47 above, 346 n 31. 91 n 28 above. 92 Burrows, The Law of Restitution, n 47 above, 346-347. I acknowledge there is a dictum in this case that is used in this way, indeed I have cited it, but as reported De Bernardy does not explain how the award of £12 12s was reached, and I do not think it can be precise authority for anything, save for the interest of the question I posed 29 In Planché v Colburn, the claimant was an author who agreed, for a fee of £100, to write a book for a series of children’s books being brought out by the defendant publisher. Having lost faith in the series, the defendant told the claimant the series was to be cancelled and that it no longer wished to take the book the claimant was writing. The claimant had, however, written a substantial part of the manuscript by this time. He brought a breach of contract action which, on the best reading of the proceedings, was treated as an action for a quantum meruit, and was awarded £50. Our knowledge of Planché v Colburn has been immensely improved by recent academic researches,93 the detail of which it is not sought to convey here. But though, in particular, Professor Carter’s very illuminating account of contemporaneous procedure is essential to understand ‘The Planché v Colburn Line of Cases’,94 actually understanding these cases is not really now the main issue. What is of contemporary importance is that Planché v Colburn ‘has been treated in countless authorities as stating a proper basis for restitution for work done at the request of the some years ago (Campbell, ‘Classification and the Crisis of the Common Law’ n 14 above, 370) of why Birks continually felt obliged to pass off ‘his novel ideas as the uncovering of past truths’. An answer to this question must refer to Gummow J’s criticism of basing a ‘modern … normative doctrine of restitution or unjust enrichment’ on ‘close attention to cases decided in the 18th or 19th centuries’, when ‘it is a reasonable criticism of much of the modern writing on restitution that it does not get the past right’: W. Gummow, ‘Unjust Enrichment, Restitution and Proprietary Remedies’ in P.D. Finn (ed), Essays on Restitution (North Ryde: Law Book Company, 1990) 60. What, in the end, is at issue here is the ‘danger’ against which Professor Ibbetson has warned us of too directly ‘treating old cases as simply early applications of modern principles, capable of being analysed by reference to current understandings’: D. Ibbetson, ‘Unjust Enrichment in English Law’ in E.J.H. Schrage (ed), Unjust Enrichment and the Law of Contract (The Hague: Kluwer, 2001) 45. 93 J.W. Carter, ‘Discharged Contracts: Claims for Restitution’ (1997) 11 Journal of Contract Law 130 and C. Mitchell and C. Mitchell, ‘Planché v Colburn’ in C. Mitchell and P. Mitchell (eds), Landmark Cases in the Law of Restitution (Oxford: Hart, 2006). 94 Carter, n 93 above, 140 30 defendant’,95 whilst it is really no such thing.96 The £50 is obviously arbitrary, an equal loss splitting which has been justified as the best one can do when it is hard to give a more plausible figure.97 There are obvious contradictions involved in arguing for restitution of a valuable benefit when that benefit is unwanted by the defendant who obviously thinks it valueless.98 In an attempt to address such issues in a way which allowed the type of reasoning identified with Planché v Colburn to be marshalled as authority for restitution, Birks tried to set ‘market value’ aside as ‘irrelevant’ by claiming that ‘benefits in kind have value to a particular individual only so far as he chooses to give them value’, the value having to be quantified as a matter of ‘subjective revaluation’.99 But this is of far less importance than that the claimant should either have been awarded £100 or nothing. Planché v Colburn is a case which, in modern terms, should have been decided on normal contractual principles depending on the interpretation of the contract. The defendant did offer to take the completed manuscript, and pay £100 for it, to publish in a series of books for adults. The claimant, ‘probably the most important British playwright of his generation’,100 did not want to have work written for a juvenile audience appear in such a series, or be put to the trouble of completely rewriting the book. Depending on whether the contract was for publication by the defendant or for 95 ibid, 141. 96 ibid. See also Harris et al, n 5 above, 236-38 and Jaffey, n 41 above, 47-48. 97 The typical argument to this effect envisages the claimant being paid by royalty, which, of course, would be uncertain in the circumstances, arguably justifying the quantum meruit and its arbitrariness: Restatement (Second) Contracts § 352 illustration 1. But Planché v Colburn did not involve payment by royalty but by fixed fee. 98 Harris et al, n 5 above, 237. 99 Birks, An Introduction to the Law of Restitution, n 15 above, 109-110. 100 C. Mitchell and C. Mitchell, n 93 above, 71. 33 another £20,000 under the contract’.109 But, with respect, I submit this was not a very striking discrepancy, or indeed a discrepancy, at all. Boomer v Muir R.C. Storrie and Co, a construction company of which Robert B. Muir was a partner, was awarded a general contract to build a hydro-electric plant. This was a major project for which Storrie and Co was to be paid US$7,691,889, approximately $100 million in 2015 values. Storrie and Co entered into a subcontract with H.H. Boomer under which Boomer would build a storage dam as part of the project. In addition to itself carrying out other parts of works that would be necessary to allow Boomer to make progress as anticipated, Storrie and Co was to provide much of the power and materials necessary for Boomer’s works, and to make staged payments to Boomer in the way that is ordinary in construction contracts. The work was to be completed on or before 1 December 1927. Almost immediately serious disputes arose, which considerable modification of the original agreement did not quell, and Boomer eventually quit the site with the works substantially built but incomplete on 15 December 1927. At that time, Boomer was to still to be paid $20,000 under the contract. In procedurally complicated litigation involving, not only the partners of Storrie and Co, but also numerous third party sureties, Storrie and Co, which completely denied liability, was found to have fundamentally breached the subcontract by not making progress with the other works and by failing to supply power and materials in a satisfactory manner. Boomer was awarded $275,965.06 as a 109 Burrows, The Law of Restitution, n 47 above, 347. 34 quantum meruit for value of the work done less the staged payments received. There were, it seems, three alternatives courses of action which Boomer could have elected to pursue. In quoting the relevant passage of the judgment, each will be given a number: It is well settled in California that a contractor who is prevented from performing his contract by the failure of the other party to furnish materials has a choice of three remedies: He may [1] treat the contract as rescinded and recover upon a quantum meruit so far as he has performed; he may [2] keep the contract alive, offering complete performance, and sue for damages for delay and expense incurred; or he may [3] treat the repudiation as putting an end to the contract for purposes of performance and sue for the profits he would have realized.110 It is essential to note that none of these alternatives would give rise to the striking prima facie discrepancy between the contractual sum and the restitutionary sum for which the case is so well-known. Boomer elected [1] and was awarded $275,965.06 on a restitutionary basis. But neither [2] nor [3] would have led to an award of contractual damages of $20,000. $20,000 was what remained to be paid under the terms of the contract. It is not a measure of the damages Boomer would have received had he brought an action for either [2] or [3] on a contractual basis. [2], which, as is common in construction disputes of this sort when the parties can no longer work together, was not a practical possibility, would have led to completion of the works, and, with the payment of the $20,000, Boomer would have received his entire contract price, which would have included the margin of net profit envisaged at the time of the agreement. He would then have claimed all his extra costs as reliance damages.111 From the reported facts, we cannot quantify these extra costs, 110 Boomer v Muir, n 107 above, 573. 111 The difficulty arises that these reliance costs are in excess of the reliance costs 35 but they must have been very substantial. The part of his whole contract price that amortised his anticipated expenditure under the contract plus reliance damages for these extra costs would have left Boomer’s net profits intact, and in this way his expectation would have been protected.112 But, to repeat, [2] was not a practical possibility. [3] was a practical possibility, but it would have been an inadequate remedy for Boomer. He would have quit the site leaving the works unfinished and sued only for his expectation, if we interpret ‘sue for the profits he would have realized’ as sue for his net profits. This interpretation of [3] creates an alternative course of action which I will number [3a]. As his reliance expenditures had increased so much, [3a] would certainly have left Boomer with a diminished expectation and no doubt in a losing contract. This is the contractual outcome most commentators have in mind when contrasting it to the therefore superior restitutionary outcome. However, this result is not based on Boomer’s receipt of only the $20,000 which remained to be paid. That sum features only as part of the contract price when quantifying Boomer’s expectation as his net profit. Nevertheless, [3a] is an inadequate remedy for Boomer and the originally anticipated. In a sense, these extra costs are mitigation expenses the reasonableness of which must be assessed. But as such assessment is also implicit in the very concept of reliance, for expenses incurred in reliance on the contract must themselves be reasonable, then, for the purposes of this paper, this difficulty can be ignored. But in construction law practice, the claimant continuing to perform in the context of a failing relationship can give rise to very serious difficulty indeed, as Boomer v Muir itself illustrates. 112 Goff and Jones, n 16 above, para 20.021 believe the problem in Boomer v Muir is that ‘if Boomer had performed or substantially performed his contract, his only claim would have been for the balance of the contract price and for any loss suffered because of the breach by the defendant of the terms of the contract’. With the greatest respect, I believe that, properly understood, this contractual award would have been adequate. 38 law’.118 Gergen helpfully draws attention to the rules which may have obliged Boomer to elect to bring an action in restitution, in particular the Restatement (First) Contracts § 333, which stated that reliance expenditures ‘are not recoverable in excess of the full contract price promised by the defendant’. Though Gergen himself does not do so,119 I would maintain that, absent these restrictive rules, the quantum meruit is doctrinally and practically redundant. Its work not only can be done by contract but is done by contract, and though, as I have said, the reported facts do not allow us to definitely say this, I am of the opinion this will have been done even in Boomer. The views of Jaffey distinguished In a recent paper, Professor Jaffey has added to the argument that the quantum meruit should be replaced by remedies on a contractual basis, especially in terms of recognising the reliance interest.120 Jaffey says all I would hope to say about the rival contractual and restitutionary elements of the quasi-contractual remedies considered as a doctrinal question of liability. But on considering the implications of Jaffey’s 118 M.P. Gergen, ‘Restitution as a Bridge Over Troubled Contractual Waters’ (2002) 71 Fordham Law Review 709, 714. Gergen goes on to identify ‘the “total cost’ method of calculating damages under a construction contract when a defendant hinders a contractor’s performance [as the] solution to the Boomer problem’. 119 Though he generally concludes, ibid, 741, that ‘it is time to do away with the general right to restitution on breach of contract’, Gergen would, however, retain restitutionary ‘rules that are more closely tailored to specific situations’: ibid. I cannot agree with his identification of the situations for which restitution is appropriate, which turn on the case for gain-based damages in situations other than restitution for subtraction. This is the case I have argued against previously and which I have put to one side in this paper. 120 P. Jaffey, ‘Restitutionary Remedies in the Contractual Context’ (2013) 76 Modern Law Review 429, nb 449-450. I am grateful to Professor Jaffey for showing me this paper in draft. 39 argument for the quantification of the quantum meruit, a most important point of difference between our arguments arises. Jaffey accepts that, ‘when a contract breaks down’, a quantum meruit which proportions loss is theoretically superior to a contractual measure, but ‘in reality … to give proportionate effect to the contract will usually, if not invariably, be impracticable’.121 However, these alternatives are not, in my opinion, in reality available, and the difficulties of quantification do not have the significance Jaffey believes. Jaffey agrees with Anson that: there may be problems in allocating a particular proportion of the contract price to a particular part of the contractual performance due from the claimant. One reason is that the claimant’s costs may include fixed costs incurred at the start; another is that there may be economies of scale that would be obtainable from full performance but are not realised from part performance.122 For this reason, he prefers the contractual measure, though this may well ‘over- compensate’ the claimant, to the quantum meruit, which is not practically available. The implication of the argument of this paper is that there is no necessity to make, because there is no real possibility of making, the choice between contract and quantum meruit that Jaffey posits. If, labouring under the current understanding of damages for partially completed construction works, we move from a contract measure to a quantum meruit, there is no magic solution of the quantification issue which follows the invocation of this quasi-contractual formula,123 and these 121 ibid, 448-49. 122 ibid, 449, quoting Anson, n 86 above, 596. See further J. Beatson, The Use and Abuse of Unjust Enrichment (Oxford: Clarendon Press, 1991) 12-15. For an acceptance of this argument in the construction law literature see J. Bailey, ‘Repudiation, Termination and Quantum Meruit’ [2006] Construction Law Journal 217, 236-237. 123 R. Childres and J. Garamella, ‘The Law of Restitution and the Reliance Interest in Contract’ (1969) 64 Northwestern University Law Review 433, 443: ‘the valuation 40 difficulties remain identical for quantification which is said to be based on restitution or on contract. Jaffey’s effective reversal of the situation brings no improvement, and would leave the contract measure unjustifiable as compensation, because as Jaffey has it the quantification of that measure is ex hypothesi wrong and therefore effectively a penalty rightly open to attack. Though the last thing that can be said is that our current understanding of this crucial point is clear,124 it is submitted that, if we relinquish the belief that we need to recite the words quantum meruit to release us from being bound to the original contract price, we can see that the quantification that goes on in construction cases is objective, contractual quantification with values determined by reference to the market, with the contract values themselves often playing a very significant evidential role.125 problem may be at least as difficult in restitution as in contract’. 124 The leading construction authorities are characterised by ambivalence about what a quantum meruit actually is: eg S. Furst and V. Ramsey, Keating on Building Contracts (London: Sweet and Maxwell, 9th edn, 2012) para 4.021: ‘The courts have laid down no rules limiting the way in which a reasonable sum is to be assessed … Where a quantum meruit is recoverable … the work cannot generally be regarded as though it had been performed … under the contract. The contractor should be paid at a fair commercial rate for the work done … the appropriate measure of the sum due [is] reasonable remuneration for executing the work not the value the work to the other party’. A telling statement in R. Wilmot-Smith, Construction Contracts (Oxford: Oxford University Press, 2nd edn, 2010) para 3.06 is that: ‘the assessment of quantum meruit is usually based on reasonable and necessarily incurred actual cost including reasonable on and off site overheads plus an appropriate addition for profit. The actual costs can be checked by the use of standard rates and prices from publications such as Spon. In any case expert evidence as to market rates may be needed’. Spon is a set of costs guides very widely used in the estimation of construction contract prices. 125 In 2008 I taught an LLM course on remedies at the Faculty of Law, University of Auckland. One student, Mr Kelly Quinn, a barrister with international experience of construction law and practice, submitted a final paper on ‘The Value of Quantum Meruit as a Remedy in Construction Disputes’. Essentially of publishable quality, this 43 If Boomer had valid claims for damages arising under the contract by reason of the fact that his cost of operation had been wrongfully increased, it would seem inequitable to limit him to the recovery of the contract price upon a rescission for Storrie and Co’s failure of performance.134 This is often treated as a case of reversal, but it is not. As Storrie and Co caused the loss, normal contractual principles require them to compensate Boomer for it. But what if, secondly, if Boomer had himself caused the extra expense by inefficiently part-performing the works, Storrie and Co then breaching? This has been regarded as the paradigmatic case of reversal. If it was, it would be quite wrong and should be prevented. But a quantum meruit would place an objective market valuation on the work done, and such a valuation would not acknowledge that a benefit was conveyed by the inefficient way the work was performed. It would acknowledge only the market value of the work done. This would leave Boomer to bear the extra expense for which he himself was responsible. The same result would be reached, though on a clearer basis, by a properly conducted contractual quantification, which would attribute to Storrie and Co only such loss as it caused. This quantification of damages would yield the expectation that Boomer would have obtained by payment of the price upon completion of the contract. Neither quantum meruit nor this quantification would effect a reversal. Is it different if, thirdly, Boomer had himself caused the extra expense by initially underestimating the cost of the works, part-performed incurring that expense, and Storrie and Co then breached? This is a difficult case. A quantum meruit would have to allow Boomer to recover the objective market value of the work done as Review 1225, 1304. 134 Boomer v Muir, n 107 above, 578. 44 independently assessed by the court. This would lead to a restitutionary award which would not merely be higher than the contract price for those works, but would in fact reverse a losing contract. Theoretically, the contractual damages which would be awarded on the basis of a negative expectation would not effect this reversal. The question which ultimately lies behind debate about the contract ceiling is whether this reversal is wise. I do not pretend to have a solution to what is a very difficult question of construction law and practice. Estimating the price of complex construction works is a ‘relational’ contractual undertaking which cannot and does not work by precisely allocating risks at the time of the original agreement,135 which is why the standard forms of construction contract are predominantly concerned with providing for modification,136 why the parties to complex construction contracts typically make extensive provision for modification, and why opposition to modification is normally considered both legally unsupportable and practically most unwise. As it was famously put in Williams v Roffey Bros and Nicholls (Contractors) Ltd: ‘a main contractor who agrees too low a price with a subcontractor is acting contrary to his own interests. He will never get the job finished without paying more money’.137 To a very considerable extent, concern about the reversal of the allocation of risk 135 See the use of construction examples in I.R. Macneil and P.J. Gudel, Contracts: Exchange Transactions and Relations (New York NY: Foundation Press, 2001) pt 2. This part of Macneil’s second casebook is based on what is still the leading analysis of contract planning: I.R. Macneil, ‘A Primer of Contract Planning’ (1975) 48 Southern California Law Review 627. 136 eg I.E. Ndekugri and M.E. Rycroft, The JCT 05 Standard Building Contract (London: Butterworths, 2nd edn, 2009) ch 6. 137 [1991] 1 QB 1, 10G (CA). On the crucial point see further D. Campbell, ‘Good Faith and the Ubiquity of the “Relational” Contract’ (2014) 77 Modern Law Review 475, 477-81. 45 represented by an original estimate is misplaced as there is no fixed allocation of that risk to reverse.138 But there is a limit, and the precise case we should consider is, fourth and lastly, where a party (let us assume a subcontractor) has (incompetently) given an estimate which is inaccurately low and outside of the bounds of permissible modification such that the contractor has a reasonable expectation that the price of the work should be kept within an acceptable penumbra of the estimate. As in the case of recovery’s likely effect on sales disputes over correspondence with description, it is submitted that restitution cannot make a useful contribution to the law in such a case. The subcontractor should in contractual principle be confined to a negative expectation. Whether this is a practical possibility will be moot. Not the least of the issues are the hazards of litigation, for in the report of Boomer v Muir even more than in that of Dawood v Heath, it is clear that the defendant was completely surprised to be found in breach. Whatever the actual facts of construction law in action, in circumstances where the contractor did under-price in a way for which it should be responsible, the construction law authorities are rightly unanimous that the law should strive to enforce the original allocation of risk.139 Quantum meruit will work against this. Given the existence of the possibility of reversal by means of quantum meruit, it would be most naïve not to anticipate that the subcontractor would seek to gain access 138 The necessity of placing our attempts to deal with ‘the losing contract rule’ in its relational context has been authoritatively stated in W.J. Woodward Jr, ‘Restitution Without Context: An Examination of the Losing Contract Problem in the Restatement (Third) of Restitution’ in Braucher et al (eds), n 22 above. 139 eg Furst and Ramsey, n 124 above, para 8.046.