Equity & Trusts: Contract Damages - Causation, Remoteness & Liability, Exercises of Remedies

Download Equity & Trusts: Contract Damages - Causation, Remoteness & Liability and more Exercises Remedies in PDF only on Docsity! 1 These notes were compiled throughout the semester to use in the final exam. The notes contain compilations from the above prescribed texts and include other sources as well. REMEDIES EXAM NOTES Unit 200756 Prescribed texts for the unit: Heydon, JD and MJ Leeming, Cases and Materials on Equity and Trusts (LexisNexis Butterworths, 8th ed, 2011) Juriansz, John et al, Equity and Trusts: Law Principles and Practice (Palgrave Macmillan, 2011) Covell Wayne, Keith Lupton and Jay Forder, Covell & Luptons Principles of Remedies (LexisNexis Butterworths, 5th ed, 2012) 2 Damages in Contract Covell, Lupton & Forder Chapter 3 General Principles Damages in contract are awarded to place the plaintiff in the position it would have been in had the contract been performed: Robinson v Harman (1848): this was confirmed in Tabcorp v Bowen in Australia. Actual damage is not necessary – only that there was a contractual breach. However, actual loss has to be demonstrated if damages are not to be nominal. Compensation is not the sole purpose 1. Substantial damages without proving loss. Nominal damages are awarded where substantial loss is not established except where substantial damages can be recovered without proving loss where: a) the plaintiff suffers presumed pecuniary loss to credit and reputation by reason of the defendant’s dishonour of the plaintiff’s drafts; or b) The plaintiff (such as an actor or artist) suffers presumed financial loss from the loss of publicity following a wrongful dismissal or the denial of an opportunity held out in terms of the contract to enhance reputation. 2. Application of the rule in Bain v Fothergill. Application of the Rule in Bain v Fothergill [1972] AC 1027, 1114 may result in less than full compensation where there is a failure to provide a promised title to land. Where a vendor of land is unable, without fault on his part, to show good title, the purchaser cannot recover damages for loss of bargain – only his deposit and conveyancing expenses. The rule is applicable even if the vendor entered into the contract knowing of both the impediment to his title and his inability to remove it (save where there is deceit or misrepresentation). A vendor can only rely on rule if he can prove he has done all that he reasonably could to remove the defect in his title. 3. Failure to mitigate. Where the plaintiff fails to mitigate against damage there may be a denial of full compensation. 4. The principle of remoteness. 5 The effect of the above provisions is that whether the claim is made in contract or tort if the plaintiff’s negligence contributed as a cause of the loss, the court will reduce the plaintiff’s negligence contributed as a cause of the loss, the court will reduce the plaintiff’s damages to such extent as the court thinks just and equitable. There will be no apportionment where there is only a duty in contract; or where the claim is made in contract and the duties in contract and tort are not concurrent and co- extensive. Remoteness Remoteness limits liability for loss which the defendant has caused. This means that the damage caused by the defendant must not be too remote in law. the test of remoteness was stated by Baron Alderson in Hadley v Baxendale: • First limb - In determining whether something arises naturally the court considers the actual and imputed knowledge of the party in breach so that every person is taken to know what losses arise in the ordinary course. NATURAL/NORMAL PROFITS. PRESUMED. The defendant had presumed knowledge of the risk. Plaintiff does not need to adduce evidence that the defendant was aware of the risk of such damages. Limb 1 – test is one of ‘contemplation’, ‘on the cards’, ‘serious possibility’ or ‘not unlikely result’: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (Gummow J). • Second limb - The defendant must possess actual knowledge of the special circumstances, which would flow from a breach. SUPER/ABNORMAL PROFITS. The plaintiff must prove that the defendant knew or ought to have known that such a loss would be the probable result of the breach. Limb 2 – Requires (a) actual knowledge of the special profit that could be made and (b) the plaintiff must prove the defendant foresaw that increased loss was liable to occur following a breach. The test for remoteness was analysed in Czarnikow Ltd v Koufos where Lord Reid concluded that: The crucial question is whether, on the information available to the defendant when the contract is made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation. The case of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] applied remoteness test and decided that the defendant was liable for the consequences of the late delivery under the first limb for loss normal business profits but not for the loss of extra profits arising out of a very generous government contract which was unusual work not undertaken by the laundry. Mitigation 6 The principle of mitigation qualifies the compensation principle in Robinson v Harman by imposing an obligation upon a plaintiff to, within reasonable limits, undertake steps that will have the effect of avoiding or limiting the losses that are caused by the defendant’s breach of contract. The plaintiff bears a duty to act reasonably in mitigating its loss as stated in Shindler v Northern Raincoat Co Ltd [1960]. Damages awarded to a plaintiff may be reduced where: - there has been a failure by the plaintiff to take reasonable steps to reduce loss or - steps have been taken which have in fact reduced the loss Alternatively, where the plaintiff attempts to reasonably mitigate and this increases the loss, that increased loss is recoverable as damages. The classic formulation of principle relating to mitigation is in British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] where Viscount Haldane LC said: The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. The principle of mitigation is set out in three rules:  a plaintiff cannot recover damages for loss that was avoidable;  a plaintiff cannot recover damages for loss that was avoided;  a plaintiff can recover money spent in avoiding or attempting to avoid loss. Avoidable loss A failure to take reasonable steps to avoid loss will result in damages not being awarded for loss that could have been avoided. If the plaintiff cannot afford to undertake steps that would otherwise be reasonable and therefore avoid loss, he will not be held to have failed to mitigate, especially where the financial difficulty is a consequence of the defendant’s breach of contract as stated in Burns v MAN Automotive. If reasonable steps to mitigate are undertaken by a plaintiff have the effect of increasing, rather than avoiding, loss, damages for that additional loss are, nevertheless, recoverable from the defendant. Avoided loss British Westinghouse v Underground Electric Railways held tha loss that has been avoided cannot be compensated for ‘even though there was no duty on [the plaintiff] to act’, provided that the steps undertaken by the plaintiff were ones ‘arising out of the transaction’. However, if the benefit obtained by the plaintiff is one not arising ‘out of the transaction’, that benefit is not taken into account by way of reducing the damages recoverable by the 7 plaintiff. Recovery of expenses In cases of avoided loss the amount to be deducted from a plaintiff’s damages is the net gain after the deduction of reasonable expenses incurred. In other cases, reasonable expenses incurred will be recoverable from the defendant. Preliminary considerations to the assessment of contractual damages Date of assessment Generally, the date of assessment is the date of the breach. The Court may be flexible if the altering of this date would best protect the innocent party as in Johnson v Perez (1989). Once and for all rule Generally, as reflected in the case of Johnson v Perez damages in contract are given on one lump sum occasion where defendant is completely discharged of liability. There are 3 exceptions: 1. Instalment contracts - Where contract calls for the payment of instalments, each instalment may constitute a separate cause of action. 2. Continuous contracts – Each breach of contract will give rise to separate cause of action. This relates to damages in tort: Where there are separate injuries of different character arising from the one incident (Brunsden v Humphrey (1844) or where tort is a continuing one. 3. Statute – When a series of payments is specified in an Act, for example monthly payments (such as in cases involving personal injury). (this relates to damages in tort: s143, Motor Accidents Compensation Act 1999 (NSW); Workers Compensation Act 1987 (NSW) s151Q).