International Contract Law Week 9 Remedies Boundaries of

International Contract Law Week 9 – Remedies: Boundaries of Recovery October 26 th, 2009 J. P. Rodrigues

Legal Word of the Week Plagiarism: The unauthorized use or close imitation of the language and thoughts of another author and the representation of them as one's own original work. Eg: handing in your homework and copying word for word from Wikipedia your answers.

Recap - Damages Compensatory - ways to compensate parties (ie: Party B must pay Party A $$$ for contract breach) Coercive - where we would force one to complete their end – specific performance. Rarely used. Used more often in property then in any other area. (ie: Party B must fulfill the terms of the agreement for contract breach)

Recap - Avg Mgmt. Science Ltd. v. Barwell Dev. Ltd. Ratio? 1)Rule in B v. F does not apply b/c of an exception to the rule(conveyance problem-vendor voluntarily disabled himself from being able to give good title by selling the land to 2 purchasers). 2)Thus damages cannot be reduced(expectancy awarded). When, if ever, should courts award damages under the reliance measure?

Recap - Mc. Rae Ratio? Only in these three circumstances can reliance apply: Expectancy is impossible to prove. Burden shifts to defendant to show that these expenses would have been lost in any case and the defendant is unable to do so. The impossibility of proof results from the nature of the defendant’s breach. What specific damages were awarded? Only those specific to the salvage operation.

Recap - Mc. Rae Conclusion Loss of Revenue: wasted opportunity is taken into account, although this is very rare. Applies because there was actually concrete evidence of a supplemental contract with King Island that would have resulted with the attainment of the ship.

Mc. Rae Conclusion Mc. Rae is the exception to the dominance of expectancy b/c in that case expectancy was indeterminate as a result of the def’s breach. The fact that the damages can not be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages resulting from the breach of contract. Plaintiffs are entitled for recovery of damages and their damages are measured by what was expended (opportunity costs and wasted resources) as result of their reliance of the commission’s promise of the existence of an oil tanker.

Mc. Rae Conclusion This is not a case of non-delivery, which the P’s would have no ability to recover on, instead, when the contract alleged a tanker in a particular place, and it is found that there is no tanker, then the plaintiffs can say: this expense was incurred; it was incurred because you promised us that there was a tanker; the fact that there was no tanker made certain our expenses would be wasted. Burden now on D to prove if there was a tanker, expenses still wasted.

Recap - Attorney General v. Blake Ratio? Restitutionary damages should be awarded when: The defendant fails to provide the full extent of services he was contracted to perform. Where the defendant has obtained his profit doing the very thing he contracted not to do. Use restitution when: You can’t prove expectation and you can’t use Mc. Rae test: One party is unjustly enriched.

Recap - Homework If you are writing a final paper, please select a topic!!! Please read the following cases: (links will be emailed) Chaplin v. Hicks Peevyhouse Hadley v. Baxendale Victoria Laundry

Chaplin v. Hicks Facts? Beauty contest – ¼ chance of winning. Lower court awarded 100 pounds expectancy damages on this basis. The defendant appealed the decision

Chaplin v. Hicks Ratio: Plaintiff in a claim for expectancy damages has burden of proving with some degree of certainty that she would have made some money. Burden is met by ¼ chance of winning beauty contest Even if she cannot prove she would have won the contest, she has the right to be compensated for loss of opportunity to win, provided that this opportunity was lost as result of the D’s breach This is a watered down idea of certainty from Mc. Rae – can claim damages if you can prove loss of chance w/ requisite degree of certainty.

Chaplin v. Hicks Thoughts? Agree: Disagree:

Boundaries of Recovery A question that should be addressed is if it is not easily assessable to determine damages, should they be awarded? The fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract. To get expectancy, you have to have some sort of proof that there would have been the performance of the contract.

Boundaries of Recovery How about whether the P should be awarded the cost of completion of the contract or the difference in market value of the land? There are two ways to calculate expectancy – the position one would have been in had the contract been performed: 1) cost of performance: cost of leveling the land 2) diminution of value: the difference in the original value of land after work would have been done. To diminish damages recoverable against him in proportion as there is presently small value in land would favour the faithless contractor.

Boundaries of Recovery It is suggest that because of little or no value in his land the owner may be unconscionably enriched. The answer is that there can be no unconscionable enrichment, no advantage upon which the law will frown, when the result is but to give on party to a contract only what the other has promised; particularly where, as here, the delinquent has had full payment for the promised performance.

Groves * Groves-the plaintiff-transfers to the defendant the Groves Screening plant, in return for the defendant removing sand gravel and paying 105, 000. The defendant did not level the land. Value of land given to the P=0.

Groves Expectation Measure of Reliance: must place Groves in the position that Groves would have been in had Wunder fulfilled his contract, and levelled the land. There are two possibilities to place Groves in the position he would have been in had the K been performed. As we can see, depending on the measures we use to calculate, we get very different results.

Groves Cost of Performance: 60, 000 for contracting out to level the land. In order to put Groves in position, 60, 000. Or, as the Original Judgement was, 15, 000 – mainly for diminution of value (difference in value of land if work had been done).

Groves Majority Judgement: Stone J. Awarded 60, 000 for cost of performance Plaintiff was entitled not to the difference in value of the land, but to the reasonable cost of him doing the work called for by the K that the D had left undone. Dissent: If he is to be awarded damages in an amount exceeding $60, 000 he will be receiving at least 500 percent more than his property, properly levelled to grade by actual performance, was intrinsically worth when the breach occurred. It should be stated up front that cost of performance would be rewarded if breach.

Groves There are two types of expectancy damages (cost of performance and difference in value) Appropriate measure of damages is by cost of performance. It makes D pay for his bad faith breach and gives the plaintiff what is promised. (Groves v. John Wunder Co. )

Peevyhouse Facts? Mining company that failed to restore land. Awarded only the diminution in value-would have cost 29, 000 to restore land, but only result in a 300 increase in value, court awarded 300.

Peevyhouse Ratio: While reasonable cost of performance is the norm, but where the economic benefit which would result is grossly disproportionate to the cost of performance damages limited to diminution in value. EXCEPTION TO GROVES COST OF PERFORMANCE IS DEFAULT MEASURE UNLESS COST OF PERFORMANCE WOULD RESULT IN UNJUST ENRICHMENT OF P. (Peevyhouse Case)

Peevyhouse Dissent: Restoration was a very important promise to the D and the P knew this – the breach was wilful and in bad faith – a promise is a promise – courts should not intervene to remake Ks – D should do what it had promised to do or pay for it to be done.

Peevyhouse Thoughts? Agree: Disagree:

Groves vs. Peevyhouse Legal Principles Cost of performance – dominant way to calculate expectancy – costs of levelling land Diminution of Value – difference in the original value of land after work had been done.

Groves vs. Peevyhouse Rationales for Cost of Performance By awarding cost of performance may avoid a rip-off, or unjust enrichment, def had promised to level off land pay money – by avoiding the work he is getting a better deal The D promised to do the work, give P $ so he can get the work done elsewhere Assures that the P gets their expected profits Encourages freedom and protects interests of eccentrics. Rationale Against Cost of Performance may conduce economically wasteful activity – such as the party not getting the work done that they get the money to do Cost of Performance over-compensates P who may not get work completed.

Groves vs. Peevyhouse Rationale for Diminution in Value? If this value was not awarded, the plaintiff would be unjustly enriched – cost of performance rewards bad bargaining Purposes of damages is to compensate, not punish Response to Diminution in Value Rationales? How do we enforce contracts involving eccentric nonmarket tastes?

Groves vs. Peevyhouse In awarding cost of performance, the wrongdoer is entitled to expect the grieved party to act reasonably. Economic waste argument – you will not be given cost of performance if breach was a very minor deviation from the contract – ie – different pipes, Jacobs & Young v. Kent – the owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.

Hadley v. Baxendale Facts? Hadley were millers and needed to buy a new crankshaft, but had to send old crankshaft in to see if parts would fit with the rest of steam engine. Contracted with Baxendale to deliver the crankshaft to engineers by a certain date Baxendale failed to deliver on time and Hadley suffered financial losses.

Hadley v. Baxendale Rule 1: Where two parties have made a contract that one of them has broken, the damages the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result (namely, the consequences of the breach must be foreseeable, and be the probable result) of the breach. D is only liable for those damages that naturally or reasonably flowed from the breach (probable) or were reasonably supposed to be in the contemplation of both parties at the time of the breach

Hadley v. Baxendale Rule 2: If there are special circumstances, they need to be communicated, and if they are, then you receive the consequences of the special circumstances; if they are not, then all you get is what can be seen as rising naturally from this breach – the probable result – no surprises. This is a real restriction that the plaintiff can receive from the defendant. A HARSH test. If special circumstances were communicated at the time of the breach, the P is entitled to those damages that naturally flowed from those special circumstances (communication of exceptional results gives damages)- special circumstances need to be known and communicated and should be a probable result of the breach

Hadley v. Baxendale Rule for Remoteness: is a limitation on the expectation measure of damages At what point along the line do we say that the damage is too remote to compensate? Hadley is the key case having to do with this Damages for breach of K should be such as arise naturally – that is, according to the usual course of things, from the breach of K itself, or such as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the K, as the probable result of the breach. If there are special circumstances relating to the K – and these are actually communicated by the P to the D – damages reasonably contemplated would be the amount of injury which would ordinarily follow from a beach of K under these special circumstances so known and so communicated

Hadley v. Baxendale The best way to understand these rules is that they are about: risk allocation, preventing surprise. When you enter into a contract with someone, you should be able to reasonably predict the type of damages you will incur if you breach the contract. However, another test was developed in Victoria Laundry.

Hadley v. Baxendale Thoughts? Agree: Disagree:

Victoria Laundry Facts? Victoria ordered a new dye machine from Newman. The contract included a provision for installation and Newman agreed in the contract to have the dye machine installed and operational by a certain date. It took several months longer to set up than the contract stipulated. Victoria sued. Victoria argued that they lost a lot of business from not having the dye machine operation on time, and Newman was liable for those lost profits. Newman argued that although it was pretty obvious that Victoria would lose some business from not having the dye machine, the exact amount of profits they would have lost was not reasonably foreseeable

Victoria Laundry Imputed Knowledge: When making decisions as to what will naturally arise, we will take into account the BREACHING party’s knowledge, not the innocent party’s. Taking in this knowledge, we will determine what the breaching party should know. We take into account people’s occupational knowledge. It imputes knowledge in assessing this rule, which may make it harder to do this test. Actual Knowledge: In Hadley, it was the probable result, which is a very high threshold; this case waters down this threshold. It replaces this standard with liable, or on the cards. So the parties don’t have to look and see if the party thought this would be a probable result, but now, it just has to be likely, on the cards, etc.

Victoria Laundry vs. Hadley Differences from Hadley: Type of party breaching: in this instance, it is a specialist of sorts, with a better understanding of how the other party makes profits – as opposed to the general carrier in Hadley. It has to do with how much knowledge the breaching party might be expected to have about the business they’re dealing with, and this goes into forseeability. There will be no loss recoverable beyond what is resulted from the intended use within the reasonable contemplation beyond the defendant based on his imputed knowledge. Since no special circumstances were said to the Defendant, we stay in rule 1.

Victoria Laundry vs. Hadley Under first rule of Hadley, D had imputed knowledge (he was the supplier) and therefore losing profits from breach of contract was a foreseeable result in his contemplation D also had actual knowledge of the special circumstances because he was aware of the contract with Supercrete Guiding principles from Hadley & Baxendale: Injuries must flow naturally from the breach Special circumstances must be communicated

Victoria Laundry vs. Hadley Ratio: Under Rule #2, what becomes important is how much information is communicated. however, dissent in these cases say this may result in a disproportionate result, which may be used to limit the damages.

Victoria Laundry vs. Hadley Dissent: Rule #1 applies: Should have just been awarded loss that would have flowed naturally. Rule #2 doesn’t apply: D shouldn’t claim special circumstances unless it was clearly indicated to the D what kind of contract he was entering into, the type of work that was being done, and the magnitude of the operation. Insufficient detail as to “exactly what kind of contract was being entered into by the P”—it could have been a contract anywhere from $100 to $100, 000

Victoria Laundry Thoughts? Agree: Disagree:

Homework for Next Class Read the following cases: Governors of Dalhousie College v. Boutilier Eastwood v. Kenyon Thomas v. Thomas B. (D. C. ) v. Arkin

Homework for Next Class Questions to think about: What are the facts in each case? What were the decisions in each case? Do you agree with the judge’s decision? Why or why not? Why are these cases important for tort law?