Term
| What is a liquidated damages clause? |
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Definition
| Clauses which pre-plan what will happen if there is a breach. e.g. who pays what. |
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Term
| What are the benefits of LD clauses?` |
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Definition
a) Certainty
b) Privacy
c) Cost effective (because you don't have to go to court)
d) saves the hassle of going to court
e) amicable - commercial relationship preserved |
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Term
| What does liquidated mean? |
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Definition
| it means a 'fixed' sum... therefore, if you are going to court claiming liquidated damages, you're going for a fixed sum. |
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Term
| What is an unliquidated damages claim? |
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Definition
| Where when you go to court you don't know how much you're going to get. |
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Term
| If parties have a pre-written LD clause in their contract, if one party breaches, do they have any alternative other than to pay the pre-decided LD amount? |
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Definition
| YES - go to court and argue that the clause isn't actually a LD clause, instead it is actually a penalty clause (PC) |
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Term
| Why would it be beneficial for a party to argue that a LD clause is actually a PC? |
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Definition
| Because PCs are illegal under UTCCR Schedule 2(e)... therefore, if the party is successful in claiming PE, the clause will be struck out & the court will decide on the damages payable. |
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Term
| Which part of which act makes penalty clauses unenforceable? |
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Definition
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Term
| Which case provides the test for determining whether a clause is a Liquidated Damages clause, or a penalty clause? |
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Definition
| Dunlop Pneumatic Tyre v New Garage [1915] - Lord Dunedin |
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Term
| Dunlop Pneumatic Tyre v New Garage [1915] |
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Definition
SET OUT THE TEST FOR DETERMINING WHETHER A CLAUSE IS A LD CLAUSE OR A PC.
D was selling C's tyres.
D contracted not to sell tyres below the price that C was selling them
For every tyre he sold below the price, D agreed to pay £5
D sold some tyres under the price
D tried to claim that the £5 clause was a penalty clause, not a LD clause
HELD - it was a Liquidated damages clause
TEST
1) use of the words penalty clause / LD clause = inconclusive
2) A penalty clause functions in terrorem (e.g. it should be intimidating and clearly trying to compel performance)
3)The clause will judged by the time of making the contract and not at the time of breach, and in judging, the following may be considered:
a) if the sum stipulated is extravagently greater than the greatest possible loss conceivable on breach
b) Where breach is by non-payment of money and the stipulated sum is greater than what was due
c) A single lump sum is payable on any of several possible breaches, some serious, but other trifling
d) Even though loss is impossible to precisely pre-estimate, sum stipulated may still be considered a genuine pre-estimate |
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Term
| What is the test laid out in Dunlop Pneumatic Tyre v New Garage [1915] |
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Definition
1) use of the words penalty clause / LD clause = inconclusive
2) A penalty clause functions in terrorem (e.g. it should be intimidating and clearly trying to compel performance)
3)The clause will be judged by the time of making the contract and not at the time of breach, and in judging, the following may be considered:
a) if the sum stipulated is extravagently greater than the greatest possible loss conceivable on breach
b) Where breach is by non-payment of money and the stipulated sum is greater than what was due
c) A single lump sum is payable on any of several possible breaches, some serious, but other trifling
d) Even though loss is impossible to precisely pre-estimate, sum stipulated may still be considered a genuine pre-estimate |
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Term
| According to Duneidin in Dunlop Pneumatic Tyre v New Garage [1915], what is a valid liquidated damages clause? |
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Definition
A genuine pre-estimate of loss, set at the time of contracting... parties should be able to prove with documentation that they thoroughly considered the estimate and that it was legitimately made.
NOTE - if pre-estimate reached appropriately, it doesn't matter if it's wrong e.g. breacher has to pay way more than the breach actually cost... it's all about whether at the time of contracting, LD clause was appropriately set. |
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Term
| Which case can be used to show a LD clause which set a payment amount which was muuuch higher than the actual cost of the breach, however, because the LD clause was pre-estimated appropriately, it wasn't struck out? (highlighting difference between LD clauses and PC) |
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Definition
| McAlpine Capital Projects v Tilebox [2005] |
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Term
| McAlpine Capital Projects v Tilebox [2005] |
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Definition
| THE GENUINE PRE-ESTIMATE NEED NOT COINCIDE WITH THE ACTUAL LOSS |
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Term
| Which case can be used to show that accelerated payment clauses are NOT PCs? |
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Definition
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Term
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Definition
ACCELERATED PENALTY CLAUSES ARE NOT PENALTY CLAUSES
HOWEVER, IF PARTY HAS TO PAY IN ONE LUMP SUM, OTHER PARTY CANNOT CLAIM THE INTEREST THEY WOULD HAVE EARNED HAD THERE BEEN NO DEFAULT & PAYMENT BY INSTALLMENTS HAD CONTINUED
Payments were to be made by installments
clause = if any payments were late, the full amount owed would become immediately due
one payment was late, therefore whole outstanding payment was claimed
HELD - ACCELERATED PAYMENT CLAUSES ARE NOT PENALTY CLAUSES
If interest payments had been added (e.g. the interest that would have been owed if it had continued to be payed in installments) to the amount due immediately, it would have been a PC. |
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Term
| Workers Trust v Dojap Investments [1993] |
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Definition
DEPOSITS ARE GENERALLY NON-RECOVERABLE, HOWEVER, IF THE CLAUSE WHICH STATES THAT THE DEPOSIT IS NON-RECOVERABLE = UNREASONABLE, THEN THE CLAUSE BECOMES A PENALTY CLAUSE AND THE DEPOSIT IS RECOVERABLE
Deposit left = 25% of a property price
Usual deposit for a property = 10%
HELD - as 25% is not usual for a property deposit, clause = unreasonable, therefore, it = PC, and the deposit was recoverable |
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Term
| Under what circumstances would parties make an unliquidated damages claim? |
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Definition
a) where there is no pre-agreed liquidated damages clause
b) where a liquidated damages clause has been struck out as a penalty clause |
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Term
| When you make an unliquidated damages claim, what do the courts do? |
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Definition
The court will assess the damages (loss incurred), and decide on a compensation value. Damages = compensation NOT punishment.
COMPENSATION NOT ENRICHMENT |
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Term
| Which two cases can be used to show that damages = compensation NOT punishment? |
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Definition
Robinson v Harman [1848]
The Golden Victory [2007] |
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Term
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Definition
| DAMAGES = COMPENSATION NOT PUNISHMENT |
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Term
| The Golden Victory [2007] |
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Definition
DAMAGES = COMPENSATION NOT PUNISHMENT & NOT ENRICHMENT
C hired boat out to D
contract clause = if war breaks out, the contract will be terminated
5yrs before end of contract, Ds breached
1 year later, war broke out.
Cs were trying to claim for outstanding value for last 5yrs of contract
HELD - if the Ds hadn't repudiated, the contract would have ended 1yr later anyway. Therefore, D only had to pay for the period between their repudiation and the outbreak of war. If the Cs had received the 5yrs worth of monies, the Cs would have been enriched in excess of what they would have earned had there not been a breach. |
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Term
| What are the three types of compensation that a party can claim? |
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Definition
a) Expectation
b) Reliance
c) Restitution |
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Term
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Definition
| expected value you would have accrued from the contract (takes you right to the end) |
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Term
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Definition
compensates for everything spent up to the breach (even in some circumstances what you spent before the contract came in to being)
(you would normally only claim for this if you cannot prove expectation loss) |
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Term
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Definition
| prevents unjustfull enrichment. e.g. where the D(person who breaches) unjustly profits from having breached |
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Term
| What is the leading case on expectation damages? |
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Definition
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Term
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Definition
| EXPECTATION DAMAGES PLACE THE PARTY IN THE SAME SITUATION AS IF THERE HAD BEEN NO BREACH AND THE CONTRACT HAD BEEN PERFORMED |
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Term
| What are the three types of expectation damages? |
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Definition
1) Difference in value
2) Cost of cure
3) Loss of amenity (loss of enjoyment) (CANNOT CLAIM AMENITY IN A COMMERCIAL CONTRACT - ONLY WHERE THE CONTRACT IS FOR AMENITY) |
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Term
| What is the leading case on 'loss of amenity' |
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Definition
| Ruxley Electronics v Forsyth [1995] |
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Term
| Ruxley Electronics v Forsyth [1995] |
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Definition
INTRODUCED THE DAMAGES TYPE OF LOSS OF AMENITY
+ SHOWS THAT COURTS MAY TAKE INTENTIONS INTO ACCOUNT (didn't believe D would remedy the pool)
D contracted C to build him a pool which was 7ft6ins, but the pool turned out to only be 6ft9ins
D refused to pay for the pool
C sued him
Question = how should the problem be remedied?
Cost of pool = £20,000
Cost of repairing pool = £21,560
Therefore, cost of remedy damages would be bizarre.
W.r.t loss of value, court looked at value of home without pool & with 2 different depth pools... loss of value = £0.
However, D was still due something, because he hadn't got what he bargained for
THEREFORE, COURT INVENTED LOSS OF AMENITY & RANDOMLY DECIDED THAT LOSS OF AMENITY WAS WORTH £2,500
Also, courts didn't want to give cost of cure because they didn't believe that the money would be spent on remedying the pool |
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Term
| What is 'loss of amenity'? |
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Definition
| A type of expectation damages |
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Term
| What is 'difference in value'? |
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Definition
A type of expectation damages
What it was supposed to be worth, and what you have now... then you get the difference |
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Term
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Definition
A type of expectation damages
More applicable to goods... defective item, cost of curing it. |
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Term
| What cases can be used to show 'loss of amenity' in action? |
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Definition
Ruxley Electronics v Forsyth [1995]
Farley v Skinner [2001]
Birse Construction v Eastern Telegraph [2004] |
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Term
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Definition
C hired D to check noise pollution at holiday home
D told C that house was unlikely to suffer noise pollution (even though home was next to Gatwick)
HELD - loss of amenity |
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Term
| Birse Construction v Eastern Telegraph [2004] |
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Definition
YOU ACTUALLY HAVE TO USE THE ITEM TO SUFFER LOSS OF AMENITY + ANOTHER EXAMPLE OF THE COURTS LOOKING AT INTENTION + NO UNJUST ENRICHMENT
C build a college for D
lots of defects in the building
D claimed for loss of amenity
However, D's had sold the property... therefore, they wouldn't suffer loss of amenity. They wouldn't be there. |
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Term
| McGlinn v Waltham Contractors [2007] |
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Definition
COST OF CURE - CAN'T CREATE THE COST YOURSELF
C hired D to build him a property
After it was built, there were a number of aesthetic defects (NOT STRUCTURAL)
C therefore demolished the house, built a new one & sued D for cost of cure
HELD - C had created the cost (not necessary to demolish the whole house), faults were only cosmetic + because the house had been demolished, the court couldn't assess the extent of the defects. |
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Term
| Regus v Epcot Solutions [2007] |
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Definition
| IN A COMMERCIAL SETTING IT WOULD BE UNUSUAL, IF NOT IMPOSSIBLE, FOR DAMAGES TO BE AWARDED FOR LOSS OF AMENITY. |
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Term
| CCC Films v Quadrant Films [1985] |
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Definition
IF A CLAIMANIT MAKES A CLAIM FOR DAMAGES THEY CAN'T PROVE, COURT WILL SWITCH YOU TO A MORE APPROPRIATE ONE
RELIANCE DAMAGES - BOP ON THE PERSON DUE TO PAY DAMAGES TO PROVE THAT THERE WAS NO RELIANCE
GOOD CASE, KNOW IT
Cs hired films from D
Ds negligently posted films & they were lost in the post
Cs had planned on putting on film showings
Cs had spent £2000 preparing for film showings
Cs predicted great profits from film showings.
Cs sued Ds for expectation damages
HELD - the Cs could not prove that they were going to make as much money as the forecasted, therefore couldn't claim expectation damages. Instead had to claim reliance damages. However, Ds argued that the Cs wouldn't even have made back the £2000 they had spent in preparation. Court held that for the Ds argument to stand, they had to prove that the Cs wouldn't have made that money (covered their expenses). Ds failed to do so, & Cs were awarded £2000 reliance damages. |
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Term
| W.r.t claiming reliance damages, who is the BoP on? |
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Definition
| BoP if you are arguing against reliance is on the party paying - the person paying must prove that no reliance damages are due |
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Term
| Which case can be used to show that w.r.t reliance damages, the BoP is on the person paying (they must prove that no reliance damages are due)? |
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Definition
| CCC Films v Quadrant Films [1985] |
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Term
| If the courts feel that you have simply made a bad bargain, they will tell you to go away. |
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Definition
| C & P Haulage v Middleton [1983] |
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Term
| C & P Haulage v Middleton [1983] |
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Definition
BAD BARGAIN CASE
C hired garage from D
Contract clause = any improvements the C made to the property would pass to the D & D wouldn't have to pay for them
C made a number of improvements (installed electricity, dividing wall, etc.)
D then wrongfully evicted C
At this point, the council offered C a work site for no rent
Therefore, weirdly, C had been enriched by Ds wrongful eviction.
C sued D for wrongful eviction
But, because C now had a free site, he hadn't actually lost any money, he had gained money
Therefore, C couldn't sue D for loss, as there was no loss
Therefore, C claimed that putting in the dividing wall & electricity = reliance, therefore he sued D for the value of these
HELD - C couldn't sue for reliance damages, as he had simply made a bad bargain. |
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Term
| McRae v Commonwealth Disposals [1951] |
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Definition
IF EXPECTATION DAMAGES ARE TOO SPECULATIVE, YOU CANNOT SUE FOR THEM
D told C that he had a tanker which need to be salvaged
C paid D for the coordinates of the tanker
C planned on making lots of money out of the tanker
C followed the map, and discovered that the tanker did not exist
C sued D for expectation loss
HELD - C was unable to claim expectation damages, because how could you place an expected earnings on something which didn't exist. |
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Term
| Which cases can be used to show that if expectation damages are too speculative, you cannot sue for them? |
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Definition
CCC Films v Quadrant Films [1985]
McRae v Commonwealth Disposals [1951] |
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Term
| which case can be used to show that pre-contractual expenses (as part of reliance damages) may be available? |
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Definition
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Term
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Definition
PRE-CONTRACTUAL EXPENSES AS PART OF RELIANCE DAMAGES MAY BE AVAILABLE
C decided to launch a pilot TV show, and spent loads of money building sets & writing scripts etc...
C then hired D to appear in the pilot TV show
D pulled out a couple of days before the first show was due to be shot
C sued D for everything they had spent, including what they spent before they had hired D
C WAS UNABLE TO CLAIM EXPECTATION DAMAGES BECAUSE IT WAS TOO SPECULATIVE
HELD - yes, Dwould have known that with only 3 days to go before filming, there wouldn't be enough time for the C to find another actor. Also, D would know of all the money that had been spent in preparations. D had removed them of the opportunity of finding a different actor & therefore D had caused them all their loss (if D hadn't signed up in the first place, they would have found someone else, or if D had given more than 3 days notice) |
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Term
| What is the leading case on restitution damages? |
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Definition
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Term
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Definition
RESTITUTION DAMAGES
SET OUT TEST FOR RESTTUTION DAMAGES
D was a spy for C
D signed official secrets act
D also became a spy for Russia (naughty)
When it all came out, D moved to Russia and started writing memoirs
However, having signed the official secrets Act, D was not allowed to write his memoirs
C (attorney general) sued him...
BUT - C had no loss
However, D was going to unjustly enrich himself from breach of contract
Therefore, C sued for restitution damages
HELD - D was forced to do an 'Account of profits' (basically give back oll the profits he made) |
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Term
| What was the test for restitution damages, as set out in AG v Blake [2000] |
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Definition
1) Only available in EXCEPTIONAL circumstances (e.g. involving a spy breaching the secrecy act)
2) Damages must be inadequate
3) Claimant must have a legitimate interest for why they want to prevent the Ds profit-making activity (e.g. to prevent national secrets being revealed) |
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Term
| If a person breaches a contract because they know that they can make more money by doing so, what will happen? |
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Definition
| If they meet the test for restitutional damages (as set out in AG v Blake [2000]), then they can be sued for all their profits. However, Blake is ONLY available in EXCEPTIONAL circumstances. Normally it will be treated as an 'Efficient Breach', which is lawful, however it is frowned upon. Efficient breach can be sued for other damages, but not restitution damages. (e.g. any expectation loss, or reliance loss) |
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Term
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Definition
C AWARDED RELIANCE DAMAGES - HOWEVER, = HIGH WATER MARK FOR RESTITUTION DAMAGES, UNLIKELY IT WOULD BE AWARDED IF THE CASE WERE TODAY
D ran petrol stations for C
C gives D discounted petrol, so that D could sell it to the public for cheaper (Cs did this as a marketing technique, to enhance brand awareness)
However, Ds continued to sell petrol at the higher price & pocketed the difference for themselves
HELD - C couldn't claim for reliance or expectation. C was awarded restitution, because of the good will factor... because the Cs were trying to generate good will with customers, and D destroyed that.
HIGH WATER MARK - UNLIKELY TO BE DECIDED THE SAME WAY TODAY |
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Term
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Definition
| C APPLIED FOR RESTITUTION DAMAGES, HOWEVER, DAMAGES WERE HELD TO BE ADEQUATE, THEREFORE = NO RESTITUTION DAMAGES |
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Term
| Experience Hendrix v PPX Enterprises [2003] |
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Definition
| C APPLIED FOR RESTITUTIONARY DAMAGES, HOWEVER, IT WAS HELD NOT TO BE EXCEPTIONAL CIRCUMSTANCES |
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Term
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Definition
| C APPLIED FOR RESTITUTIONARY DAMAGES, HOWEVER, IT WAS HELD NOT TO BE EXCEPTIONAL CIRCUMSTANCES |
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