Chapter 10 Outline answers to end-of-chapter questions

Remedies Part II: Principles that can limit the damages awarded following a breach

1. Nigella owns a luxury car hire business and placed an order for an additional ten Bentley Continental GT’s from Gordon, a dealer of nearly new cars. Nigella makes it clear that she needs the cars by the end of May because she has bookings for the cars, and Gordon agrees. The delivery of the cars is delayed so they arrived two weeks late. This means that Nigella was unable to fulfil the bookings made for those weeks. One of these bookings was to supply the cars to a ‘grime’ artist ‘Normsy’ for his latest music video, which would have earned Nigella a further £100,000. Advise Nigella as to losses that she should be able to claim for.

Introduce the answer by identifying the legal issue as remoteness of loss along with your approach.

Start the main body of your answer with the remoteness principle from Hadley v Baxendale (1854). Explain the reasonable contemplation test and how it works. Also address the conceptual footing of the principle based on intention from Transfield Shipping v Mercator Shipping (The Achilleas) [2008]. 

Briefly relate the requirement to the question by explaining that Gordon would argue that the losses were too remote.

Acknowledge the single test from Victoria Laundry v Newman [1949] and the result in the case based on the facts which provide a useful example.

Next, address the higher standard of foresight confirmed in The Heron II [1969]. Explain the reasoning to support the application of the test.

Apply the test to the facts. On this, you can liken the case to Victoria Laundry but question the facts you have not been told e.g. did Nigella provide any information on the more lucrative contract with Normsy?

Finally, conclude on the issue indicating the recovery of the profits lost from standard hire charges might be recoverable but the large sum from Normsy is a lot less likely in the absence of such potential loss being communicated at the time of contracting.

2. ‘The various limitations on damages claims by the innocent party mean that the law ends up treating the breaching party too leniently.’ Discuss.

Introduce the answer by identify the issues and your approach. This is about the limits a party in breach could rely on to reduce a damages claim, these include the principles of causation, contributory negligence, remoteness and mitigation.

The principle of causation is a brief issue. Explain the basic points and acknowledge that it would be unfair and inconsistent with the parties’ expectations at the time of contracting to be liable for loss not caused by the breach. Likewise, briefly acknowledge the limited contributory negligence principle with some cases in brackets as authority.

Now, move on the significant principle of remoteness. Explain the reasonable contemplation test from Hadley v Baxendale (1854) and the standard of foresight from The Heron II [1969]. On the Heron II the reasoning based on communication is useful because the absence of such communication can be viewed as fault on the part of the innocent party.

Explain the purpose and function of the remoteness principle and link that with an account of the reasoning and the conceptual significance of Transfield Shipping v Mercator Shipping (The Achilleas) [2008] i.e. that the principle is about the risks that parties appeared to accept.

You can now provide some evaluative comments on the test - based on its function and basis, it prevents the unfairness that could arise in its absence.

The last key issue is the innocent party’s duty to mitigate the loss. Explain it with authority such as Payzu v Saunders [1919], James Finlay & Co v NV Kwik Hoo [1929] and Banco de Portugal v Waterlow [1932].

Again, link this to fairness and expectations of the parties.

Finally conclude with a direct reference to the question. While there are principles that serve to reduce a claim for loss suffered, these principles are justified as being consistent with a fair approach and the parties’ expectations when entering the contract.

3. ‘The decision of the House of Lords in The Achilleas was an undesirable development in the law.’ Discuss.

Introduce your answer by identifying the area of contract law and your approach. This is concerned with remoteness of loss and the impact of Transfield Shipping v Mercator Shipping (The Achilleas) [2008]. It is necessary to explain the traditional remoteness rule and then the impact of the Achilleas.

Your main body should start with the reasonable contemplation test from Hadley v Baxendale (1854) and explain how as a principle, it operates to limit the award of damages.

Now expand by explaining the standard for foresight from The Heron II [1969] and detail the reasoning underpinning it.

Commence some evaluation by explaining remoteness as a rule of law and one that has been developed with promoting certainty from the use of the information objectively available and communicated.

Now turn to the Achilleas. Detail the issue in the case and the different approach adopted by the Law Lords in the case.

The approach introduced by Lord Hoffman and Lord Hope should be discussed. Evaluate the intention-based conceptual footing of remoteness. It is consistent with the general principles of contract. Also, the application of the traditional principle but with a finding of the loss being too remote, is that difficult to accept on the facts? Does that represent potential for uncertainty for the traditional principle? Alternatively, is there scope for uncertainty with the principle based on intention? It was said that the facts available at the time of contracting would ordinarily determine the risks the parties intended to accept, but would not apply where there is a strong indication to the contrary as in the case itself. Does that have the potential for uncertainty? The limit to certain sectors like shipping and banking, could that be expanded? It is useful to cite the opinions from the further reading too.

Now refer to the significance of the later cases following the Achilleas (Supershield Ltd v Siemens Building Technologies [2010]; Sylvia Shipping Co v Progress Bulk Carriers (The Sylvia) [2010]; and, John Grimes Partnership Gubbins [2013]).

Finally provide a conclusion with a direct reference to the question. Arguably the development makes more sense of the remoteness principle. In broad terms, explain whether the statement is accurate.