Chapter 11 Outline answers to end-of-chapter questions

Remedies Part III: Non-compensatory remedies

1. A new night club called ‘Phatz’ entered a contract with the local council to lease premises and parking facilities. One of the terms allows Phatz to advertise using a sky beam but only up to 11.30 pm. In breach, the sky beam is used regularly all night long because it attracts more customers. The continued use of the sky beam has not resulted in financial loss to the council.

Advise the council on the following matters:

(a) The steps that the council can take to stop the use of the Sky beam after 11.30pm.

(b) The extent to which the council will be entitled to damages for the breach.

Introduce your answer by identifying the issues raised and your approach. This is concerned with remedies following a breach, in particular (a) is concerned with the use of an injunction and (b) is about the availability of damages where no financial loss is suffered.

(a) This is a relatively small part of the answer. The only possible remedy to stop a party continuing a breach or prevent them from doing so is through the grant of an injunction. Technically, the breach has occurred but there is nothing to correct or undo. Given the breach, the aim is to stop the club using the beam after 11.30pm. A prohibitory injunction would then be sought.

Explain the discretionary basis and requirements from the cases. Remember the remedy will not be granted where damages would be adequate and where specific performance would not be granted.

(b) This is the more significant part of the question. The starting point is the basic compensatory aim of damages from Robinson v Harman (1848). It follows that if there is no loss suffered then the innocent party will only be entitled to a nominal award.

Apply the point to the Council’s position and acknowledge that they might seek to obtain the profit the club made as a result of the breach. 

Explain the case of Surrey County Council v Bredero Homes [1993] and its significance, and then apply it to indicate why the claim would fail.

Briefly mention that an account of profits was permitted in Attorney-General v Blake [2001] but it is highly exceptional and most recently further limited and even questioned by the Supreme Court in Morris-Garner v One-Step [2018].

Blake did result in more cases awarding negotiating damages (Experience Hendrix v PPX Enterprises [2003], Force India Formula One Team v Aerolab [2013] and Pell Frischmann Engineering v Bow Valley Iran [2009]).

Apply the point i.e. that the Council might wish to make such a claim.

That takes you to the leading case on the availability of such damages Morris-Garner v One-Step [2018]. Explain it along with the guidance and clarification on negotiating damages.

Apply it the guidance. Here it appears to be a case of no loss i.e. no loss of a valuable asset.

Conclude by explaining that it is likely the Council will only receive a nominal award following the breach.

2. The approach adopted by the Supreme Court in Morris-Garner v One-Step [2018] resolved the problems associated with negotiating damages. Critically discuss.

Introduce the issue and approach. Explain that in the case, the Supreme Court set out to clarify the law on negotiating damages. The bulk of the main body should be about the Morris Garner judgment but you need to explain the problem it aimed to clarify by summarising the earlier case law.

Lead with Wrotham Park Estate v Parkside Homes [1974] as the start of negotiating damages and explain the debate about it being either compensatory or restitutionary.

Next, turn to how Wrotham Park was perceived as restitutionary by Steyn LJ in Surrey v Bredero Homes [1993]. Also, briefly explain Attorney-General v Blake [2001] i.e. the account of profit remedy not being compensatory and that it relied on Wrotham Park.

Explain what while Blake was exceptional, its reliance on Wrotham Park meant that there were many claims for negotiating damages that were permitted as an alternative where there was no loss in the traditional sense following the breach. Cite the example like Experience Hendrix v PPX Enterprises [2003], Force India Formula One Team v Aerolab [2013]. At the same time the debate continued about the basis of such damages (compensatory or restitutionary).

Provide some evaluation by discussing the arguments.

Now turn to the key case of Morris Garner. Briefly mention the facts to assist with the context of the decision and reasoning.

Explain the key points delivered by Lord Reed – and comment on them as improvements. Address the compensatory basis and the role of the fee that could have been negotiated; the fact that there must be loss which in the earlier cases was the loss of a valuable asset; how Wrotham Park is of historical interest and the doubt directed at Blake. Comment on the uncertainties. The opinions from the further reading would be useful for more depth.

Finally provide a conclusion that recognises that Morris Garner represents an improvement but leaves scope for some uncertainty which will have to be clarified by later cases interpreting the judgment.

3. The approach taken by the Supreme Court in Cavendish Square Holdings v Makdessi [2015] represents an improvement to the law relating to penalty clauses. Critically discuss.

Introduce your answer by identifying the scope of the question and your approach. This is about the law on liquidated damages clauses and explain their function. You will need to explain the original position in order to assess the impact of the case.

The main body of the answer can start with the traditional rule from Lord Dunedin’s judgment in Dunlop v New Garage [1915]. Explain the three propositions from the case and their significance along with reference to the guidance provided.

Commence some criticism with reference to the point made in Makdessi by Lord Neuberger and Lord Sumption about it being inflexible equating anything beyond a genuine pre-estimate as penal and the resulting wider tests developed over the years where there was a commercial justification for the clause (Lordsvale Finance v Bank of Zambia [1996] and Murray v Leisureplay [2005]).

Now turn the key issue of Makdessi. Explain the case and then the key points from the judgments – the change to focus on whether the term is unconscionable (or extravagant)- the legitimate interest of the innocent party and the proportionality question.

Explain the significance of the case – so what it really changes.

You are now in a position to provide criticism – the obvious one being the uncertainties that could be associated with the new approach. Also make use of the opinions from the further reading for more depth.

Now provide a conclusion on the extent to which the case represents an improvement.