UCL FACULTY OF LAWS

LAW OF CONTRACT 2009/10

DR PRINCE SAPRAI

REMEDIES FOR BREACH OF CONTRACT PART 2 LIMITING FACTORS

General Reading: E McKendrick, Contract Law: Text, Cases and Materials (3rd edn
OUP, Oxford 2008) 889-916
Essential Further Reading is * in the Handout
Learning Outcomes:
 Understand the four major limits on claims for contract damages: duty to
mitigate, causation, contributory negligence and remoteness
Red = My lecture notes
Black = Handout
1 Introduction
Fours limits on the protection of expectation interest:
1. Mitigation – the circumstances must be unavoidable for the promisee to have a claim
2. Causation – the promisor must have caused the claim through his/her breach of contract
3. Contributory Negligence – Is the promisee in some way responsible for the outcome?
Therefore, can damages be reduced?
4. Remoteness – Did the promisor foresee the losses that came about? They must have been
foreseeable for the promise to be able to claim.
2 Mitigation
2.1 General Principle
The claimant has a duty to reduce the losses that have been caused to them. If the promisee doesn’t act
reasonably in avoiding/limiting the damage caused to them then their damages will be reduced
accordingly. Damages cannot be recovered that were reasonably avoidable.
C has a duty to avoid loss caused by D’s breach.
C cannot recover damages for losses that were reasonably avoidable.
British Westinghouse Electric & Manufacturing Co [1912] AC 673 (HL)
‘The claimant does not have to take any step that a reasonable and prudent man would not
ordinarily take in his course of business.’
2.2 Reasonableness
C does not have to ‘take any step which a reasonable and prudent man would not ordinarily
take in the course of his business’ (British Westinghouse Electric & Manufacturing Co [1912]
AC 673 (HL) 689).
Low standard, c not have to:
 Take significant financial risks (Pilkington v Wood (1953) Ch 770 (Ch))
 Risk reputation (James Finlay & Co Ltd v Kwik Hoo Tong Handelsmaatschappij (1929)
[1929] 1 KB 400 (KB))
 Do something unaffordable (Clippens Oil Co Ltd v Edinburgh & District Water
Trustees [1907] AC 291 (HL))
Two limbs:
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1. Positive duty to act reasonably to avoid losses

2. Negative duty to avoid acting unreasonably to make loss worse
2.3 Positive Duty
Claimant must take positive steps to reduce losses. What required is fact specific, but
examples include:
 Duty to make reasonable effort to get substitute (Kaines (UK) v Osterreichische
Warrenhandelsgesellschaft Austrowaren GmbH [1993] 2 Lloyd’s Rep 1)
If the claimant fails to receive some good or serviced that had been contracted for then there is a duty
to get that good or service from somewhere else. This is a duty to find a substitute if it all goes tits-up.
 Make reasonable effort to get alternative employment (Yetton v Eastwoods Froy Ltd
[1967] 1 WLR 104)
If an employee is wrongfully dismissed then they have to make a reasonable effort to get another job
and therefore reduce their losses.
 Accept help to reduce losses (Anderson v Hoen, The Flying Fish (1865) 3 Moo
PCCNS 77), including medical help (Selvanayagam v University of the West Indies
[1983] 1 WLR 585)
Flying fish: A claimant who suffers property damage as a result of a breach of contract has a duty to
accept help to reduce the amount of property damage that he/she incurs.
West Indies: When the claimant suffers a physical injury then he/she has a duty to accept medical care.
 Renegotiate with contract breaker (The Soholt [1983] 1 Lloyd’s Rep 605)
Claimant was trying to buy a ship. Lawfully terminated the contract to buy the ship when the ship was
delivered late. They then tried to claim the difference in price between the contract value of the ship
and its current market value. Claim denied because they failed to mitigate their losses by trying to buy
the ship at a price that reflected the delay and inconvenience that had been caused.
2.4 Negative Duty
C must not take unreasonable steps that increase losses. Again, reasonableness fact
specific, but examples of reasonable steps include:
 Spending money on advertising (Holden Ltd v Bostock & Co Ltd (1902) 18 TLR 317)
 Incurring hire charges (Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397)
Unreasonable steps:
 Taking out high interest loan (Compania Financiera Soleada SA v Hamoor Tanker
Corp Inc, The Borag [1981] 1 WLR 274)
Taking out a high interest loan (once ship has been detained) to pay the defendant to release the ship
was deemed to be unreasonable. Therefore damages could not be claimed.
3 Causation
General Principle
Must be causal link between breach and loss. Claimant may not claim for losses that were
not caused by the breach. May be broken by:
 Independent act of 3P, although see Stansbie v Troman [1948] 2 KB 48 (KB)
General Rule e.g.: Man is sold a car, car then gets vandalised, man cannot claim damages because the
seller was not responsible for the damage. It was an independent act of a third party. The exception to
this is when someone is contracted into protecting something against third parties.
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Stansbie: Man is employed to paint house. He leaves the fornt door open and many goods are stolen
from the house. He is not directly responsible for the losses, but he has a duty to protect the house fro
third parties so he can be claimed against.
 Acts of God (Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196
(HL))
Ship sold to claimant – ship is unseaworthy. It was held that the defendant would be liable for any
foreseeable problems that might occur. However, the claimant couldn’t claim when a typhoon hit the
ship because this was not foreseeable.
 Unreasonable act by C (Lambert v Lewis [1982] AC 225 (HL))
Lambert: defendant sold a defective trailer coupler. The claimant went ahead using the trailor coupler
knowing that it was defective. He then suffered physically as a result. The claimant couldn’t claim for
his injury because he had acted unreasonably in using the broken coupler.
4 Contributory Negligence (least important)
When the claimant purposefully makes his/her loss worse
Common law position:
Only in cases where the defendant has a tortuous duty... didn’t really get that
C’s negligence which does not break causal chain but exacerbates her loss does not reduce
damages (Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370 (QB))
Question is does Law Reform (Contributory Negligence) Act 1945 apply to contract as well as
tort claims?
Forsikringsaktieselskapet Vespa v Butcher [1988] 2 All ER 43 (HL)
Barclays Bank v Fairclough Building Ltd and Others [1995] 1 All ER 289 (CA)
5 Remoteness
Losses caused by D cannot be recovered if they are too remote.
Hadley v Baxendale (1854) 9 Ex 341, 354
Test for remoteness is whether losses could have been reasonably contemplated as
consequences of a breach at the time the contract was entered.
Basically, could the loss have been foreseen at the beginning of the contract.
Reasonably (doesn’t matter if the claimant themselves didn’t foresee them, we go by the
reasonable person) foreseeable losses are (defendant will be held liable for these):

1. those ‘arising naturally, that is, according to the usual course of things, from such
breach of contract itself’ and,

2. ‘such losses 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 of the breach of
it’.
I.e. Either specifically brought to the attention of the claimant or was it expected to arise naturally
from the course of the contract.
Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686 (HL), 2 clarifications:
 C must forsee type of loss, not extent.
 Must forsee as a serious possibility (vs tort where a slight possibility sufficient)

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 Achilleus: Must not just be reasonably foreseeable, but also that one party will take
responsibility for: ‘if it is unexpected and completely out of contemplation then this
would be too harsh’
Loss is recoverable if the claimant did know or reasonably to have contemplated that type of loss as a
serious possibility at the time of contracting. This is a strict test in contract law, because the innocent
party has a chance to protect themselves, whereas in tort law they do not.
Applying Hadley
*Hadley v Baxendale (1854) 9 Ex 341
Baxendale is a courier. A shaft needed to be taken to Greenwich so that a new one can be made.
Baxendale delivered the shaft to Greenwich late, which caused several days stoppage in the mill
causing a loss of profits. Hadley claims loss of profits from Baxendale. Claim denied: Baxendale was a
general courier and couldn’t be expected to know how important the shaft was to the mill as he had not
been informed of the fact. It wouls be reasonable for Baxendale to assume that the mill had a
replacement shaft or that there were other defects in the mill that were causing it to fail. Therefore,
Baxendale couldn’t be expected to be aware of this shaft’s importance and was not liable for the loss
of profits to the mill.
*Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (KB) (distinguish
ordinary profits and exceptional profits, conflict with Koufos?)
Victoria Laundry had contracted to buy a boiler from Newman. Victoria needed the boiler immediately
and Newman need this. Newman deliver the boiler 5 months late. Victoria wishes to claim for loss of
profits because of this delay. Court of Appeal held that Newman were liable for costs. The factor that
differentiates this from the Baxendale case is that Newman had specific expertise in making boilers
and therefore reasonably they should have known of its importance to Victoria.
Victoria had entered into lucrative contracts with the MoD to wash uniforms. These contracts were not
fulfilled due to the boiler not being delivered on time. Are Newman liable for the losses of these
supplimentay contracts aswell? Court held to the contrary because of the fact the Newman were not
informed of these additional contracts. They were merely liable for the day-to-day profits of the
laundry company. It is arguable that this is incompatible with the Koufos case, because that case states
that only the type of loss needs to be foreseeable, not the extent. Where as in this case the additional
loss is not accounted for despite it being of the same type of damage.
This case is criticised because the precedent states that one party should be able to foresee the type of
loss, but not necessarily the extent of the loss. Here the day-to-day profits are the same type of losses
as the contract with the MoD, but to a greater extent
Brown v KMR Services Ltd [1995] 4 ALL ER 598 (CA)
Check out the Achilleus case in detail – interesting points raised