Business Law Tutorial 9, Group 10

a) Issue: What kind of losses, and how much can Jabber claim from Sherman?

General Law: Injured party (Jabber) will always have the right to claim damages from the loss
resulting from a breach of contract. General rule for the amount of losses to be claimed: Injured
party to be placed in the same financial position he would be in if the contract had been properly
performed: Wee Poh Hueh Florence v Performance Motors Ltd (2004)

There is a breach of contract by Sherman, as there is a breach of condition when Sherman

failed to deliver the abalone on 1 February (the stipulated date). Jabber is thus entitled to claim
for damages from Sherman.

(if there is a need to prove that Jabber can repudiate the contract, which isnt required for this
question):
It is a condition using the officious bystander test as it is common industry knowledge that restaurants
need abalone during Chinese New Year, breach is thus a repudiatory breach according to situation 3(a) in
the ratio decidendi of RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007).

Furthermore, the breach is a fundamental breach as the lack of abalone caused Jabber to be deprived of
substantially the whole benefit which was intended for him to obtain from the contract. By the HongKong
Fir approach, it is a repudiatory breach regardless whether the term is a condition/warranty/innominate
term: RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007)

Potential Claims
Claims 1- 3 are expectation losses, which are the loss of benefits injured party would expect to
received out of the contract.
Claim 1: loss arising from usual course of business naturally from breach (decrease in 40% of
monthly average sales)
Claim 2: profit loss during festive season (60% decrease in sales for CNY month)
Claim 3: loss of potential major client (prepared to pay 3 times the usual price)
Claim 4: Non-pecuniary loss: loss of reputation of Jabber amongst his clients & clients
reputation (reputable Chinese restaurants)

Assessment of damages
1. Mitigation to minimise loss
Mitigation Principle: Plaintiff is obliged to minimise his loss and is required to take all reasonable
steps available to mitigate his loss.
Reasonable action is taken by Jabber as he tried to look to other sources but he did not manage
to buy any abalone because of the limited supply of these superior Grade A abalone.
Melachrino v Nicholl & Knight (1920): Amount of damages awarded would be the mitigated loss,
the cost of mitigation as well as the unintended loss caused by taking reasonable actions to
mitigate his loss.

2. Causation in Fact

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Issue: Is Jabbers loss caused by Shermans breach of contract?

Applying the but for test in Irawan Darsona & Another v Ong Soon Kiat (2002),
For Claim 1 & Claim 2 : If not for Shermans failure to deliver on 1 February, Jabber would not
have failed to meet the usual demand for abalone and the extra demand for abalone during the
CNY season, making him suffer loss of potential income that could have been earned if not for
Sherman, hence theres causation.
Claim 3: There is difficulty in ascertaining causation here. There is only a prospect of a contract
with Jaws, which means regardless of Sherman delay, Jaw may end up not buying from Jabber.
Therefore,there is no causation.
Counter: However, we can show that there is substantial chance that Jaws would have bought if
Jabber had the abalone at the point in time. Hence there is causation
Claim 4: No causation because reputation loss could be caused by other factors other than
abalone supply issues.

3. Remoteness of Loss

Claims 1&2 : Normal loss (head 1) arising from festive CNY season (decrease in 60% of sales)
and monthly fall in sales.
Imputed knowledge of loss following breach of contract by Sherman, loss is thus recoverable
Sherman is an importer of abalone, hence he is presumed to have the knowledge of the low
supply and high demand during the festive season (common industry knowledge).
Furthermore, abalones are perishable goods, Jabber should not be expected to have an
inventory of abalones.
Hence he would have the knowledge that Jabber would suffer a loss of profit without abalones
(since it would be hard to source from others) and Jabber can recover his loss of decrease in
60% of sales: Victoria Laundry (Windsor) Ltd v Newman Industries (1949)

Claim 3: Abnormal loss (head 2) arising from tycoons request (20kg at 3 times the price) cant
be recovered
Sherman does not have actual knowledge of this unusual loss at the time of the contract since
Jabber did not convey this information to him. The sales to the tycoon does not arise from the
usual course of Jabbers business, applying the ratio in Hadley v Baxendale (1854), Sherman is
unlikely to be liable for the loss of lost sales from tycoon as it is too remote.

4. Non-pecuniary loss of loss of reputation cannot be recovered.

Addis v Gramaphone (1918): Non-pecuniary loss is irrecoverable regardless whether it is within
reasonable contemplation of both parties.
Entities entering commercial agreements are expected to be resilient in a reputational loss.
Hence, no pecuniary benefits is expected.
Loss of reputation by his clients will be too remote and not recoverable.

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Conclusion
Jabber is likely able to claim for loss of profits (decrease in 60% of sales during festive CNY
season - cost price)
He will be unable to claim for both loss of profits resulting from decrease in 60% of sales and
decrease in 40% of sales as double recovery is not permitted.

b) Clause 11: Sherman agrees to pay Jabber the sum of $50,000 in the event of any breach of
the delivery obligations under this contract.

Issue: Whether the liquidated damages clause is enforced.

General rule: liquidated damages clause will be enforceable as long as it is a genuine pre-
estimate of loss: Dunlop Pneumatic Tyres v New Garage (1915)
It will not be enforced if, in the view of the court, it amounts to a penalty imposed in terrorem (for
fear to the other party). Burden on enforcer of clause (Sherman) to prove it is genuine.

It is assumed that the losses that Jabber suffer is greater than the $50,000 stated.
Sherman would argue that the clause is a genuine pre-estimate of loss as it is the monetary
consideration involved in the contract that was breached (price of abalones).

However, Sherman may find it hard to argue that it is a genuine pre-estimate when applying the
Dunlop Pneumatic Tyres test. The stipulated amount of $50,000 can be argued as a single lump
sum payable regardless of the severity of breach, trivial or serious, since it is stated that any
breach of the delivery obligations would hold Sherman liable. If Sherman delivers 1kg short of
abalones or does not deliver any at all, he is liable to the same amount of $50,000. Hence,
clause 11 is likely a penalty.

Conclusion
If the clause is likely a penalty, Sherman can choose to either enforce the clause and recover
$50,000 or avoid the clause and sue on the basis of unliquidated damages and recover for the
damages listed in (a): Bulsing Ltd v Joon Seng & Co (1972). It ultimately depends on the actual
amount of damages incurred.

c)
Issue: Can Jabber obtain equitable remedies for the breach of contracts by both Fish and Yu
Chi?

Jabber would want to order Fish to perform the contract (employment), thus he would try to
seek equitable remedy for specific performance.
However, this is a contract for personal services of fish and it is thus not enforceable by specific
performance. Thus, it is unlikely to get Fish to work for Jabber. Jabber can however, claim
damages for the breach of contract.

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Jabber may be able to impose a negative covenant to prevent Fish for working under Yu Chi (a
competitor) as long as it does not compel a specific performance by Fish: Lumley v
Wagner(1852)

Jabber would also want to seek injunction to prevent Yu Chi from running his shop.
Restraint of Trade (ROT) clause is justifiable, hence there is a breach of ROT terms. Damages
is not adequate since the legitimate interest of Jabbers business is harmed (since Yu Chi had
set up shop in very close proximity with the same goods): Re Fineplas Holdings Pte Ltd; Sitra
Wood Products Pte Ltd v Fineplas Holdings Pte Ltd (2001).

Jabber would want to impose a mandatory injunction, compelling Yu Chi to restore a negative
covenant that had already been breached (stop his business).

Conclusion
Since damages are not adequate, it is likely that Jabber is able to impose a mandatory
injunction on Yu Chi.