RULES IN ASSESSMENT OF DAMAGES

Essentially it’s a well celebrated principle in law of contracts that when a contract is so breached the innocent party will be entitled with several remedies from the other party who breached the contract as per Section 73 (1) of the Law of Contract Act . In simple terms remedies refers to compassion be it monetary or otherwise paid to the innocent party for any loss accrued from the breach of contract. Such remedies may either be damages or the equitable remedies . 

This paper however is going to center its discussion on the damages and more important on the basic factors that courts normally consider when awarding them.

MEANING OF DAMAGES

Damages is a remedy for breach of a contractual promise, repayment of which may be specifically enforced in the court and are designed to compansate the plaintiff for the damage, loss or injury he has suffered from the breach of contract .

Lord Greene MR, in Hall Brothers SS Co. Ltd V. Young , defined the term damages thus: “the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation.”

PURPOSE OF AWARDING DAMAGES

The main purpose of awarding damages is to put the injured party as near as possible in the same position so far as money can do it, as if he had not been injured . This view is affirmed in the case of Addis v Gramophone Co. Ltd , where a court retaliated that “ I have always understood that damages for breach of contract were in the nature to compansate and not punishment”. Generally under this respect it can be construed that, the sole purpose of awarding damages is to restore the injured party to the position he would have been if the breached contract was so performed and not to punish the party so breached the contract.

TYPES OF DAMAGES

Damages for breach of contract may nominal or substantial. Nominal Damages, This is an amount awarded by the court to show that a party’s rights have been violated but no loss was occasioned or the party was unable to prove loss. Substantial Damages, This is an amount by the court as the actual loss suffered or as the amount the court is willing to recognize as direct consequences of the breach of the contract .

Parties to a contract may beforehand specify the amount payable to the innocent party in the event of breach. The sum specified may be Liquidated damages or a Penalty.

In Wallis v. Smith, it was held that liquidated damages are an amount which represents almost the actual loss occasioned and is awarded irrespective of the actual loss.  If the sum has no relation to the actual loss, but is intended to compel performance or it is a sum to be forfeited by the party in default it is regarded as a penalty. A penalty is generally extravagant it covers but does not access loss. Penalties cannot be awarded by the court, the court assess the amount payable by applying the rules of assessment of damages.

In Angela Mpanduji v. Ancilla Kilinda , it was stated that Exemplary or punitive or vindictive damages are damages given not merely as pecuniary compensation for the loss actually sustained by the plaintiff, but also as a kind of punishment of the defendant with the view of discouraging similar wrongs in future.

Other classes of damages includes, general  damages, that the law presumes  to  have resulted  from the defendant’s tort or breach of contract. They are normally damages at  large and can be nominal or substantial depending on the circumstances of each case. Special Damages are such a loss as  will not be presumed by law. They are special expenses incurred or monies actually lost .

MAINBODY

Essential Factors that courts put into consideration when awarding the damages

Remoteness of damages

In awarding the damages the court normally take into account the proximity between the injury or loss sustained and the breach and under this regard the court will more likely to award the damages when are not too remote from the breach and not otherwise .

The rule established under section 73 (2) of the Law of Contract Act , the innocent party’s loss or damage must not be too remote for a court to award the compensation. In Hadley v Baxendale , where the defendant agreed to transport the plaintiff’s broken crankshaft from the plaintiff’s mill in Gloucester to the manufacturer in Greenwich. It was a term of the contract that the crankshaft would be delivered by the following day. In breach, the defendant caused a delay in the delivery of the broken crankshaft. As a result, the plaintiff’s mill was idle for an extended period of time. In subsequent litigation, the plaintiff claimed damages for loss of profits for the period the mill was idle. The court held that the defendant was not liable for the loss of profits caused by the delay, as the damage did not directly flow from the breach of the contract. 

However the situation was different in the case of Victoria Laundry (Windsor) Ltd v Newman Industries Limited , the defendant agreed to sell the plaintiff a boiler for use in its laundry business. It was a term of the contract that the boiler be promptly delivered, as it was intended to ‘put it into use in the shortest possible space of time’. The boiler was damaged during dismantling, resulting in delivery being delayed for nearly six months. The court held that the plaintiff was entitled to recover the profits that it could have expected from increased capacity, had the boiler been operable. These damages were recoverable because the defendant knew that the plaintiff wanted the boiler for immediate use. Therefore the loss was not too remote from the breach.

From the above cases presented it can be established that, where there is no stipulation in the contract as to the payment of damages, the court will normally resort by looking whether or not the loss suffered by the plaintiff was proximate to the defendant breach.

Mitigation of Loss

The innocent party who suffers from a breach of contract must take reasonable steps to mitigate (that is, to lessen) the loss suffered. The underlying principle is that the law will  not allow recovery of losses that the innocent party could have avoided by prompt and reasonable action. However, any moneys spent in mitigating or attempting to mitigate losses are recoverable as damages .

If the party fails to mitigate its loss the amount by which loss ought to have been reduced is irrecoverable. In Harris v. Edmonds , it was held that where the charterer of a ship failed to provide cargo in breach of contract, the ship captain was bound to accept cargo from other person’s at competitive rates. Whether or not the innocent party has acted reasonably in mitigating its loss is a question of fact.  

In Musa Hassan v. Hunt and Another , the appellant had contracted to buy all the milk produced by the respondent for one year. On one occasion, the appellate refused to take delivery of the milk on the ground that it was unfit for human consumption; the respondent proved that it was fit for human consumption. After the refusal the respondent converted the milk to ghee and casein which fetched a lower price than milk. The appellant argued that the respondent had not acted reasonably in mitigating the loss. It was held that the respondent had reasonably.

Therefore in this respect the court in awarding the damages will take into consideration on whether the plaintiff has acted reasonably in mitigating the loss and the damages payable will reflect the extent to which the plaintiff has taken reasonable steps to mitigate the loss suffered.

Non-economic damages 

This can also be taken into consideration as a prominent factor that the court will take into consideration in awarding the damages especially where there is no provision in the contract. Generally, damages are not awarded to compensate for non-economic matters, such as embarrassment or distress. In Addis v Gramophone Co Ltd , the defendant (Gramophone) wrongfully dismissed the plaintiff (Addis) from his employment. The plaintiff subsequently sued for damages for wrongful dismissal. At first instance, the plaintiff received damages that included an amount for the embarrassment, humiliation and general distress suffered by the plaintiff and caused by the way in which he was dismissed. On appeal, the House of Lords set this award aside as not being the proper subject for damages.

Therefore in the above presented case the court take into consideration of economic factors in determining the payment of damages and from this case it can be construed that, the court will generally refuse to pay the damages for loss which is non-economic.

Causation 

This also constitute to another significant factor that the court will consider in awarding damages in the event where there is no provision in the contract to that effect. In  March v. MH Stamare Pty Ltd , the court stated that, ‘as a matter of ordinary common sense’, the other party’s breach must be regarded as a cause of the innocent party’s loss. If there are concurrent causes for the loss or damage, it is sufficient if the other party’s breach is a cause. However, if the loss or damage is caused by factors for which the other party is not responsible, the causation connection will not be established.  

In  Alexander v Cambridge Credit Corporation , the defendants (Alexander and others), who were the plaintiff’s (Cambridge’s) auditors, allegedly breached their service contract by performing their services negligently. Despite their alleged breach, the defendants were held not responsible for the subsequent financial losses suffered by the plaintiff. The court was satisfied that the losses were  caused by a substantial downturn in the property market, and the decision of the plaintiff to expand its operations during unfavorable economic conditions. 

From the above facts it can therefore be construed that, in awarding the damages the court will take into consideration on whether or not the plaintiff loss was actually caused by defendant and  causation is a question of fact, not law and is normally determined by but for’ test. In other words, would the plaintiff’s loss have occurred but for the defendant’s breach of the contract?.

CONCLUSION

Generally, the court do take into consideration a number of intricate factors when awarding damages and these factors largely determining on whether the injured patty will be awarded the damages or the court will generally refuse to award the damages.