BetterLawNotes-5 (2)

CONTRACT LAW

The amount of expectation damages awarded in any case represents in effect the monetary difference between two positions – C’s actual position following the breach and the position C would have been in had the contract been performed. As we’ll see, there are different ways of calculating this difference.

One measure is the cost of cure – how much will it cost to rectify the breach? Suppose that C buys a car from a dealer, D. The car has a leaky roof. This is a breach of D’s obligation to supply a car of satisfactory quality. If it would cost £500 to repair the roof, we can say that the amount of damages to which C is entitled is £500, being the cost of cure.

The other principal measure is difference in value – how much less is the relevant thing actually worth compared with what it would have been worth had the contract been performed? C buys a car from D which D warrants to have a 3.0 litre engine. In fact, the car has a 2.0 litre engine. Had it had a 3.0 litre engine, it would be worth £12,000. As it is, the car is worth £10,000. On this basis, we can say that C’s damages should be £2,000 being the difference between what the car is worth and what it should have been worth.

The existence of two different measures prompts the question: which will the court adopt in any given case?

Radford v De Froberville [1977] 1 WLR 1262 (Ch)

D sold land to T, having failed to perform a covenant made with C to build a wall on the land along its boundary with C’s land. The court held that C was entitled to the cost of building the wall, irrespective of whether the wall would increase the value of his land.

Contrast the Radford case with the following cases:

Ruxley Electronics & Construction Ltd v Forsyth [1996] 1 AC 344 (HL)

D undertook to build a swimming pool for C but failed to construct the pool to the depth specified in the contract. The trial judge found that the pool as constructed was perfectly safe and that the shortfall in depth did not adversely affect its value. Further, the judge found that the only way of remedying the defect was to re-construct the pool from scratch at a cost of £21,560 and that such cost would be wholly disproportionate to any benefit attained by having the additional depth. Accordingly, C’s damages were limited to £2,500, being the loss of amenity value. The Court of Appeal held that C was entitled to recoup the re-instatement cost, but the House of Lords restored the trial judge’s award.

Bacciottini v Gotelee & Goldsmith [2016] EWCA 170

The Cs paid £600,000 for a residential property which they intended to develop. At the time of the purchase the property was subject to a planning restriction which would have precluded the intended development. The Cs’ solicitors, the Ds, negligently failed to advise the Cs of the existence of the restriction. Evidence indicated that at the time of the purchase the property was worth £450,000 but that it would have been worth £550,000 had it not been subject to the planning restriction. Subsequently the Cs applied to the local authority and procured the removal of the restriction. The Court of Appeal held that the judge had been correct to limit the damages for which the Ds were liable to £250, being the cost of obtaining the removal of the restriction.

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