‘The general principle is that compensation is only awarded for financial loss resulting from the breach of contract.’
Farley v Skinner [2001] UKHL 49 (Lord Steyn)
Pecuniary loss is a financial loss which can be translated into money terms. Hence damage to property is pecuniary loss – the damage may be measured by the financial cost of repair or replacement. Non-pecuniary loss is loss that cannot measured in money terms, such as pain, suffering, distress, disappointment, frustration, angst, irritation and annoyance.
C was dismissed from his post as manager by D in breach of contract. C claimed damages for the distressing manner in which he was dismissed. The House of Lords held that D was not liable for such a claim.
Notwithstanding Lord Steyn’s statement and the Addis case, damages for non-pecuniary loss may be recoverable in a breach of contract claim. First, it is clear that damages for pain and suffering and loss of amenity may be recovered where the breach of contract has caused personal injury (see, eg, Godley v Perry [1960] 1 WLR 9). This extends to mental suffering which is directly related to physical inconvenience and discomfort which is caused by the breach of contract (Watts v Morrow [1991] 1 WLR 1421). Second, the courts have recognised an ‘exceptional category’ of cases where non-pecuniary gain, such as pleasure, or the avoidance of non-pecuniary loss, such as mental distress, was an important object of the contract.
C booked a skiing holiday in Switzerland, relying on the description contained in D’s brochure. The holiday did not live up to that description. The Court of Appeal held that C was entitled to damages, inter alia, of £60 for the disappointment suffered.
‘In a proper case damages for mental distress can be recovered in contract, just as damages for shock can be recovered in tort. One such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach.’ (Lord Denning MR)
The leading case is now Farley v Skinner.
F was considering buying a certain house and instructed S to carry out a survey. In breach of contract S failed to report that the property was adversely affected by aircraft noise. The judge found that the price paid by F for the property matched its actual market value. However, he awarded F £10,000 as damages for distress and inconvenience. This was upheld by the House of Lords on the basis that F’s claim fell into both of the categories where damages for non-pecuniary loss could be awarded.
‘there is no reason in principle or policy why the scope of recovery in the exceptional category should depend on the object of the contract as ascertained from all its constituent parts. It is sufficient if a major or important object of the contract is to give pleasure, relaxation or peace of mind.’ (Lord Steyn).
Farley v Skinner was applied in Milner v Carnival.
The Cs paid D some £59,000 for the cruise of a lifetime. The cruise was to last for 106 days but after 28 days the Cs left the ship, stressed and exhausted. Having obtained a refund of some £48,000, the Cs claimed damages for breach of contract. The trial judge awarded the Cs £5,000 for the diminution in value of the cruise, £15,000 for distress and disappointment and £2,000 for the wasted expenditure incurred in buying clothing. The Court of Appeal reduced the award for diminution in value to £3,500 and the award for distress and disappointment to £8,500. The Court of Appeal further held that the judge had been wrong to make any award for the wasted expenditure.
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