BetterLawNotes-5 (2)

CONTRACT LAW

‘The general principle of English law is that damages must be assessed as at the date when the damage occurs, which is usually the same day as the cause of action arises, but may be later . . .’1

Philips v Ward [1956] 1 All ER 874, 876 (Denning LJ).

Generally, the loss suffered by C is to be assessed as at the date of D’s breach of contract. This means that the court’s assessment of the position C would have been in had the contract been performed is notionally carried out as at the date of the breach. On this basis, the court ignores events which happened after the date of the breach even though in fact such events would have affected the position in which C would have ended up. But this rule is not absolute as the House of Lords made clear in the Golden Victory.

Golden Straight Corporation v Nippon Yusen Kubishka Kaisha, The Golden Victory [2007] UKHL 12

In 1998 C chartered its vessel, the Golden Victory, to D for a period of seven years expiring in December 2005. Clause 33 of the charterparty provided that either party could cancel the charter if war broke out between certain countries. In 2001 D repudiated the charter by re-delivering the vessel. C accepted the repudiation as bringing the charterparty to an end. Its claim for damages was referred to arbitration. In March 2003, before the arbitration had been completed, the Second Gulf War broke out. The arbitrator found that had the charterparty remained in existence, D would have cancelled it on the outbreak of the war. The House of Lords had to decide whether C could claim damages for loss of hire for the remainder of the original term (ie to December 2005), or whether, as D claimed, damages could only be claimed for the period from the repudiation to the date on which D would have cancelled (ie to March 2003). The House of Lords held, by a bare majority, that damages could only be awarded for loss of hire for the period to March 2003.

Lord Scott (with whom Lord Brown and Lord Carswell agreed):
[32] ‘. . . The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always . . . If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result.’

[36] ‘. . . The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more.’

[37] ‘. . . On the facts of the present case . . . the contract contained clause 33 and would not have required any performance by the charterers after March 2003. It should follow that, in principle, the owners, the injured party, are not entitled to any damages in respect of the period thereafter. As at the date of the owners’ acceptance of the charterers’ repudiation of the charterparty, the proposition that what at that date the owners had lost was a charterparty with slightly less than four years to run requires qualification. The charterparty contained clause 33. The owners had lost a charterparty which contained a provision that would enable the charterers to terminate the charterparty if a certain event happened. The event did happen. It happened before the damages had been assessed. It was accepted . . . that the owners’ charterparty rights would not, in practice, have been marketable for a capital sum. The contractual benefit of the charterparty to the owners, the benefit of which they were deprived by the repudiatory breach, was the right to receive the hire rate during the currency of the charterparty. The termination of the charterparty under clause 33 would necessarily have brought to an end that right.’

Bunge SA v Nidera BV [2015] UKSC 43

In June 2010 C agreed to buy 25,000 tonnes of Russian milling wheat from D. Delivery was to take place between 23 and 30 August 2010. The contract provided for a right of cancellation in the event of an export ban. On 5 August the Russian government announced an embargo on the export of wheat to run from 15 August to 31 December 2010. On 9 August, D purported to cancel the contract. C treated the cancellation as a repudiatory breach which it accepted on 11 August as bringing the contract to an end. In due course, the embargo came into force, and it was common ground that the contract would have been lawfully cancelled before the time for delivery. Notwithstanding that C had not actually purchased any substitute grain from an alternative source, it claimed damages of some $3m, based on the difference between the contract price and the market price as at 11 August. The arbitration panel held that D’s purported cancellation had been a wrongful repudiation as at that time there had still been a possibility that the embargo would be lifted enabling the contract to be performed. However, the panel declined to award substantial damages on the ground that the embargo was not in fact lifted and performance of the contract would not have been possible. The arbitration board of appeal allowed C’s appeal and awarded substantial damages based on the difference between the contract and the market prices as at 11 August. Hamblen J dismissed D’s appeal and the Court of Appeal held that the judge had been right to do so. The Supreme Court, however, allowed D’s appeal and held that C was only entitled to an award of nominal damages: C had lost nothing as a result of D’s repudiation as C had chosen not to enter the market to replace the goods.

In both these cases, the effect of departing from the breach date rule has to been to reduce or bar C’s claim for compensatory damages. In other cases, disapplying the rule has the opposite effect.

Hooper v Oates [2013] EWCA Civ 91

The Cs agreed in 2008 to sell their house to D for £605,000. D, in breach of contract, failed to complete on the agreed date and the Cs accepted D’s repudiation as bringing the contract to an end. The Cs subsequently tried to find another buyer and, in the meantime, rented out the property. In 2011 the Cs took the house off the market and moved back in. The Cs claimed damages from D. Evidence indicated that the market value of the house was £600,000 at the time of the scheduled completion in 2008 and £495,000 as at September 2010. The Court of Appeal held that the judge had been right to award the sum of £110,000 in damages.

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