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COST OF CURE DAMAGES AND THE RELEVANCE OF THE INJURED PROMISEE'S INTENTION TO CURE

Published online by Cambridge University Press:  17 November 2017

Solène Rowan
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Abstract

The article focuses on whether, when considering whether to award cost of cure damages, the courts take account of what the injured promisee to a breach of contract does, or intends to do, with his damages award, and whether or not they should take account of it. This issue has given rise to divergent approaches and some confusion in the cases. The article seeks to shed new light on the issue and considers possible ways of resolving the confusion.

Keywords

breach of contractcompensatory damagescost of cure damagesintention to curerecoverable loss
Type
Articles
Information
The Cambridge Law Journal , Volume 76 , Issue 3 , November 2017 , pp. 616 - 641
Copyright
Copyright © Cambridge Law Journal and Contributors 2017 

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Footnotes

*

Associate Professor in Law, London School of Economics.

I would like to thank Gregg Rowan, the Editor of the Cambridge Law Journal and the anonymous reviewers for their comments and suggestions on an earlier draft.

References

1 Robinson v Harmann (1848) 1 Ex 850; 154 E.R. 363 Google Scholar.

2 The promisee's intention is irrelevant to the other main measure of compensatory damages, the “difference in value measure”, which compensates the difference between the value of the promised performance and the performance actually rendered.

3 Ruxley Electronics & Construction Ltd. v Forsyth [1996] A.C. 344, 359, per Lord Jauncey; Darlington Borough Council v Wiltshier Northern Ltd. [1995] 1 W.L.R. 68 (CA)Google Scholar, 80, per Steyn L.J.

4 Damages awards must be unconditional: Banbury v Bank of Montreal [1918] A.C. 626; Patel v Hooper & Jackson [1999] 1 W.L.R. 1792, 1800Google Scholar, per Nourse L.J.; Scullion v Bank of Scotland plc [2010] EWHC 2253, at [68]–[80]; Andrews, N., Clarke, M., Tettenborn, A. and Virgo, G., Contractual Duties: Performance, Breach, Termination and Remedies (London 2012), [21-103]–[21-105]Google Scholar. For inroads into this principle, mainly in personal injury and wrongful death cases, see McGregor, H., McGregor on Damages, 19th ed. (London 2014), [38-004]–[38-012], [50-046]Google Scholar.

5 Burrows, A., Remedies for Torts and Breach of Contract, 2nd ed. (Oxford 2004), 222 Google Scholar.

6 Ibid., at p.183.

7 Patel [1999] 1 W.L.R. 1792, 1800, per Nourse L.J.

8 It is the subjective intention of the promisee that is relevant: Beale, H. (ed.), Chitty on Contracts, 32nd edn. (London 2015), [26–036]Google Scholar; Latimer v Carney [2006] EWCA Civ 1417, at [24], per Arden L.J.

9 Dean v Ainley [1987] 1 W.L.R. 1729, 1735, per Glidewell L.J.; Dodd Properties (Kent) v Canterbury City Council [1980] 1 W.L.R. 433, 457Google Scholar, per Donaldson L.J.

10 For a more detailed review of these three cases and the issues that they raise in this context, see Burrows, Remedies, p. 222.

11 Tito v Waddell (No. 2) [1977] Ch. 106.

12 Ibid., at p. 327.

13 Ibid., at pp. 332–33.

14 Radford v De Froberville [1977] 1 W.L.R. 1262.

15 Ibid., at p. 1283. See also East Ham Corporation v Bernard Sunely & Sons [1966] A.C. 406, 434.

16 Ibid., at pp. 1268, 1284.

17 Ibid., at p. 1270.

18 Ruxley Electronics & Construction Ltd. [1996] A.C. 344 (HL).

19 Ibid., at p. 373, per Lord Lloyd.

20 Staughton L.J. in Ruxley Electronics [1994] 1 W.L.R. (CA) 650, 656, also considered intention as separate from the requirement of reasonableness.

21 O'Sullivan, J., “Loss and Gain at Greater Depth: The Implications of the Ruxley Decision” in Rose, F. (ed.), Failure of Contracts, Contractual Restitutionary and Proprietary Consequences (Oxford 1997), 1, 9Google Scholar.

22 See the judgments of Lord Bridge, Lord Keith and Lord Mustill which focus only on reasonableness without any mention of the promisee's intention.

23 At p. 359.

24 E.g. Bovis Lend Lease Ltd. (formerly Bovis Construction Limited) v RD Fire Protection Limited 2003 WL 21917429; Birse Construction Ltd. v Eastern Telegraph Company Ltd. [2004] EWCA 2512; London Fire and Emergency Planning Authority v Halcrow Gilbert Associates Ltd. [2007] EWHC 2546.

25 Unless the doctrine of mitigation requires the injured promisee to cure the breach.

26 Tito v Waddell (No 2) [1977] Ch. 106, pp. 332–33.

27 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 373.

28 Ibid., at pp. 332–33.

29 Radford [1977] 1 W.L.R. 1262, 1270Google Scholar, per Oliver J.; Harris, D., Phillips, J. and Ogus, A., “Contract Remedies and the Consumer Surplus” (1979) 95 L.Q.R. 581, at 586Google Scholar. For criticism of this argument, see B. Coote, “Contract Damages, Ruxley, and the Performance Interest” [1997] C.L.J. 537, at 548–49, 561.

30 E.g. see the judgment of Lord Jauncey.

31 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 353, per Lord Bridge and 373, per Lord Lloyd; McKendrick, E., “The Common Law at Work: The Saga of Alfred McAlpine Construction Ltd. v Panatown Ltd. ” (2003) 3 O.U.C.L.J. 145, at 174Google Scholar.

32 Ruxley Electronics [1994] 1 W.L.R. 650 (CA), 656–57.

33 Darlington Borough Council [1995] 1 W.L.R. 68 (CA), 75–76, per Dillon L.J. and 80, per Steyn L.J.; Dean [1987] 1 W.L.R. 1729, 1737–38, per Kerr L.J. See however Glidewell L.J. at 1735, who thought that intention was necessary; Sir George Waller at 1738 was undecided on this issue.

34 For other areas in which intention is not taken into account, see Coote, “Contract Damages”, pp. 560–63.

35 Darlington Borough Council [1995] 1 W.L.R. 68 (CA).

36 At p. 97.

37 The courts have sometimes felt uneasy with the “abstract” measure of damages that is the market rule and have declined to apply it: see Sealace Shipping Co. Ltd. v Oceanvoice Ltd. (The Alecos M) [1991] 1 Lloyd's Rep. 120. See also the different approaches in Bence Graphics International Ltd. v Fason UK Ltd. [1998] Q.B. 87 and Slater v Hoyle & Smith Ltd. [1920] 2 K.B. 11.

38 See the Sale of Goods Act 1979, ss. 50(3), 51(3), 53(3).

39 Bridge, M., The Sale of Goods (Oxford 2014), [12.57]Google Scholar.

40 Bridge, M., “The Market Rule of Damages Assessment” in Saidov, D. and Cunnington, R. (eds.), Contract Damages: Domestic and International Perspectives (Oxford 2008), 431, 433–34Google Scholar. Agreeing with this approach: Winterton, D., Money Awards in Contract Law (Oxford 2015), 196–97Google Scholar. See also Bridge, M., “Market and Damages in Sale of Goods Cases” (2016) 132 L.Q.R. 405 Google Scholar and his reply to the analysis in Dyson, A. and Kramer, A., “There Is No ‘Breach Date’ Rule: Mitigation, Difference in Value and Date of Assessment” (2014) 130 L.Q.R. 259 Google Scholar.

41 Bridge (note 40 above).

42 Ibid., at pp. 436–39.

43 Ibid., at pp. 454–55.

44 Ibid., at pp. 448–55; Coote, “Contract Damages”, p. 562, shows that this rule enforces the performance interest.

45 Linden Gardens [1994] 1 A.C. 85.

46 Nor could any tortious liability be established by reason of the rule that pure economic loss is generally irrecoverable in tort: Murphy v Brentwood District Council [1991] 1 A.C. 398.

47 GUS Property Management Ltd. v Littlewoods Mail Order Stores Ltd. 1982 S.L.T. 533, 538, per Lord Keith.

48 Dunlop v Lambert (1839) 6 Cl. & F. 600; The Albazero [1977] A.C. 774.

49 Linden Gardens [1994] 1 A.C. 85, 97.

50 Ibid., at p. 98.

51 This analysis seems to have been shared by Lord Keith in Linden Gardens. He said at p. 95: “There is much force in the analysis that the party who contracted for the works to be done has suffered loss because he did not receive the performance he had bargained for and in order to remedy that has been required to pay for the defects to be put right by another builder.”

52 This is what Lord Clyde called the “first formulation” of Lord Griffiths's approach: Alfred McAlpine [2001] 1 A.C. 518, 533.

53 See the speeches of Lord Clyde and Lord Jauncey in Alfred McAlpine [2001] 1 A.C. 518; Beale, Chitty on Contracts, paras. [18-063], [18-066]–[18-067].

54 Alfred McAlpine [2001] 1 A.C. 518.

55 Ibid., at pp. 533ff., per Lord Clyde and 571–74, per Lord Jauncey.

56 Beale, Chitty on Contracts, at para. [18-063].

57 Darlington Borough Council [1995] 1 W.L.R. 68 (CA).

58 Ibid., at p. 97, per Steyn L.J.

59 Alfred McAlpine [2001] 1 A.C. 518.

60 Ibid., at pp. 547–48, per Lord Goff and 587–90, per Lord Millett.

61 Ibid.

62 Ibid., at pp. 546–47, 556, per Lord Goff and 592, per Lord Millett. For a criticism of this approach, see Beale, Chitty on Contracts, at para. [18-066].

63 For a discussion of the protection the performance interest, see e.g. Coote, “Contract Damages”; Webb, C., “Performance and Compensation: An Analysis of Contract Damages and Contractual Obligation” (2006) 26 O.J.L.S. 41 Google Scholar. For a comparative perspective on this issue, see Rowan, S., Remedies for Breach of Contract: A Comparative Analysis of the Protection of Performance (Oxford 2012)Google Scholar.

64 See the judgments of Lord Clyde and Lord Jauncey in Alfred McAlpine [2001] 1 A.C. 518.

65 See the judgments of Lord Goff and Lord Millett in ibid.

66 Giedo van der Garde BV v Force India Formula One Team Ltd. (formerly Spyker F1 Team Ltd. (England)) [2010] EWHC 2373.

67 The claimants also sought the return of $2 million on the basis of total failure of consideration and, in the alternative, “Wrotham Park damages”.

68 At paras. [457]ff.

69 At para. [478].

70 De Beers UK Ltd. (formerly Diamond Trading Co Ltd.) v Atos Origin IT Services UK Ltd. [2010] EWHC 3276 (TCC); [2011] B.L.R. 274; 134 Con. L.R. 151; [2010] Info. T.L.R. 448.

71 Ibid., at para. [345].

72 Giedo van der Garde BV [2010] EWHC 2373, paras. [474]–[485].

73 At [18-066]–[18-068].

74 Kramer, A., The Law of Contract Damages (Oxford 2014), 133 Google Scholar, criticises the decision for this very reason.

75 See earlier the paragraph entitled “Justifications for taking account of the promisee's intention to cure”.

76 Some commentators have argued that cost of cure damages should not be seen as compensatory but rather substitutionary: e.g. Smith, S., “Substitutionary Damages” in Rickett, C. (ed.), Justifying Private Law Remedies (Oxford 2009), 93 Google Scholar; Winterton, Money Awards in Contract Law. The currently prevailing position in English law is that financial loss is the touchstone of damages liability, and it is on that basis that the paper proceeds.

77 London Fire and Emergency Planning Authority [2007] EWHC 2546.

78 See also Nordic Holdings Ltd. v Mott MacDonald Ltd. (2001) 77 Con. L.R. 88 Google Scholar; GW Atkins Ltd. v Scott (1991) 7 Const. L.J. 215 Google Scholar; Minscombe Properties Ltd. v Sir Alfred McAlpine (1986) [1986] 2 EGLR 15 Google Scholar; Wigsell v School for the Indigent Blind Corp. (1881–82) L.R. 8 Q.B.D. 357; Imodco Ltd. v Wimpey Major Projects Ltd. Taylor Woodrow International Ltd. (1987) 40 B.L.R. 1 Google Scholar.

79 Burrows, Remedies, p. 223; Harris et al., “Contract Remedies”, p. 582.

80 E.g. Dean [1987] 1 W.L.R. 1729, 1737–38, per Kerr L.J.; Coote, “Contract Damages”, p. 562. Not everyone accepts that this tension exists. For instance, Burrows, Remedies, p. 222, sees this as a misleading objection because the courts commonly have to assess the likely future costs of the claimant on the basis that damages will cover these costs.

81 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 359.

82 Coote, “Contract Damages”, p. 563.

83 Bellgrove v Eldridge (1954) 90 C.L.R. 613 Google Scholar.

84 Ibid., at p. 616.

85 De Cesare v Deluxe Motors Pty Ltd . (1996) 67 S.A.S.R. 28 Google Scholar.

86 Ibid., at p. 30.

87 Unique Building Property Ltd. v Brown [2010] S.A.S.C. 106.

88 Ibid., at para. [94]; However, it has been argued that, in very exceptional circumstances, Bellgrove will be displaced “if there are supervening circumstances that show with substantial certainty” that the rectification will not happen: see Scott Carver Pty Ltd. v SAS Trustee Corp. [2005] NSWCA 462, at [44], per Hodgson J.A.; Central Coast Leagues Ltd. v Gosford City Council (unreported, Supreme Court, NSW, Giles C.J. at CL, 9 June 1998); Westpoint Management Ltd. v Chocolate Factory Apartments Ltd. [2007] NSWCA 253.

89 De Cesare (1996) 67 S.A.S.R. 28.

90 Director of War Service Homes v Harris (1968) Q.R. 275.

91 Whether the test of reasonableness is the same as the test applied in the context of mitigation is a point of disagreement. Oliver, J. in Radford [1977] 1 W.L.R. 1262, 1284Google Scholar, thought that whether it is reasonable for the promisee to incur the cost of reinstatement was “[a question] of mitigation”. This view is shared by a number of commentators: Kramer, The Law of Contract Damages, pp. 119ff.; Burrows, Remedies, pp. 219ff. Contra Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 369–70, per Lord Lloyd. Regardless of whether the tests are identical, they share the same objective, which is not to overburden the defaulting promisor with losses that he has not caused.

92 G. McMeel, “Common Sense on Cost of Cure” [1995] L.M.C.L.Q. 456, at 458–59; Loke, A., “Cost of Cure or Difference in Value: Towards a Sound Choice in the Basis for Quantifying Expectation Damages” (1996) 10 J.C.L. 189 Google Scholar.

93 Radford [1977] 1 W.L.R. 1262, 1270, per Oliver J.

94 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 353, per Lord Keith and 367, 369, per Lord Lloyd.

95 Ibid., at pp. 357–58, per Lord Jauncey; Imodco Ltd. (1987) 40 B.L.R. 1 Google Scholar.

96 Dean [1987] 1 W.L.R. 1729, 1735, per Glidewell L.J.

97 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 358, per Lord Jauncey.

98 Ibid, at pp. 361–60.

99 Ibid, at p. 358, per Lord Jauncey; Radford [1977] 1 W.L.R. 1262, 1270Google Scholar, per Oliver J.

100 Ibid.; see also Channel Island Ferries Ltd. v Cenargo Navigation Ltd. [1994] 2 Lloyd's Rep 161, 166–67Google Scholar, per Philips J.; GW Atkins Ltd. (1991) 7 Const. L.J. 215, 221–22Google Scholar, per Ackner L.J.

101 Coote, “Contract Damages”, p. 559.

102 Ruxley Electronics [1994] 1 W.L.R. (CA) 650, 652Google Scholar, per Staughton L.J.

103 Radford [1977] 1 W.L.R. 1262, 1269Google Scholar.

104 Tito [1977] Ch. 106, 333.

105 Nordic Holdings Ltd. (2001) 77 Con. L.R. 88, at [106]Google Scholar; London Fire and Emergency Planning Authority [2007] EWHC 2546, at [633]ff.

106 Ibid; Birse Construction Ltd. [2007] EWHC 2546, at [52].

107 London Fire and Emergency Planning Authority [2007] EWHC 2546, at [633]ff.; Nordic Holdings Ltd. (2001) 77 Con. L.R. 88 Google Scholar, at [107].

108 Ward v Cannock Chase District Council [1986] Ch. 546, 577 (tort).

109 Nordic Holdings Ltd. (2001) 77 Con. L.R. 88, at [106]Google Scholar.

110 London Fire and Emergency Planning Authority [2007] EWHC 2546, at [633]ff.

111 Dublin Corp. v Building and Allied Trade Union [1996] 2 I.L.R.M. 547 Google Scholar; O'Dell, E., “Restitution and Res Judicata in the Irish Supreme Court” (1997) 113 L.Q.R. 245 Google Scholar.

112 Dublin Corp. [1996] 2 I.L.R.M. 547, 556.

113 Possibly on the basis of unjust enrichment: ibid.

114 Unless the money is held on trust (eg a Quistclose type of trust, see Barclays Bank v Quistclose Investments Ltd. [1970] A.C. 567)) or put into an escrow account pending the promisee curing the breach.

115 Proposed by Webb, “Performance and Compensation”.

116 Zuckerman, A., Civil Procedure (London 2003)Google Scholar, [22.74]–[22.91].

117 Tito [1977] Ch. 106, 333.

118 Radford [1977] 1 W.L.R. 1262, 1284, per Oliver J.; see also Dean [1987] 1 W.L.R. 1729, 1735Google Scholar, per Glidewell L.J.

119 Ruxley Electronics & Construction Ltd. [1996] A.C. 344, 373, per Lord Lloyd. See also Scullion [2010] EWHC 2253, at [68]–[80]: the courts have no jurisdiction to extract an undertaking from the promisee to compel him to spend his damages award in a particular way.

120 Burrows, Remedies, p. 220; McKendrick, “Breach of Contract and the Meaning of Loss”, p. 50. For arguments in favour of enforcing such undertakings, see A. Phang, “Subjectivity, Objectivity and Policy: Contractual Damages in the House of Lords” [1996] J.B.L. 362.

121 Zuckerman, Civil Procedure, para. [22.89].