Task5.3 Explain the rules relating to the award of damages

Task 5-3Explain the rules relating to the award of damagesExplain the rules relating to the award of damagesExplain the rules relating to the award of damages1.Definition of DamagesDamages are a common law remedy. They are available as of right forbreach of contract.Damages are intended to be compensatory not punitive.Explain the rules relating to the award of damages 2. Remoteness of damageFirst and Second RulesHadley v BaxendaleVictoria Laundry v Newman IndustriesExplain the rules relating to the award of damages 3. Measure of damagesThe awarding of damages is said to be compensatory in nature, in line with the ‘Doctrine of Restitution’. The aim is to put the parties in the position they would have been had the breach of contract not been performed, otherwise known as ‘expectation interest’.In certain circumstances the innocent party may wish to sue for the costs and lost profits incurred due to breach of contract, and this is known as‘reliance interest’ per Anglia Television v Reed (4).Explain the rules relating to the award of damagesWhen awarding the monetary amount the courts will consider the following rules: a)Only actual financial losses may be recovered. Where a breach resultsin no loss nominal damages may be awarded, generally fixed at £2b)The market rulec)Non-financial losses may be claimed where the contract is one for theprovision of enjoyment Jarvis v Swan or where the cost of restitutionis too highRuxley Electronics v Forsythd)The injured party must take all reasonable steps to mitigate theirlossesExplain the rules relating to the award of damages4.Liquidated damagesIt is not uncommon for parties, between them in contract, to agree compensation for breach of contract in advance. Such agreements are known as ‘liquidated damages’ clauses. The courts will only uphold these where these are felt to be ‘a genuine pre-estimate of the loss’, as opposed to a penalty for breach.Explain the rules relating to the award of damages Liquidated damages and penalty clauses•Where a contract provides for the payment of a fixed sum on breach, itmay either be a liquidated damages clause or a penalty clause. •Liquidated damages are a genuine pre-estimate of the expected loss. The amount stated is the amount of damages claimable. The clause is enforceable by the court.•A penalty clause threatens large damages for breach. The amount is often very large in relation to the expected loss. It is unenforceable.Explain the rules relating to the award of damages •The stipulated sum is extravagant in comparison with the maximumloss that could be incurred.•The same sum is payable in respect of one or more breaches, bothtrifling and serious.•The sum stipulated is larger than the amount which would actuallybe payable if the contract were performed.Explain the rules relating to the award of damages •Where the contract does not make any provision for damages, the court will determine the damages payable. These are known as unliquidated damages. •There are two factors to consider in determining the amount of unliquidated damages.•Remoteness of loss (i.e. what losses can be claimed for?) and•Measure of damages (i.e. how much are those losses worth?)Lecture Example 1John went on a holiday booked with "Supersavers Travel". He paid £500 for an all inclusive seven night holiday in Cyprus. The hotel was specified to be 3*, what really attracted John to the holiday was the inclusion of a free introduction to scuba diving course worth £150.When John arrived at the hotel he discovered that the hotel really was only 1* and had few of the facilities described in the brochure. It also only provided two meals a day instead of three and did not run the promised scuba diving course. John spent extra money on food and the diving course whilst away.RequiredAdvise him whether a breach of contract occurred and if it did what can be recovered by way of damages.Lecture Example 2Az Ltd operates a shipbuilding business which specialises in constructing and modifying ships to order. In 2011, Az Ltd entered into an agreement with Bob to completely rebuild a ship to Bob’s specification for a total contract price of £7 million. However, after completion, Bob informed Az Ltd that, due to the downturn in the world economy, he no longer needed the ship. Az Ltd had already expended £5 million on altering the ship, and immediately started an action against Bob for breach of contract.However, in the week before the case was to be decided in the court, Az Ltd sold the ship for the same amount of money which they would have received from Bob. Required:(a) State the purposes of awarding damages for breach of contract.(b) State the duty to mitigate losses.(c) State the level of damages Az Ltd can claim for breach of contract.You’re a Champion! Thanks for staying with us. You have finished this task.。