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HART STUDIES IN PRIVATE LAW MONEY AWARDS IN CONTRACT LAW David Winterton MONEY AWARDS IN CONTRACT LAW The quantification of contractual money awards is a topic of both significant theoretical interest and immense practical importance. Recent debates have ranged from the availability of gain-based relief to the basis for principles of remoteness and mitigation. While these and other important issues, such as the recovery of damages for non-pecuniary loss, are touched upon, the book’s principal objective is to challenge the conventional interpretation of the principle generally acknowledged to govern this area of the law, which Parke B famously laid down in Robinson v Harman. According to this conventional interpretation, the objective of all money awards given in accordance with the Robinson v Harman principle is simply to ‘compensate’ the promisee for the ‘loss’ that can be attributed to the promisor’s failure to perform as promised. After challenging this orthodoxy, Dr Winterton proposes a new understanding of the Robinson v Harman principle, which draws an important distinction between money awards that substitute for the performance promised and money awards that aim to make good certain detrimental factual consequences that can be attributed to a promisor’s breach. In exploring the significance of this distinction, the different principles underpinning the quantification and restriction of each kind of award are explored in addition to some important theoretical issues such as the effect that the occurrence of a breach has on the rights generated by contract formation. The book’s unifying objective is to outline a coherent picture of the law of contractual money awards. It will be of interest to judges, practitioners and academics alike. Volume 13 in the series Hart Studies in Private Law Money Awards in Contract Law David Winterton OXFORD AND PORTLAND, OREGON 2015 Published in the United Kingdom by Hart Publishing Ltd 16C Worcester Place, Oxford, OX1 2JW Telephone: +44 (0)1865 517530 Fax: +44 (0)1865 510710 E-mail: mail@hartpub.co.uk Website: http://www.hartpub.co.uk Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA Tel: +1 503 287 3093 or toll-free: (1) 800 944 6190 Fax: +1 503 280 8832 E-mail: orders@isbs.com Website: http://www.isbs.com © David Winterton 2015 David Winterton has asserted his right under the Copyright, Designs and Patents Act 1988, to be identified as the author of this work. Hart Publishing is an imprint of Bloomsbury Publishing plc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission of Hart Publishing, or as expressly permitted by law or under the terms agreed with the appropriate reprographic rights organisation. Enquiries concerning reproduction which may not be covered by the above should be addressed to Hart Publishing Ltd at the address above. British Library Cataloguing in Publication Data Data Available ISBN: 978-1-84946-457-4 ISBN (ePDF): 978-1-78225-295-5 FOREWORD BY JUSTICE STEPHEN GAGELER High Court of Australia It is now almost 170 years since Baron Parke enunciated his ‘ruling principle’1 with respect to damages for breach of contract at common law. The theoretical difficulties inherent in the outworking of that longstanding principle did not need to be addressed while common law procedure left damages to be determined by juries. The theoretical difficulties began to emerge as procedural reforms transferred questions of the quantification of damages increasingly to judges whose processes of reasoning were required to be articulated in their reasons for judgment. Despite significant common law developments in principles of contractual liability, the law of contract damages long remained largely un-theorised. Just over 100 years ago it could still be said that ‘[t]he quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in particular cases’.2 Fuller and Perdue took an important step in the identification and articulation of intermediate principles of contract damages in their highly influential taxonomy of measures of financial loss which may flow from a breach of contract.3 Yet just under 20 years ago it could still be remarked that a simple question of contract damages could result in a wide variety of judicial opinion.4 More recent divisions of opinion as to the appropriate method of quantifying damages in novel but uncomplicated fact situations, in cases in the House of Lords5 and in the High Court of Australia,6 serve to illustrate the depth of the theoretical issues that remain. 1 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 286, quoting Wertheim v Chicoutimi Pulp Co [1911] AC 301 (PC) 307. 2 British Westinghouse Electric & Manufacturing Co v Underground Electric Railways Co of London [1912] AC 673 (HL) 688. 3 L. Fuller and W. Perdue, ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale Law Journal 52. 4 Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344 (HL) 361. 5 Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12, [2007] 2 AC 353. 6 Clark v Macourt (2013) 88 ALJR 190, [2013] HCA 56. vi Foreword David Winterton in this book grapples with those deep philosophical issues. His contribution to the theorisation of contract damages is bold and ambitious. Critiquing Fuller and Perdue philosophically and analytically, Winterton provides an alternative theoretical explanation of the burgeoning mass of existing case law. His explanation is based on a conceptual framework within which the fundamental distinction is between damages which substitute for performance of a contract and damages which compensate for loss caused by non-performance. The thesis presented is developed through the application of what is helpfully identified in explicit terms as an ‘interpretative’ methodology, in which ‘principle’ is given primacy over ‘policy’, and in which ‘principle’ is charted as the line of most rational fit with the data provided by the decided cases. It is inevitable in the application of such a methodology that some aspects of the existing case law will be elevated, and other aspects of the existing case law de-emphasised, so as to achieve a rational fit with the conceptual distinction propounded. It is also inevitable that the distinction itself will require qualification and refinement so as to accommodate those aspects of the existing case law which the premises of the methodology require to be accepted. There will inevitably be flow-on effects to related doctrines. Not all aspects of all of the decided cases can be expected to survive unquestioned. Not every required qualification or refinement of the conceptual framework, nor every flow-on effect, can be expected to be recognised and articulated. No conceptual framework, new or old, can be expected to provide all answers to all problems; at best it can bring a measure of structure and consistency to the analysis of those problems, and a measure of predictability to the outcomes of that analysis. A new conceptual framework brings its own novel set of issues to be worked through, and tested, from case to case. Conscious of those ramifications of the ambitiousness of his project, David Winterton has done much to explain how many principles, including those of remoteness and mitigation, are to be fitted into his new conceptual framework, to anticipate some major objections to the framework, and to suggest how it might prove useful in practice in shedding new light on problems which have shown themselves to be difficult to resolve in the past. Economic and social consequences of adopting the new conceptual framework, including the systemic impact of the incentives it might create for contracting parties, are left for future exploration. The book is a welcome addition to the literature in a field for too long under-theorised. ACKNOWLEDGEMENTS This book is a revised and updated version of the doctoral thesis I defended in Oxford in October, 2011. Its production has depended heavily on assistance from numerous sources. In Justice James Edelman and Professor John Gardner, I had the benefit of two dedicated and inspirational DPhil supervisors who guided me carefully along the path to completion. From each of them I learned a great deal and I am extremely grateful for the support they provided during my time in Oxford. I also wish to express my deep gratitude to both the Rhodes Trust and Magdalen College for the generous support, financial and otherwise, that each institution afforded me during the course of my studies, as well as to Richard Hart for backing the project, and to his fantastic team for their hard work in helping to bring it to fruition. Via written comments, conversations, or simply friendship, numerous others also contributed to this book’s production. In this regard, I would particularly like to thank Scott Ralston, Carmine Conte, Fred Wilmot-Smith, Andrew Dyson, Andrew Lodder, Eli Ball and Tatiana Cutts for astute comments on earlier drafts and for their general willingness to engage in fruitful discussion on the topic. Ben Spagnolo deserves special praise in this regard; in addition to providing me with me a plethora of insightful comments, he was also instrumental in the very practical task of producing the final thesis document itself. I also wish to express my appreciation to Gageler J for kindly agreeing to write a foreword to the book and for his willingness to engage with me in discussion about some of its central concerns following publication of the High Court’s reasons in Clark v Macourt [2013] HCA 56. My final debt of gratitude is to my parents. Without my father’s encouragement and example of fine scholarship I may never have embarked upon this project and without my mother’s support and understanding I may never have finished it. SUMMARY CONTENTS Foreword .....................................................................................................................v Acknowledgements ................................................................................................... vii Detailed Contents...................................................................................................... xi Table of Cases ...........................................................................................................xix Table of Legislation ................................................................................................xxxi Introduction ...............................................................................................................1 Part I: The Inadequacy of the Orthodox Understanding of Contractual Money Awards 1. An Overview of the Orthodox Account .............................................................23 2. The Doctrinal Inaccuracy of the Orthodox Account ........................................44 3. Conceptual and Terminological Difficulties with the Orthodox Account ........................................................................................97 Part II: A New Account of Contractual Money Awards 4. Foundations of the New Account.....................................................................133 5. Money Awards that Substitute for Performance .............................................178 6. Money Awards that Compensate for Loss .......................................................216 Part III: The New Account in Practice 7. Explaining Some Important Decisions in Tension with the Orthodox Account ......................................................................................261 8. Defusing Some Potential Doctrinal Objections ..............................................285 Conclusion .............................................................................................................316 Index .......................................................................................................................323 DETAILED CONTENTS Foreword .....................................................................................................................v Acknowledgements ................................................................................................... vii Summary Contents ................................................................................................... ix Table of Cases ...........................................................................................................xix Table of Legislation ................................................................................................xxxi Introduction...............................................................................................................1 I. Context and Motivation ...............................................................................1 II. An Overview of the Argument ....................................................................2 III. The Need for the Proposed Distinction ......................................................5 IV. The Place of Theory .....................................................................................8 A. The Kind of Substitutionary Account Proposed .................................8 B. The Distinction Between ‘Principle’ and ‘Policy’ ..............................11 C. The Theoretical Basis for the Proposed Distinction .........................12 V. The Structure of the Book .........................................................................12 A. Part I ....................................................................................................13 B. Part II...................................................................................................14 C. Part III .................................................................................................15 VI. Methodology ..............................................................................................16 A. An Interpretative Approach ...............................................................16 B. Why Take this Approach? ...................................................................19 Part I: The Inadequacy of the Orthodox Understanding of Contractual Money Awards 1. An Overview of the Orthodox Account ............................................................23 I. Introduction ...............................................................................................23 II. The Conventional Interpretation of the Robinson v Harman Principle ......................................................................................................24 A. The Principle’s Indeterminacy ...........................................................24 1. Indeterminacy as to Purpose ......................................................24 2. Indeterminacy as to Scope ..........................................................25 B. The Meaning of ‘Loss’ in the Orthodox Account ..............................26 1. A Focus on the Financial Consequences of Breach ...................26 2. Limited Recognition of Non-Pecuniary Consequences ............28 III. Expanding Recovery for Non-Pecuniary Loss ..........................................30 A. Damages for ‘Mental Distress’ and ‘Physical Inconvenience’ ...........30 1. Two Exceptions to the General Bar on Recovery .......................30 xii Detailed Contents 2. The Decision in Farley v Skinner ................................................32 3. More Recent Developments ........................................................33 B. Damages for ‘Loss of Amenity’ ..........................................................35 1. Ruxley Electronics v Forsyth .........................................................35 2. Subsequent Judicial Analysis of Ruxley ......................................40 IV. Conclusion .................................................................................................42 2. The Doctrinal Inaccuracy of the Orthodox Account .......................................44 I. Introduction ...............................................................................................44 II. Two Clear Examples of Non-Compensatory Money Awards ..................45 A. Nominal Damages for Breach of Contract .......................................45 1. Conventional Nominal Damages ...............................................46 2. Substantial ‘Nominal’ Damages ..................................................46 B. Gain-Based Awards for Breach of Contract ......................................47 1. Attorney-General v Blake .............................................................48 2. Subsequent Case Law ..................................................................50 III. Other Awards Inconsistent with the Law’s Orthodox Understanding............................................................................................51 A. Substantial Money Awards in the Three-Party Context ...................52 1. Specific Exceptions to the General Exclusionary Rule...............52 2. Extending ‘the Albazero Exception’.............................................54 3. The Significance of Panatown .....................................................57 4. Appraising the Current Legal Position .......................................59 B. Awards Based on a Hypothetical Release Bargain ............................60 1. Award In Lieu of a Restorative Injunction .................................60 2. Award for Breach of Exclusivity ..................................................66 3. Award for Breach of Confidentiality ..........................................67 C. Awards for the Breach of a Contract of Sale that Exceed the Promisee’s Factual Loss ...................................................68 1. Non-delivery ................................................................................69 2. Late Delivery ................................................................................71 3. Defective Goods...........................................................................73 4. Summary of the Sale of Goods Case Law...................................78 D. Contractual Awards in Other Contexts that Exceed the Promisee’s Factual Loss ...................................................79 1. Contracts of Carriage ..................................................................79 2. Contracts of Employment ..........................................................81 3. Building Repairs ..........................................................................82 4. Breach of Tenant’s Obligation to Repair ....................................84 5. Breach of Restrictive Covenant in Relation to Goods ...............85 E. Awards Exceeding Factual Loss Due to the Accrual of Post-Breach Benefits.........................................................87 1. Loss Reduced or Eliminated by a Third Party Payment ............89 2. Loss Reduced or Eliminated by Other Post-Breach Events .......89 IV. Conclusion .................................................................................................95 Detailed Contents xiii 3. Conceptual and Terminological Difficulties with the Orthodox Account ...............................................................................97 I. Introduction ...............................................................................................97 II. The Conceptual Inadequacy of the Orthodox Account ...........................98 A. Fuller and Perdue’s Challenge ............................................................98 1. Questioning the Priority of the Expectation Measure...............98 2. Response ....................................................................................100 B. The Significance of Fuller and Perdue’s Critique............................101 1. The Dominance of the Compensatory Paradigm....................101 2. Preoccupation with the Appropriate Measure of Loss ............103 III. The Meaning of ‘Loss’ in English Contract Law .....................................104 A. General Ambiguity Surrounding the Meaning of Loss ..................104 1. The Relationship Between Loss and Harm ..............................105 2. Distinguishing Damage and Injury ..........................................106 B. Clarifying the Meaning of Loss........................................................107 1. Three Different Conceptions of Loss in English Contract Law .............................................................................107 2. The Best Interpretations of ‘Loss’, ‘Damage’, ‘Injury’ and ‘Harm’ ....................................................................109 3. Explaining the Proposed Interpretation of Loss ......................111 IV. Other Sources of Terminological Uncertainty .......................................113 A. The Meaning of ‘Damages’...............................................................114 1. The Conventional Understanding of ‘Damages’ ......................114 2. A Superior Definition................................................................115 B. The Meaning of ‘Compensation’ .....................................................117 1. The Orthodox Understanding ..................................................117 2. Alternative Judicial Conceptions of ‘Compensation’...............118 3. Alternative Academic Conceptions of ‘Compensation’ ...........120 4. The Proposed Definition...........................................................121 C. The Concept of a Legal Remedy ......................................................123 1. Legal Rights ................................................................................123 2. The Proposed Definition of a Legal ‘Remedy’..........................124 3. Classifying Legal Remedies .......................................................125 D. The Need for New Terminology ......................................................127 V. Conclusion ...............................................................................................128 Part II: A New Account of Contractual Money Awards 4. Foundations of the New Account ....................................................................133 I. Introduction .............................................................................................133 II. A Defence of the Right to Contractual Performance .............................134 A. The Basic ‘Holmesian’ Objection.....................................................134 B. Overcoming this Objection .............................................................135 1. Understanding English Law’s Approach to Coercive Relief ...........................................................................136 xiv Detailed Contents 2. Additional Doctrinal Support for the Right to Performance ..........................................................................141 3. Theoretical Support: The Nature of Legal Rights ....................146 III. The Doctrinal Basis for the Distinction Between Substitution and Compensation...................................................................................148 A. Historical Foundations ....................................................................149 1. The Distinction at Common Law .............................................150 2. The Distinction in Equity .........................................................151 B. The Action for the Agreed Sum .......................................................153 1. Two Limits on the Recovery of Contractual Debts..................153 2. A Claim in Debt is not a Claim for Loss ..................................156 C. Money Awards In Lieu of Specific Performance .............................157 1. The Law in England...................................................................157 2. The Canadian Position ..............................................................159 D. Other Clear Examples of Substitutionary Money Awards .............160 1. The Right to Recover Under a Deed .........................................161 2. Contracts for the Sale of Goods................................................161 3. Contracts for the Provision of Services ....................................162 E. Restrictions on Compensatory Recovery do not Apply to Substitutionary Awards ....................................................................165 1. Mitigation ..................................................................................165 2. Remoteness ................................................................................166 IV. Theoretical Underpinnings of the New Account ...................................167 A. The Kind of Substitutionary Account Advanced ............................168 1. Professor Stevens’s ‘Substitutive Damages’ Theory..................168 2. Dissimilarities from the Account Proposed Here ....................169 B. The Theoretical Basis for the Proposed Distinction.......................172 1. The Uncertain Relationship Between Substantial and Remedial Rights in English Contract Law ........................172 2. Towards a Superior Account .....................................................173 V. Conclusion ...............................................................................................176 5. Money Awards that Substitute for Performance ............................................178 I. Introduction .............................................................................................178 II. Awards of the Cost of Substitute Performance.......................................179 A. Quantification ..................................................................................179 1. Justification ................................................................................180 2. Doctrinal Support .....................................................................183 B. Restriction.........................................................................................188 1. Restriction on the Ground of ‘Reasonableness’ .......................189 2. The Uncertain Meaning of ‘Reasonableness’ in this Context ...........................................................................190 3. Against a Focus on Intention ....................................................196 4. Understanding the ‘Reasonableness’ Restriction .....................199 Detailed Contents xv III. Awards of the Price of ‘Release’ from Further Performance ..................201 A. Quantification ..................................................................................202 1. Justification ................................................................................202 2. Doctrinal Support .....................................................................206 B. Restriction.........................................................................................210 1. The Current Position.................................................................211 2. Future Direction ........................................................................213 IV. Conclusion ...............................................................................................214 6. Money Awards that Compensate for Loss ......................................................216 I. Introduction .............................................................................................216 II. Fitting Compensatory Awards into the New Account ............................................................................................218 A. The Theoretical Basis for Compensatory Money Awards ..................................................................................218 1. The Controversial Status of the Secondary Duty to Repair ...........................................................................218 2. Significance of this Debate for the Argument of this Book ................................................................................221 B. Two Inherent Limits on the Recovery of Compensation for Breach of Contract .....................................................................222 1. The Causation Principle............................................................223 2. The Prohibition on Double Recovery ......................................226 3. Summary and Preview ..............................................................227 III. Understanding the Restrictions Applicable to Compensatory Money Awards ................................................................228 A. Remoteness .......................................................................................229 1. The Orthodox Approach ...........................................................230 2. The Challenge Posed by The Achilleas ......................................231 3. Subsequent English Decisions ..................................................234 4. A Defence of the Orthodox Approach .....................................236 5. Can the Agreement-Centred View be Salvaged? ......................244 6. Summary....................................................................................246 B. Mitigation .........................................................................................247 1. The Rules of ‘Mitigation’ ...........................................................248 2. Not Agreement Based ................................................................251 3. Not an Aspect of ‘Remoteness’..................................................252 C. Restrictions on Recovery for Non-Pecuniary Loss .........................253 1. Not Agreement Based ................................................................254 2. Not an Aspect of ‘Remoteness’..................................................255 IV. Conclusion ...............................................................................................256 xvi Detailed Contents Part III: The New Account in Practice 7. Explaining Some Important Decisions in Tension with the Orthodox Account......................................................................................261 I. Introduction .............................................................................................261 II. Substitutionary Awards for the Cost of Repairs .....................................261 A. The Law Prior to Ruxley ...................................................................262 B. Making Sense of the Ruxley Decision..............................................264 1. Refusal to Award the Cost of Substitute Performance .............264 2. The Award for ‘Loss of Amenity’ ..............................................270 III. Panatown: Substitutionary Awards in the Three-Party Context ...........273 A. Availability of an Award of the Cost of Substitute Performance......................................................................................273 B. Availability of an Award in Substitution for the Right to Timely Performance .........................................................................274 C. Two Further Matters ........................................................................275 IV. Contractual Awards in the Sale of Goods Context.................................277 A. Awards for Breach by the Buyer.......................................................277 B. Awards for Breach by the Seller .......................................................278 1. Availability of an Award for Non-Delivery ..............................278 2. Availability of an Award for Defective Goods ..........................279 3. Availability of an Award for Late Delivery ...............................283 V. Conclusion ...............................................................................................284 8. Defusing Some Potential Doctrinal Objections .............................................285 I. Introduction .............................................................................................285 II. The Significance, Application and Scope of the Golden Victory Principle ....................................................................286 A. The Golden Victory: Prospective Loss Reduced by an Extraneous Event .........................................................................286 1. The Facts and Decisions Below.................................................286 2. The Decision in the House of Lords .........................................287 3. Subsequent Controversy ...........................................................289 4. The Preferable Analysis .............................................................291 B. Leofelis v Lonsdale: Prospective Loss Reduced by the Contract’s Early Termination ....................................................294 1. The Decision ..............................................................................294 2. A Defence of the Decision.........................................................296 C. The Glory Wealth: Prospective Loss Must be Proved on the Balance of Probabilities ........................................................302 1. The Decision ..............................................................................302 2. A Defence of the Decision.........................................................305 Detailed Contents xvii III. Specific Performance, ‘Mitigation’ and Damages In Lieu of Coercive Relief ........................................................................307 A. The Relationship Between Specific Performance and ‘Mitigation’ ................................................................................307 1. A Restatement of the Basic Principles ......................................307 2. The Decision in Southcott Estates .............................................308 3. A Preferable Understanding of the Law ...................................310 B. Damages In Lieu of Specific Performance ......................................312 1. The Decisions in Wroth and Semelhago ...................................312 2. Explaining Johnson v Agnew ......................................................313 IV. Conclusion ...............................................................................................314 Conclusion .............................................................................................................316 I. Summary of the Argument......................................................................316 II. Principal Conclusions and Implications.................................................319 Index .......................................................................................................................323
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