REMEDIES AND DAMAGES ( PART 3)

Reliance measure

The reliance measure aims to put the claimant back in the position he was before the contract was made. This is relevant for where one of the parties has incurred expenditure in preparing for their side of the bargain. At this point you need to remember that only one measure of damages can be relied on, expectation or reliance, as per Culinane v British ‘Rema’ Manufacturing Co Ltd [1954] 1 QB 292. Therefore, before a claimant decides to pursue a claim for damages, they should decide which of the measures is likely to compensate them more favourably.

Generally, the expectation measure is more favourable, as the claimant should always be expecting to profit from the contract. However, where the claimant has entered into a bad bargain, meaning the contract would not have been profitable, the reliance measure will be advantageous. Below is a quick example:

  • Party A enters into a contract with Party B to build a house
  • Party A has spent £9,000 on the preparation for the contract
  • Party B then breaches the contract so that Party A can claim for damages
  • Party A has now realised that the contract would have made a loss of £5,000
  • Party A’s expectation measure would be a loss of £5,000
  • Party A’s reliance measure is £9,000 (the money spent on preparing for the contract)
  • As the reliance measure is more favourable, Party A would use this to calculate damages

However, in C & P Haulage v Middleton [1983] EWCA Civ 5 the court ruled that where the defendant can show that the reliance measure of damages exceeds the claimant’s expectation loss, the claimant cannot claim the reliance measure.

Therefore, in our example, the reliance measure of £9,000 exceeds the expectation loss of £5,000, meaning the reliance measure could not be claimed for. This means that the reliance measure is not as effective as it might be. The justification for this rule is that the courts are unwilling to put the parties in a better position that they would have been in had the contract been properly performed. However, there are two situations where it still may be used:

  • Where the reliance measure is less than the expectation measure (but in this case it would be preferable to just claim via the expectation measure)
  • Where the expectation measure is difficult to calculate as it is hard to show what would have happened if the contract was properly performed

Is the loss suffered actionable?

Now we have established how loss will be calculated, it must be considered whether or not the loss suffered is actionable. This section will examine a number of common categories and provide the legal principles relating to them.

Financial Loss

Financial loss refers to where the claimant is in a worsened financial position as a result of the contract, either through less money, or less assets. This is the most common category of loss and it will always be an actionable type of loss (subject to causation and remoteness).

The consumer surplus

This consumer surplus is the amount by which a particular consumer values the performance of a contract above its market value for some particular reason. In order to understand this, here are some cases where this was relevant:

  • Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 – The contract was for a holiday, the consumer surplus being the value the claimant put on the relaxation on holiday;
  • Ruxley Electronics and Construction Ltd  v Forsyth – The contract was for the building of a swimming pool, the consumer surplus being the value the claimant put on the swimming pool being particularly deep because he was very tall.

The matters are not of a financial value – in Jackson, the claimant has not missed out on anything financial, only the relaxation that was important to them. Therefore, it can be said that the claimant has suffered a loss of some sort. However, it is difficult to assess the value of these consumer surpluses, and whether they should be an actionable loss.

The case of Watts v Morrow [1991] 1 WLR 1421 ruled that damages cannot be awarded for distress caused by breach of contract. Therefore, these consumer surpluses are not actionable. However, they created a particular category which would be actionable:

Where the contractual objective is to provide relaxation, pleasure or peace of mind, damages may be awarded if this is not provided.

This approach is slightly narrower than the consumer surplus. Consider Ruxley and the purchase of the swimming pool. The object of the contract was to build a swimming pool; therefore it would not fall inside this category. However, in Jackson it would be accepted that a contract for a holiday has the objective of providing relaxation, meaning it would fall inside this category and damages would be able to be claimed.

The rules regarding claiming for consumer surplus were clarified in Farley v Skinner [2001] UKHL 49. In this case, Farley purchased a house near Gatwick airport. He asked his surveyor of the house to take note of any noise from the airport, as he wanted it to be sufficiently quiet. The surveyor reported the noise would not be a problem, but Farley found it was very noisy once he had moved in.

The court awarded Farley £10,000 worth of damages for discomfort. The judges in this case came to the same decision, but under two different grounds:

  1. The concept of consumer surplus – peace and quiet were evidently important to the claimant. It was not required to show that this was the sole object of the contract
  2. Distress (this will be covered in the next section of the chapter)

Therefore, it can be seen that the English courts are willing to accept consumer surplus as an actionable loss, but it must be treated with caution and be clear that the consumer surplus was important to the claimant. Here are some important things to remember:

  • The award for non-financial loss will be small
  • The foreseeability of the loss will be difficult to prove (see the section on causation)

Exam consideration: When answering a question which relates to a consumer surplus it would be wise to discuss Farley v Skinner and Watts v Morrow, explaining the courts conservative approach to such cases. As long as you justify your thoughts and talk about the ‘objective’ of the contract for the claimant, you should be able to come to a logical conclusion and ensure you get a lot of marks.

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