Contract Damages Issues II

Damages not usually awarded for Mental Distress

As a general principle, a person breaking a contract is not liable for the distress, frustration, anxiety, tension, displeasure or aggravation which the breach causes. However, damages for mental distress have been allowed in certain categories of case such as where leisure services are provided, as in the case of a package holiday.

It had appeared at one time, that damages for mental distress would be permitted on a wider basis than was traditionally allowed. A number of House of Lords cases within the last 25 years have sought to re-establish limitations on liability for mental distress.  It appears that recovery for mental distress is limited to cases where the contract is to provide pleasure, relaxation, peace of mind, freedom from molestation, etc.

The general principle refusing damages in such cases has been under pressure in the United Kingdom within the last 20 years.  The courts have tentatively allowed recovery for elements of mental distress in a wider category of contracts, where peace of mind was an element.

One example related to the construction of a residential building.  The amount allowed, to be recovered has been modest. Where the claimant has suffered damage due to his own prior wrong, public policy may preclude recovery.

Exceptions re Mental Distress

Generally, damages/compensation are awarded only for financially measurable economic loss. Damages are not available for a non-monetary loss or loss that is not quantifiable in monetary terms. Compensation/damages are not usually awarded in contract cases, for damage to reputation, mental distress or disappointment.

There are a number of exceptions. Compensation for loss of enjoyment, amenity, inconvenience or mental distress may be allowed, where this is central to the nature of the contract, such as in the case of a holiday or other leisure services. Damages may be awarded for mental distress because what is to be provided has an element of mental appreciation.

In some cases, damages may be awarded for loss of intangible psychological benefits. “Disappointment” damages may be granted for breach of contracts for holidays, leisure services and weddings. The object of such contracts is to provide pleasure, entertainment, relaxation, freedom from molestation etc. The absence of mental distress etc. is a central element of the contract.

Such damages are available only, in limited circumstances where they are clearly foreseeable.

Further Apparent Exceptions

Damages for breach of ordinary contract is not generally available for frustration anxiety, aggravation or displeasure. Persons are expected to show reasonable fortitude in ordinary contracts.

Damages for loss of reputation may be awarded for the wrongful stopping of a cheque.  Where the contract involves advertising, compensation for loss of or for adverse publicity may be allowed.

In employment cases, there is an implied duty of trust and confidence. If an employer conducts itself in such a way which causes an employee loss of reputation, damages may be recoverable for damage to the employee in the labour market, as a result of the employer’s conduct.

Loss may be allowed for physical inconvenience as opposed to mental inconvenience in some types of case. Where, for example, a contract for transport, fails to be provided, compensation may be available for the physical inconvenience and having, for example, to walk home.

Exemplary damages may be awarded when the other party acts in a high-handed manner. The primary purpose is to punish the defendant, rather than compensate the claimant for humiliation or hurt feelings.

Liquidated Damages

The parties can pre-agree in the contract the compensation which should be payable in the event of a breach. This may or may not be the exclusive compensation.

Where the contract provides for payment of a fixed sum or other pre-defined compensation, it will be valid provided that it is a genuine pre-estimate of the loss. The fixed sum is sometimes referred to as a penalty. However, a penalty in the strict sense is not valid, as it implies something more than a genuine pre-estimate of loss.

The pre-agreed sum is not a penalty simply because it exceeds the actual loss. However, it must not be wholly disproportionate to the loss. Liquidated damages, which are a genuine pre-estimate of loss are valid.

Punitive / Exemplary Damages I

In some exceptional cases, exemplary or punitive damages may be awarded. Exemplary or punitive damages go further than providing compensation for harm caused. They are intended to punish the wrongdoer for conduct of which the court disapproves strongly and to provide an additional deterrent.

Punitive damages are rarely awarded in Ireland.  This reflects the general principle that damages are not awarded in order to punish. There are very exceptional circumstances in which the defendant’s conduct may be found to be reprehensible. In this case, the court may show its disapproval by an award of punitive damages.

Although damages seek to compensate, the courts may find that a party has deliberately breached his contract in order to make a profit, or in order to obtain some unfair or unjust enrichment.

Punitive / Exemplary Damages II

There is no rule or principle that provides for the punishment of a person who deliberately breaches a contract. In some cases, breach of contract may also constitute a civil wrong, in which event punitive damages may be more readily granted. If it constitutes a crime, it is punishable as such under the criminal law.

The breach of a commercial contract is not a civil wrong in itself. It generally gives rise to an obligation to pay compensation only.

Exemplary or punitive damages may be awarded if there is something aggravated or exceptional in the defendant’s conduct. In a breach of contract case, they might be awarded where a party seeks deliberately to profit from the breach of contract and /or where the breach is particularly egregious or high handed.

Some courts take the view, that exemplary damages should not be granted in breach of contract cases at all unless there is also some element of civil wrong involved.

Restitutionary Damages I

Restitutionary damages seek to reverse unjust enrichment.  Restitutionary remedies are not usually available for breach of contract. Parties who have suffered loss, are generally limited to a right of compensation. The general position is that the gains which a defendant makes by breaching the contract, which exceeds the loss to the claimant, may be retained by the defendant.

Restitution may provide for the recovery of a benefit wrongfully obtained.  For example, a person may deliberately construct a building in breach of a restrictive covenant, knowing that the person who enjoyed the covenant may suffer no financial loss. However, the courts will usually award the sum which could have been negotiated in advance for relaxing the covenant. This will be substantially less than am may be much less than the benefit accruing to the claimant, defendant.

Restitutionary Damages II

There is support for the proposition that restitutionary damages may be awarded where the defendant has acted deliberately or in bad faith, with a view to profiting from his wrongdoing. In this case, the profit or gain unjustly or wrongfully obtained by a one party may be recouped. However, this position is inconsistent with some elements of Irish law.

General principle. The Law Reform Commission is of the view that restitutionary should not be subject to a stringent mala fide bad faith requirement. Restitutionary damages were recognised in the Spy Catcher case where former intelligence officer gained from publishing works in breach of official secrets legislation. The case decided that an account of damages would be allowed only in exceptional circumstances. where other rights are inadequate.

Where a person has suffered no substantial loss or is not able to prove any particular loss, he may be awarded nominal damages. This is a minimal award which indicates that no actual, substantial loss or damages have been incurred.

Sale of Goods Act and Remedies

The Sale of Goods Act makes provision in relation to loss, breach and compensation in the context of the sale of goods. The Act provides for the remedies available to the seller where the buyer is in breach of contract and those available to the buyer where the seller is in breach of contract. The Act makes provision in relation to loss, breach and compensation in the context of the sale of goods.

The Sale of Goods Act provides that where there is a breach of warranty it is presumed that the level of damages is the difference between the value of goods at the time of delivery and the value they would have had if they had conformed.

Non- Acceptance

The seller may recover damages for loss for non-acceptance. The damages are the estimated loss directly and naturally occurring in the ordinary course of things from the buyer’s breach of contract.

Where the buyer wrongfully does not accept the goods and there is an available market for the goods in question, the measure of damages is prima facie (presumptively) to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.

Non-Delivery

Where the seller is in breach of contract, the buyer has several possible remedies. He may take an action for non-delivery. The estimated loss is that directly and naturally occurring in the ordinary course of events from the sellers’ breach. Where there is an available market, it is the difference between the contract price and market price. This principle emphasises the obligation of the wronged party to mitigate or minimise his or her loss.

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery. The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.

Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, at the time of the refusal to deliver.

Price Not Paid

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance. The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events, from the buyer’s breach of contract.

Where, under a contract of sale, the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.

Where, under a contract of sale, the price is payable on a certain day, irrespective of the date of the delivery obligation, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed, and / or the goods have not been appropriated to the contract.

Special Market Situations

Where a seller can sell as many goods of a particular type as he is able to provide, as is the case where there is a ready market for the goods, then he can readily resell the goods, where a buyer defaults. In this case, the seller may generally be entitled to loss of his profit on the transaction on the basis that he has sold one less of the goods concerned than might otherwise be the case.

However, if demand exceeds supply, the seller may not be able to prove and recover for a loss, as he can sell all the units which he can acquire. In this case, he has not lost volume. He may be able to claim for reliance loss and expenses.

When goods are in limited supply or not easily replaceable, the buyer may be able to recover for loss of profits, which may include an element of consequential loss. He cannot purchase alternative goods with which to undertake the intended onward sale. Accordingly, he may be allowed his full loss of profit, rather than (just) the extra cost of purchasing an alternative input.

Interest

Interest is commonly payable by the terms of the relevant contract. There may be, in principle, a verbal agreement which provides for the payment of simple interest. Generally, a written document is required to define the interest rate and its application.

There are a number of statutory provisions and other principles, by which interest can be awarded. The contract itself may provide for the payment of interest. Interest may be thereby included in the award.

There is a statutory provision for the payment of interest on unpaid debts. The entitlement to interest for late payment applies as a matter of law, irrespective of what the contract provides.

The courts have the power to award interest on judgement debts up to the date of judgement. A court judgement for money carries interest at a rate set from time to time.

Restitution

Monies paid and other loss may be recoverable on a restitution basis. Where monies are paid in advance in anticipation of a contract, they may be recovered. Similarly, assets transferred may be restored. The purpose of restitution is to prevent unjust enrichment. Some instances of restitution involve an assertion of property rights.

Collateral benefits

The general position is that benefits received by the claimant are deductible.  There are a number of exceptions including

• insurance benefits and
• chargeable gifts.

Social welfare legislation prescribes the deduction of disability benefits, military pension and pay-related benefits arising out of motor vehicle accidents.

The Civil Liability Act, 1964 provides that in assessing damages in relation to a wrongful act, including a crime, resulting in personal injury not causing death, account is not to be taken of sums received from insurance, pensions, gratuities or other benefits payable by statute, in consequence of the injury.

An unquantifiable loss in the context of personal injury must of necessity be reduced into some measure of monetary compensation.  In personal injury cases, the claimant may recover -damages or compensation for pain suffered as a direct result of the injury or as a result of necessary treatments.