Measures of Damages and Recoverable Costs in Breach of Contract

Restitution interest (Restitutio in integrum).

Martha is a keen entrepreneur, always on the lookout for ways to make money. One Wednesday, while on her morning run, she saw a sign outside a house saying:

12 vintage rocking horses for sale, $10 each. Quick sale needed. Enquire within.

Martha knocked on the door of the house and within a few minutes she had agreed with the seller, Roger, to buy all of the rocking horses for a discounted price of $100. Martha paid this in full, via her banking app, and they agreed that the rocking horses would be available for Martha to collect on Sunday morning after 6am.

Martha’s plan was to sell the rocking horses on for a profit at the local creative market, which offers stalls to hire for $60 a morning. Later that day Martha booked and paid for a stall from the market organisers. She also hired Chip ‘the man with the van who can’, to collect the rocking horses from Roger’s house, and deliver them to the market by 7am on Sunday morning. She paid Chip $25 in advance, and agreed to pay the remaining $25 on delivery.

Over the following few days, until the weekend, Martha made a sign for her market stall, at a cost of $30. She arrived bright and early at the Market on Sunday morning at 7am. At 7.45am Martha got a little bit worried and telephoned Chip. He explained that he’d had a heavy night and that he’d only just woken up, but that he would collect the rocking horses immediately and have them at the market by the time it opened, at 9am.

By 9.30am there was no sign of Chip, but Martha – standing at her empty stall – had already had eight offers to buy her rocking horses, at $30 each, as well as a lot of other interested enquiries.

At 10.30am Chip arrived with only one rocking horse. He explained that Roger had sold the 11 others on Thursday after someone else had offered $150 for them. Martha put the one rocking horse out on her stall, but by this time the potential buyers had given up waiting and left the market. When the market closed at 12 noon, Martha had not managed to sell the rocking horse.

Now Martha is extremely disappointed that she has missed out on the chance to make some money. She calculated that if she had received the 12 rocking horses, and had sold them at $30 each, she would have made a profit (after deduction of her costs) of $120. Instead, Martha has made no profit, and has had to pay out a variety of costs.

Reliance interest:

Referring specifically to the three measures of damages, and the degree to which each may be appropriate to Martha’s situation, advise Martha on her options to recover damages for Roger’s breach of contract.

Also advise Martha in relation to her contract with Chip.

There is no need to discuss issues of contract formation, unenforceability or illegality. 

The relevant facts of the scenario

To measure the damages for the loss of the Plaintiff, it is useful to use the famous article by Fuller and Perdue} and which is summarised by Fisher J in a New Zealand decision} in breach of contract the innocent parties may have 1) a Restitution interest. 2) a reliance interest. 3) an expectation interest.

Whether or not Martha is entitled for restitution interest from Roger?

The aim being to prevent unjust enrichment.} To put parties in the position they would have been in had the contract been performed (lost profits may be recoverable) – Robinson v Harman [1848]; Farley v Skinner [2001].} In relates to Martha’s scenario, facts inferred that Roger in breach of the contract in delivering the all of 12 horses. Because Martha paid Roger $100 for 12 vintage rocking horses. They agreed that 12 rocking horses would be available for Martha to collect on Sunday morning after 6am. But when chip man arrived to pick up the 12 horses, Roger was not able to provide him 12 horses. Roger sold 11 horses to someone else on Thursday in $150.

Yes, Martha is entitled for $100 return. Because Roger breach the contract.

Whether or not Martha is entitled for Reliance interest from Roger?

The right to compensation for loss due to steps taken by the innocent party in reliance upon the existence of the contract.} In Anglia Televison Ltd v Reed, it was impossible to tell the profits in advance and were awarded the money they had spent in preparation.The aim being to restore the innocent party to the position they would have been in, had the contract not been made.} In relates to Martha scenario, Martha rely on the contract with Roger.

On that reliance Martha organise the stall in market in $60 a morning and spend $30 on signs for her stall. Additionally, Martha paid $25 advance to chip man to pick up the horses. she spent all this expense due to an agreement with Roger.

Expectation interest:

Most likely she is entitled for reliance interest.

Whether or not Martha is entitled for Expectation interest from Roger?

The aim being to financially restore the innocent party to the position they would have been in had the contract been performed. Authority: Stirling v Poulgrain. In relates to Martha scenario, she was planning to sell the horses on for a profit in a local market. In the authority of Chaplin v Hicks, this case inferred the loss of chance. In relates to Martha scenario she lost the chance to make the profit as she planned to sell horses in market.

To calculate the remoteness of damage Hadley v Baxendale [1854] mention two limbs to recover damages from losses. 1) In the usual course of things. 2) whether knowledge of special circumstances exists for both parties.

Usual course of things reflected in the case of Koufos v C Czarnikow Ltd [1969] (The Heron II)

States loss of profits was not too remote under the usual course of things. The appellant must have contemplated about the losses. In relates to Martha scenario, from the facts inferred that Roger was not aware that Martha want all 12 horses early morning to make some profit.

In the case of Victoria Laundry Ltd v Newman Industries Ltd the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonable foreseeable as liable to the result from the breach. Losses from “particularly lucrative contract” would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to accept of liability for such losses. In relates to Martha Scenario, Roger was not aware about the special circumstances of Martha that she would be going to make some profit from horses.

Less likely that Martha would get Expectation interest from Roger. 

Whether or not Martha is entitled to claim restitution interest from Chip man?

The aim being to prevent unjust enrichment.} To put parties in the position they would have been in had the contract been performed (lost profits may be recoverable) Farley v Skinner [2001].}  In relates to Martha scenario, chip man supposed to deliver the Rocking horses in market at 7am on Sunday morning. But chip man failed to do so. Martha gave Chip man $25 in advance for delivery job.

Most likely Martha can claim it back.

Usual course of things reflected in the case of Koufos v C Czarnikow Ltd [1969] (The Heron II)

Whether or not Martha is entitled to claim expectation loss from chip man?

The aim being to financially restore the innocent party to the position they would have been in had the contract been performed. Authority: Bloxham v Robinson. In relates to Martha scenario she wants to sell horses in market and to make some profit. But Martha failed to do so. Cost of putting claimant in position if the contract was performed properly could be disproportionate. Ruxley Electronics and Construction v Forsyth [1996]. Chip man performed the contract but not on terms which Martha want.

To calculate the remoteness of damages, two limbs are referred in Hadley v Baxendale to recover damages from losses. 1) usual course of things. 2) whether knowledge of special circumstances exists for both parties.

Usual course of things reflected in the case of Koufos v C Czarnikow Ltd [1969] (The Heron II)

States loss of profits was not too remote under the usual course of things. In relates to Martha scenario, Chip man was not aware about the signs for selling the Horses. chip man just know that he has to deliver horses early morning. Which he did not do.

In the case of Victoria Laundry Ltd v Newman Industries Ltd the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonable foreseeable as liable to the result from the breach. In relates to Martha scenario, Chip man was aware that Martha need Rocking horses in market. It means that she is going to sell rocking horses in Market.

Assume that If Roger would gave Chip man all the horses and Chip man come in market at 10:30am as chip man did. Martha would not be able to sell the horses after that time. Because after 10:30am all the potential buyer left the market. Because when Martha has one horse at 10:30, she was not managed to sell one horse. Most likely she can claim expectation loss from chip man.

We can distinguish the case: Cost of putting claimant in position if the contract was performed properly could be disproportionate: Ruxley Electronics and Construction v Forsyth [1996]

This is she is hoping to achieve.

Application of this case: She has been deprived with the opportunity to earn some profit. She lost the chance to earn some money. Chaplins v Hicks

((Concrete cost and tangible cost))

She bought all to make some profit.

Remoteness of damage. Are the damages too remote?

2 questions:

Koufos v C Czarnikow Ltd [1969] (The Heron II) In distinguish this case, he hired a man to deliver the horses. 

Roger was not aware about the special circumstances of the Martha to sell in market for profit.

Contract with chip?

Restitution interest: He breach the agreement did not come on time. Need to pay back the $25.

Reliance interest: there is nothing we can claim on reliance from chip.

Expectation interest: if he would have come on time with one rocking horse. Then hopefully, Martha would be able to sell it on time and make a small amount of money.