Principles & Challenges in Handling Contractual Damages Prepared by Saraswathy Shirke Deo
Table of Contents Measure of Contractual Damages Quantum Meruit Calculating Expectation Loss When Cannot be forecasted – Assessing Actual Loss Policy Considerations & Recent Developments
MEASURE OF CONTRACTUAL DAMAGES Expectation Reliance damages Consequential damages damages by contrast, include any other compensate for compensate the losses such as loss losses suffered by the innocent party for the of profits or income , innocent party value of some benefit resulting as a through having he would have consequence of the relied on received under a other party's breach; performance by the contract, had it been in so far as they are other party and then properly performed. not too remote . having been The measure is the These may include disappointed. It net value of the loss of prospective generally involves benefit the innocent profits; personal injury, claims for wasted party failed to get . damage to property, expenditure . and liability to 3rd parties.
Expectation Loss It is the normal measure for assessing damages for breach of contract Based on the plaintiff's expectation of receiving the defendant's performance expectation loss & reliance loss are mutually exclusive, so as to prevent double recovery
• Losses suffered having relied on performance by the other party Reliance Loss • Generally involve claims for wasted expenditure • Only where it is impossible to calculate or cannot establish what profits he would have received, had the contract been performed • But cannot be placed in a better position than he would have been in, had the contract been performed
• This is claimed as Special Damages . Consequential • Loss Any other losses which may have resulted as a consequence of the defendant’s breach • Consequential damages are foreseeable damages that arise as a result of the breach, from circumstances outside a contract which the parties ‘knew’ when the contract was made. • Must not be too remote. To be liable for consequential damages, the defendant must know or have reason to know that the breach will cause special damages to the plaintiff. • The damage must be such that it ‘arose in the usual course of things ’ or ‘which the parties knew , when they made the contract, to be likely to result from the breach.
What is Restitution? An alternative to damages where no no los oss can be be pr proved by the breach of the defendant. This form of restitution is a combination of quantum meruit and quasi contract under common law, together with the equitable remedy of unjust enrichment. In contrast to expectation and reliance losses, re resti titu tuti tion ; is calculated based on the gains of of the he de defendant resulting from the breach of contract, rather than the plaintiff's losses. To restore the innocent party to the pos position he he ha had be before the he for ormation of of the contr trac act . Parties claiming restitution cannot seek lost profits or earnings caused by the breach. Also, restitution will not be awarded if the amount cannot be calculated with certainty. A plaintiff cannot be be awarded in the restitution claim, an amount greate ter than han the he los oss or or dam damage ge that he has suffered as a result of the breach .
What is Quantum Meruit ? ‘ as much as merited ’ or ‘ as much as is earned ’ a claim in proportion to the work done or goods supplied When will it be employed to assess damages? when no price is fixed (thus, if the contractor does work under a contract and no price is fixed by the contract , the contractor is entitled to be paid a reasonable sum for his labour and the materials supplied); in a quasi-contract situation (a good example would be when work is carried out while negotiations as to the terms of the contract are ongoing , the contractor is entitled to be paid a reasonable sum for the work carried out); when work is performed outside a contract (thus, in a situation where there is a contract for specified work but the contractor does work outside the contract at the employer's request the contractor is entitled to be paid a reasonable sum for the work outside the contract on the basis of an implied contract).
Spatial Ventures Sdn Bhd v Twintech Holdings Sdn Bhd [2013] 1 LNS 729 refd(9) Nallini Pathmanathan J (as her ladyship then was) • An assessment for restitution on the basis of quantum meruit is in reality measure of the costs of the work done , • It does not depend upon the contract and therefore will not be trammelled or limited by the contract rate . • This gives the plaintiff, not contractual damages , but restitution for the work done. • To assess on a quantum meruit basis, the court has to consider the following issues in assessing work done based on proof : i. what as a matter of fact is the work done ; and ii. how is the work done to be measured . Note: Work done is quantified & a value is then placed on it to determine the quantum. Plaintiff must tender evidence to enable the court to arrive at an assessment of the value of the work done.
Assessment of Damages At Common Law Contracts Act 1950 Hadley v Baxendale (1854) 9 Ex 341 Section 74 (1) When a contract has been “Where two parties have made a broken, the party who suffers by the contract which one of them has breach is entitled to receive, from the broken, the damages which the other party who has broken the contract, party ought to receive … should be compensation for any loss or damage such as may fairly and reasonably be caused to him thereby, which considered either arising naturally, i.e. naturally arose in the usual course of according to the usual course of things from the breach, or which the things, from such breach of contract parties knew, when they made the itself, or such as may reasonably be contract, to be likely to result from the supposed to have been in the breach of it. contemplation of both parties, at the (2) such compensation is not to be time they made the contract, as the given for any remote and indirect loss probable result of the breach of it.” or damage sustained by reason of the breach.
GENERAL & SPECIAL DAMAGES In Ban Chuan Trading Co Sdn Bhd v Ng Bak Guan [2003] 4 CLJ 785, the COA considered recovery of general and special damages under section 74. Following the FC decision in Ismail v Haji Taib [1972] 1 LNS 47 foll(2) refd(4), it was observed that the P could exercise his option to claim for: • General Damages (Loss of Profits); or 1 st Limb (directly & naturally resulting from the breach) • Special Damages (Wasted Expenditure or 2 nd Limb the Damages incurred in Preparation of Performance. Loss of Profits known to contract breaker) The P could not recover damages under both heads, though he may plead them in the alternative.
CALCULATING Loss of Pr Profits its Let’s consider the case of - Delpuri-Harl Corp JV Sdn Bhd v Perbadanan Kemajuan Negeri Selangor [2014] 1 LNS 1075
ACTS
Delpuri- Harl The crux of the decision was premised on the issue of whether the respondent was entitled to claim for the: • loss of profits in the sum of RM12,520,000; and • wasted expenditure in the sum of RM2,563,878.95. whether the appellant's method of assessment to claim for the loss of profits was proper whether the appellant is entitled to claim for wasted expenditure in the sum of RM2,563,878.95 whether the appellant's claim should be based on quantum meruit as estimated by R’s QS
elpuri Harl
elpuri Harl Calculating Loss of Profits The A’s method of assessing loss of profits: [deduct the cost of subcontract from the cost of main contract] RM41.3 mil – RM28.8 mil = RM12.5 mil The court rejected because the A did not prove that a profit at 30.26 per centum for a contract of this nature was usual or normal in the construction industry. The COA considered the ordinary measure of assessing loss of profits: Remaining Contract Estimated Cost Price of Completing the Job RM41.3 mil -- ? No Estimate = Loss Of Profits Not Proved No evidence was adduced to prove estimated cost of completion. COA only awarded RM100K which sum included the sum of RM70,575.45 assessed by QS which represents value for work done, as nominal damages to the A.
Delpuri-Harl Corp JV Sdn Bhd v Perbadanan Kemajuan Negeri Selangor [2014] 1 LNS 1075 DECISION OF THE COURT OF APPEAL: reversed High Court’s HIGH COURT: decision on liability & held that After a full trial the learned the termination was made High Court judge held that the unilaterally by the respondent termination of the contract & accordingly it was a was a mutual termination and wrongful termination. that, save for the award of the sum of RM70,575.45 being a On quantum - held that the sum admitted by the appellant had failed to prove respondent, the rest of the its losses as claimed. COA appellant's claim was instead awarded RM100K dismissed with costs. only as nominal damages. * “ …In doing so, we recognised the fact that the appellant did suffer some damages as a result of the wrongful termination.”
Recommend
More recommend
