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Damages for Breach of Contract
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Damages for Breach of Contract

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    Damages for Breach of Contract Damages for Breach of Contract Presentation Transcript

    • DAMAGES FOR BREACH OF CONTRACT
    • OUTLINE1. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure of Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • 1. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure of Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • DEFINITION• Damages are monetary compensation for the damage,loss or injury that a party has suffered through abreach of contract.• Damages for breach of contract are available as ofright upon the proof of breach.• Statutory formula: Ss. 74, 75, & 76 of CA 1950
    • DEFINITION• Damages simply means the monetary compensationfor the damage, loss or injury suffered through abreach of contract.• Damages are the consequences of breach of contract.• Damages for breach of contract are available as ofright upon proof of breach.• Statutory formula: Sections 74, 75 & 76 of CA 1950provides for damages.1. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure of Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • DAMAGES UNDER THE CA 1950• S. 74 limits a plaintiff’s claim for damages caused by abreach of contract.• While S. 74(1) provides for damages occasioned in thenormal cause of things, S. 74(2) emphasizes that nocompensation should be given for any remote andindirect loss or damage sustained.• S. 74 has two limbs which set the limits of damagesclaimable.– The First Limb: Imputed knowledge– The Second Limb: Special knowledge
    • Meaning of Imputed and Special Knowledge• Imputed Knowledge: When the damage or losscaused to the injured party arose naturally in theusual course of things from the breach.• Special Knowledge: When the parties to thecontract were fully aware at the time when theymade the contract that damage or loss is likely toresult from the breach.
    • Origin of S. 74 CA 1950• Rule in Hadley v. BaxendaleP’s mill stopped functioning as a result of the breakage of acrankshaft. P engaged the services of D who are carriersto deliver the broken crankshaft to the makers as apattern for a new one. P only informed D that thecrankshaft is a broken one and they are the millers of themill. D negligently delayed the delivery of the crankshaft.Consequently, P’s mill couldn’t operate for a longer periodthan expected. They therefore sued for the profit lost as aresult of the delay.Held: P couldn’t recover for the loss or damage.
    • The First Limb –Imputed Knowledge• Formula: S. 74 of CA 1950, Illustrations (a) to (h)• Reasonable person is expected to know the ‘ordinary course ofthings’ and the kind of loss that is liable as a result from a breachof contract.• Illustrations (a) to (g) show that the contract-breaker is imputedwith the knowledge that prices of goods in the market dofluctuate. Therefore, he bears the responsibility for anydifference in the price.
    • Dato Mohd Anuar bin Embong v. Bank Bumiputra (M) Bhd[1997] 1 MLJ 642• Bank provided Appellants overdraft facility to finance the purchaseand development of a piece of land. A secured the overdraft facilityby granting a legal charge over the land in question. Part of theland was compulsorily acquired by the govt. and B released theaffected titles to the govt. and the remaining ones to A in 1983 butdidn’t discharge the encumbrances on the titles as agreed. In 1987,A requested B to discharge the encumbrances but B failed and Ahad to abort the sale of land to different purchasers. A sued B forunlawfully withholding the discharge of the encumbrances on thetitles.• Court of Appeal upheld the award of RM5,000 as nominal damages– A suffered no loss of profit arising naturally under the first limb ofS. 74(1).
    • Imputed knowledge – Upon breach, injured party takes othersteps and may suffer some losses (b) & (f)• Bee Chuan Rubber Factory Sdn Bhd v. Loo Sam Moi [1976] 2MLJ 14• R sued A for losses suffered as a result of A’s delay incompleting R’s house for 4.5 years. R had to find alternativeaccommodation during the said period at the rate of $100 amonth.• Wan Suleiman FJ awarded the damages claimed by R.• Federal Court upheld the decision. Damages wererecoverable for such a breach within the first limb of S. 74(1)if such expenses were in fact incurred.
    • Review of Relevant Illustrations• * Review with students:• Illustrations (c), (e) and (g) where thecontract-breaker is the buyer.• Illustration (h): Goods are normally sold andservices rendered at a profit.
    • The Second Limb –Special Knowledge• Formula: S. 74 of CA 1950, Illustrations (i), (j), (l) & (m).• Contract-breaker knew at the date of the contract the specialcircumstances of the other party.• Possession of such knowledge puts the contract-breaker in aposition to foresee that a breach in such special circumstanceswill be likely to cause more loss.• As a reasonable man, he could foresee that such loss is likely toresult from his breach.
    • Illustration (i): Delay in delivering machine causes factory tobe idle incurring loss of profits• Cheow Toh v. Associated Metal Smelters Ltd[1972] 1 MLJ 171• A agreed to sell a metal melting furnace to R andundertook that the melting furnace shall have atemperature of not lower than 2,600OF. A failed to fulfillthis specs. R claimed A was in breach of a condition ofthe contract.• Trial judge granted R’s claim and awarded damages forloss of profits.• FC upheld the decision and awarded damages to R underthe second limb.
    • Illustration (j): Entering into a Contract with thepurpose of fulfilling another contract with a 3rdpartyPopular Industries Limited v. Eastern GarmentManufacturing Sdn Bhd [1989] 3 MLJ 360• P who carry on business in Canada, successfully claimedagainst the D, who carry on business in Malaysia, for non-delivery of goods alleging loss of profits on resale.• Joseph Jr. J held that when the buyer is a trader and the sellerknew or ought to have known that the buyer bought the goodswith a view to resell, the buyer is entitled to his loss of profitson the resale, upon non-delivery of the goods by the seller.• Though there was damage, P failed to produce sufficientevidence of the amount of loss, so nominal damages wereawarded.
    • DAMAGES UNDER CA 19501. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure or Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • MEASURE OR QUANTUM OF DAMAGES• Measure or Quantum of Damages is the loss of profits orbargain, which would normally be the difference between themarket price and the contract price.• General Purpose: To give compensation, i.e. to put theplaintiff in as good a position as he would have been had thedefendant performed the contract.• Damages can either be:– General Damages: Damages for Loss of Profits or Bargain– Special Damages: Damages for wasted expenditure
    • General Damages: Loss of Profits or Bargain• See Illustration (d) of S. 74 CA 1950.– A contracts to buy B’s iPhone 4S for RM2,000, but breakshis promise. A must pay to B, by way of compensation, theexcess, if any, of the contract price over the price which Bcan obtain for the iPhone at the time of the breach ofpromise.• Plaintiff must show that he has suffered some loss ordamage due to the defendant’s breach of contract.• Formula: LP = contract price - market price
    • East Asiatic Co Ltd v. Othman [1966] 2 MLJ 38• D ordered a motorcar from P but defaulted intaking delivery. P sued D for breach of contractand claimed damages for loss of profits.• Abdul Aziz J held: P’s loss was the loss of profitsor bargain which they would have made if therewas no breach, i.e. the difference between theagreed retail price of $6,390 and $4,477.69, theprice at which P eventually sold the car.• Loss of Profits (LP) = $6,390 - $4,477.69= $1,912.31
    • Taxation on damages for breach of contract• In the award of damages for breach of contract,deductions should be made for any sum which theplaintiff would have been liable to pay in taxes.• The above principle was established in the decisionof the House of Lords in British TransportCommission v. Gourley [1956] AC 185.• But two main conditions must be fulfilled:1. Money for loss of which damages are awardedwould have been subject to tax as income;2. Damages awarded to the plaintiff are not subject totax in his hands.
    • British Transport Commission v. Gourley [1956] AC 185• The plaintiff was a senior partner in a firm of civilengineers who sustained serious injuries in a railwayaccident because of the defendant’s negligence.• The High Court assessed the plaintiff’s loss of actualand prospective earnings at 37,720.₤• The defendant disputed this, contending that as theplaintiff would have had to pay 31,025 in tax on those₤earnings, he ought only to be compensated for theafter-tax amount of 6,695.₤• By a 6-1 majority, the House of Lords held that theplaintiff should be awarded only 6,695.₤
    • Daishowa (M) Wood Products Sdn Bhd v. KepongWood Products Co Sdn Bhd. [1980] 2 MLJ 68, FC• English principle on Taxation on damages for breach of contract wasintroduced in Daishowa’s case.• The appellant agreed for a period of five years to buy all wood chipsproduced by the respondent. The agreement was renewable at theoption of either party giving two months’ notice to the other.• The trial judge found that the appellant was not entitled toterminate the agreement and awarded damages calculated as thegross amount of lost profit. The appellant contended that the trialjudge ought to have deducted tax from the award.• The Federal Court held that the damages were for the destructionof apparatus (and thus not taxable) because the appellant’stermination caused the respondent’s business to come to an end,and reduced the award.
    • Non-delivery of Goods Sold• Normal measure of damages for non-delivery of goods sold isthe difference between the market price and the contractprice.• The above rule applies when there is an available market.Popular Industries Limited v. Eastern Garment ManufacturingSdn Bhd. [1989] 3 MLJ 360Held: When the buyer is a trader and the seller knew or ought tohave known that the buyer bought the goods with a view toresale, the buyer is entitled to his loss of profits on the resale,upon non-delivery of the goods by the seller.
    • 1. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure of Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • REMOTENESS OF DAMAGES• S. 74(2) CA 1950: No compensation is given for a remote andindirect loss or damage sustained by reason of breach.• Remoteness of damages is a defense often brought against anallegation of breach of contract.• The contract-breaker or defendant insists that he does nothave knowledge of the special circumstances of the plaintiffunder the second limb.• Illustrations (k), (n), (o), (p), (q), & (r).
    • Abdul Razak Bin Datuk Abu Samah v Shah AlamProperties SdnBhd And Another Appeal [1999] 2 MLJ 500• “The object of damages for breach of contract is toplace the innocent party in the same position asthough the contract had been performed. But, in anaction for fraudulent misrepresentation, the object ofthe law is to place the representee in the position hewould have been had he not been induced. Hence, therule as to remoteness of damage contained in s 74 ofthe Contracts Act 1950 has no application whatsoeverto an action for damages in the tort of deceit”.Per Gopal Sri Ram JCA (as he then was)
    • Illustration (k): No knowledge that machine (or goods) boughtto perform contract made with 3rdParty• Dato Mohd Anuar bin Embong v. Bank Bumiputra (M) Bhd• R failed to discharge encumbrances on the titles resulted inthe cancellation of the sale of land by A to differentpurchasers. Some of the purchasers sued A for breach ofcontract and A claimed against R for the damage allegedlysuffered.• Court held: Claims against R were too remote.
    • Illustrations (p) & (q): No knowledge why injuredparty bought goods• Contract-breaker claims he has no knowledge why the injuredparty bought the goods. In such a case, the damage is tooremote and the contract-breaker is not liable to pay damagesunder the Second limb of S. 74.• But contract-breaker will be liable to pay damages relating toany circumstances of imputed knowledge under the first limbsuch as fluctuation of prices.
    • Daishowa (M) Wood Products Sdn Bhd v. Kepong WoodProducts Co Sdn Bhd. [1980] 2 MLJ 68, FC• A agreed for a period of five years to buy all wood chips produced byR. The agreement was renewable at the option of either party givingtwo months’ notice to the other.• Due to bad market conditions, A initially took delivery of a reducedamount of wood and later refused to take any delivery from R whilestating that they were no longer bound by the terms of contract.• R sued A for breach of contract and claimed for damages.• The trial judge found that A was not entitled to terminate theagreement and awarded damages calculated as the gross amount oflost profit. A contended that the trial judge ought to have deductedtax from the award.• The Federal Court held that the damages were for the destruction ofapparatus (and thus not taxable) because A’s termination R’sbusiness to come to an end, and reduced the award.
    • Illustration (n): No knowledge injured party was indire need of money• Lim Foo Yong & Sons Realty Sdn Bhd v. Datuk Eric Taylor [1990] 1MLJ 168• A bought shares from R. Part of the purchase price was the titledeed of a piece of land owned by R though charged to A. A failed todo so and R alleged that A’s failure caused him to suffer financiallosses. R claimed inability to deal with the land as a result of non-discharge of the title deed. In order to overcome some financialdifficulties, R’s wife had to sell their matrimonial home that was inher name.• On appeal, R conceded that land could have been sold as chargedland.• SC dismissed R’s claim and held: No evidence that R tried to sell theland or it could not be sold because of A’s failure to discharge theland. For R to recover damages, A’s breach of contract must causeloss to R and not his wife.
    • • Illustration (o): No knowledge injured party intendsto resell goods• Illustration (r): No knowledge that delay in transportwill cause injured party losses at place of destination• Heng Hang Khim v. Sineo Enteprise Sdn Bhd [2007] 4MLJ 471.
    • Heng Hang Khim v. Sineo Enteprise Sdn Bhd[2007] 4 MLJ 471.• By the sale and purchase agreement (SPA) entered into between P& D (developer) for the sale and purchase of a condominium in JB,D agreed to sell and the plaintiff agreed to purchase the Condo unitfor the purchase price of RM319,000.00.• Pursuant to the SPA, 20% of the purchase price (aggregatingRM63,800.00) had been paid by P to D. The D had breached theSPA by failing to deliver vacant possession of the Condo to theplaintiff at the contractual date. As a result thereof, the plaintiffterminated the SPA. P brought an action against D claiming thatSPA has been terminated, refund of 20% purchase price paid as wellas damages.• Court granted P’s claim and awarded general damages. On furtherappeal, it was held D is liable to repay to P his deposit, with interestand damages. “The recovery of the sum paid as part purchasepayment is allowed under s. 74 as compensation for loss or damagecaused by breach of a contract.”
    • 1. Definition of Damages2. The Limits of Damages Claimable under S. 743. Measure of Quantum of Damages4. Remoteness of Damages5. Proof of Damage
    • PROOF OF DAMAGE• Plaintiff who claims damages for breach of contractmust produce evidence for the loss suffered as aresult of the breach.• No documentary evidence results in a reasonableevaluation of loss incurred.• Evidence must be adduced in court to support anyreasonable evaluation being proposed to the court.
    • SEA Housing Corporation Sdn Bhd v. Lee Poh Choo[1982] 1 MLJ 324• D developer delayed in completing the constructionof P’s house. P claimed for loss of use and enjoymentof the house by way of rental caused by D’s delay.• Without producing any documentary evidence orwitnesses, P told the court she only called D’s officeand was informed the rental would be$2,500/month.• Court held: P couldn’t recover as she failed to proveher loss of use and occupation of the house by wayof rental. The onus of proof of damages lies on P.
    • Damages must be pleaded and proven• The plaintiff must plead damages and adduce evidenceto support any claim.• Special damages must be both specifically pleaded andproved.• Failure to prove substantial damages may lead to thefailure of an action or at best the court may award onlynominal damages upon proving that the defendant hadbroken the contract.• Nominal damages are only relevant upon the proof ofbreach of contract.• Once damage is proved and its amount is not provedsufficiently, the court will award nominal damages.
    • Popular Industries Limited v. Eastern GarmentManufacturing Sdn Bhd. [1989] 3 MLJ 360•P who carry on business in Canada, successfully claimedagainst the D, who carry on business in Malaysia, for non-delivery of goods alleging loss of profits on resale.• Joseph Jr. J held that when the buyer is a trader and theseller knew or ought to have known that the buyer boughtthe goods with a view to resell, the buyer is entitled to hisloss of profits on the resale, upon non-delivery of the goodsby the seller.• Though there was damage, P failed to produce sufficientevidence of the amount of loss, so nominal damages wereawarded.•P would have been able to obtain loss of profits sufferedhad they produced the necessary evidence showing theexact amount of loss.
    • Claim for Loss of Reputation and Credibility• General rule: Damages for loss of reputation andcredibility is not recoverable under S. 74 CA 1950.• Exceptions:1. Action against a banker for refusing to pay a customer’schecque where he has in his hands funds of the customer tomeet it;2. Mismanagement of the advertising of the plaintiff’s business;and3. Wrongful dismissal of an actor or a literary figure whichcauses him a loss of future publicity.
    • CCA Holdings Ltd. v. Palm Resort Bhd. [1998] 4MLJ 143.• P were managers of D’s club under a technicalassistant and managerial agreement.• D gave P a notice of termination of the agreement onthe ground that the club had not generated anoperating profit as required in the agreement.• P applied for an injunction against D to restrain themfrom removing them as managers of the club.• P alleged such termination would have adverse impacton their goodwill and reputation as managers ofprestigious club internationally.• Court held: P did not fall within any of the threeexceptions and as such their claim failed.
    • Mitigation of Damages• Under the mitigation of damages doctrine, aperson who has suffered an injury or loss shouldtake reasonable action, where possible, to avoidadditional injury or loss.• The failure of a plaintiff to take protective stepsafter suffering an injury or loss can reduce theamount of the plaintiffs recovery.• The mitigation of damages doctrine is sometimescalled minimization of damages or the doctrineof Avoidable Consequences
    • Popular Industries Limited v. Eastern GarmentManufacturing Sdn Bhd. [1989] 3 MLJ 360• Joseph Jr. J observed that the normal measure ofdamages for non-delivery of goods sold is thedifference between the market price and thecontract price but this rule applied only when thereis an ‘available market’.• That is, the buyer is able to go out and uy equivalentgoods.