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Published online by Cambridge University Press: 07 July 2020
The existing principles of quantification of damages for non-pecuniary losses deriving from breach of contract which are adopted by the courts or advanced in the legal scholarship appear to be arbitrary and founded on certain misconceptions. This paper proposes three different models for assessment based on the consequences of breach. When the performance is possible after the breach, the damages are equal to the value of an alternative subject matter if such is available from elsewhere. If there are no other sources from where the bargained-for subject matter can be obtained, then the amount of the damages is based on the value of a substitutive benefit which leads to attainment of the initial contractual aim. If the promisee has no interest in delayed performance, the damages are quantified with respect to a different non-pecuniary benefit which is commensurable to the one that was pursued with the contract initially.
I would like to express my gratitude to Charlie Webb, Jonny Hall, David McGrogan, and the two anonymous reviewers of Legal Studies for their comments on earlier drafts of this paper.
1 For general analysis of the recovery of damages for non-pecuniary losses see Peel, E (ed) Treitel on The Law of Contract (London: Sweet & Maxwell, 15th edn, 2020) paras 20-082–20-092Google Scholar; Beatson, J et al. (eds) Anson's Law of Contract (Oxford: Oxford University Press, 30th edn, 2016) pp 566–568CrossRefGoogle Scholar and Beale, H (ed) Chitty on Contracts (London: Sweet & Maxwell, 33rd edn, 2018) paras 26-151–26-159Google Scholar. See also Bowen, AJ ‘Watts v Morrow and the consumer surplus’ (2003) 1 Scots Law Times 1Google Scholar; Bridge, MG ‘Contractual damages for intangible loss’ (1984) 62 The Canadian Bar Review 323Google Scholar; AS Burrows ‘Mental distress damages in contract – a decade of change’ (1984) Lloyd's Maritime and Commercial Law Quarterly 119; Burrows, A ‘Mental distress damages for breach of contract’ (1990) 140 New Law Journal 596Google Scholar; Capper, D ‘Damages for distress and disappointment – the limits of Watts v Morrow’ (2000) 116 Law Quarterly Review 553Google Scholar; Capper, D ‘Damages for distress and disappointment – problem solved’ (2002) 118 Law Quarterly Review 193Google Scholar; Chandler, A and Devenney, J ‘Breach of contract and the expectation deficit: inconvenience and disappointment’ (2007) 27(1) Legal Studies 12654CrossRefGoogle Scholar; Clapton, M and McInnes, M ‘Contractual damages for mental distress’ (2007) 123 Law Quarterly Review 26Google Scholar; Collins, H ‘Compensation for the manner of dismissal’ (2004) 33(2) Industrial Law Journal 152CrossRefGoogle Scholar; Collins, H ‘Compensation for dismissal: in search of principle’ (2013) 41(2) Industrial Law Journal 208Google Scholar; Coote, B ‘Contract damages, Ruxley, and the performance interest’ (1997) 56(3) Cambridge Law Journal 537CrossRefGoogle Scholar; Enonchong, N ‘Breach of contract and damages for mental distress’ (1996) 16(4) Oxford Journal of Legal Studies 617CrossRefGoogle Scholar; Enonchong, N ‘Contract damages for injury to reputation’ (1996) 59 Modern Law Review 592CrossRefGoogle Scholar; Hetherington, S ‘Passenger's damages for disappointment and distress’ (1993) 4 Lloyd's Maritime and Commercial Law Quarterly 289Google Scholar; Jackson, BS ‘Injured feelings resulting from breach of contract’ (1977) 26(3) International Comparative Law Quarterly 502CrossRefGoogle Scholar; Lawson, RG ‘Breach of contract and damages for disappointment’ (1974) 118 The Solicitors’ Journal 16Google Scholar; Leng, TK ‘Contractual damages for mental distress’ (2002) 11 Nottingham Law Journal 65Google Scholar; Lewis, J ‘Can damages buy you happiness: damages for distress after Farley v Skinner’ (2008) 19 King's College Law Journal 113Google Scholar; Macdonald, E ‘Contractual damages for mental distress’ (1994) 7 Journal of Contract Law 134Google Scholar; McInnes, M ‘Contractual damages for mental distress – again’ (2009) 125 Law Quarterly Review 16Google Scholar; McKendrick, E and Graham, M ‘The sky's the limit: contractual damages for non-pecuniary loss: Farley v Skinner’ (2002) 2 Lloyd's Maritime and Commercial Law Quarterly 161Google Scholar; C Mitchell ‘Promise, performance and damages for breach of contract’ (2003) Journal of Obligations and Remedies 67; O'Sullivan, J ‘Contract damages for failed fun – taking the plunge’ (1995) 54 Cambridge Law Journal 496CrossRefGoogle Scholar; Pearce, D ‘Farley v Skinner: right or wrong?’ (2002) 61(1) Cambridge Law Journal 24CrossRefGoogle Scholar; A Phang ‘Subjectivity, objectivity and policy – contractual damages in the House of Lords’ (1996) Journal of Business Law 362; A Phang ‘The crumbling edifice? The award of contractual damages for mental distress’ (2003) Journal of Business Law 341; Rea, SA Jr ‘Nonpecuniary loss and breach of contract’ (1982) 11(1) Journal of Legal Studies 35Google Scholar; Yates, D ‘Damages for non-pecuniary loss’ (1973) 36(5) Modern Law Review 535Google Scholar.
2 The recovery of damages for non-pecuniary losses is subject to the requirements of: causation – Abbott v RCI Europe [2016] EWHC 2602 (Ch) at 116–117; remoteness – Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350; and mitigation – Thai Airways International Public Co Ltd v KI Holdings Co Ltd [2015] EWHC 1250 (Comm), [2015] 1 CLC 765 at 31–38.
3 See Farley v Skinner [2002] 2 AC 732 at 747 ff per Lord Steyn, where the previous law, allowing recovery only in cases where the sole object of the contract was to provide pleasure, relaxation and peace of mind, is compared to the new rule established in Farley, where it was held sufficient that the major or important part of the contract was to give any of these non-pecuniary benefits to the claimant. About the requirement of the old law where it was required that the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation see Watts v Morrow [1991] 1 WLR 1421 at 1445.
4 Throughout this paper the parties to a contract who can suffer non-pecuniary losses as a result of breach are referred to as ‘promisees’, irrespective of the fact that they might be promisors with regard to another obligation in synallagmatic contracts. Appellations denoting their procedural roles like ‘claimants’, ‘defendants’, ‘respondents’ and ‘appellants’ are used only where citations or references to particular proceedings are provided.
5 See Godley v Perry [1960] 1 WLR 9.
6 See Watts v Morrow, above n 3, at 1445. With respect to the distinction between damages for personal injury, damages for pain and suffering and damages for distress, vexation and frustration where the very object of the contract has been to provide pleasure, relaxation or freedom from molestation, as it is understood in Australia, see Moore v Scenic Tours Pty Ltd [2020] HCA 17.
7 Enonchong ‘Breach of contract and damages for mental distress’, above n 1, at 619 ff.
8 For a summary of English law on recovery of damages for non-pecuniary losses, as it was in 1992, see the leading Australian case Baltic Shipping Co v Dillon (1993) 176 CLR 144.
9 McKendrick, E and Worthington, K ‘Chapter 13: Damages for non-pecuniary loss’ in Cohen, N and McKendrick, E (eds) Comparative Remedies for Breach of Contract (Oxford: Hart Publishing, 2005) pp 287–322Google Scholar.
10 In this paper the result or the performance the promisor is obligated to provide to the other party is referred to as subject matter of the agreement. For more details about its general nature and effects, see Chitty on Contracts, above n 1, para 21-001 ff.
11 The notion of contractual aim is new and has not previously been examined in the legal literature. For more details about its importance for the assessment of damages for non-pecuniary losses, see Section 3(a) below.
12 For more details about the recoverability of damages for non-pecuniary losses, Chitty on Contracts, above n 1, para 26-151.
13 (1874–75) LR 10 QB 111.
14 But see Hamlin v The Great Northern Railway Company (1856) 156 ER 1261, where it was held at [410] that ‘the inconvenience or injury to the feelings of the plaintiff cannot be taken into consideration in assessing the damage’ in a case where the promisor did not provide transportation to a certain station, and as a result the promisee had to arrange overnight accommodation.
15 Hobbs v London and SW Ry Co, above n 13.
16 Ibid, at 120.
17 In other cases where substandard holidays were provided, the damages for non-pecuniary losses were calculated in similar ways: Feldman v Allways Travel Service [1957] CLY 934, Stedman v Swan's Tours (1951) 95 SJ 727 (CA), Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468; Wings Ltd v Ellis [1985] AC 272; Baltic Shipping Co v Dillon (1993) 176 CLR 144; and Milner v Carnival plc [2010] EWCA Civ 389, [2010] 3 All ER 701.
18 [1973] QB 233.
19 Ibid, at 238.
20 Ibid, at 238.
21 Ibid, at 240.
22 Ibid, at 241.
23 [1991] 1 WLR 1421.
24 Ibid, at 1443.
25 [1996] AC 344.
26 [1996] AC 344.
27 Ibid.
28 The award of the Court of Appeal aims to ensure that the performance that was initially agreed could be procured, and it represents an alternative way than the one adopted by the House of Lords in which the inconvenience and discomfort, suffered by the defendant, were going to be addressed. For more details about this quantification, see Section 3 below. For a more general discussion about the relationship between cost of reinstatement and cost of repair, see Treitel on The Law of Contract, above n 1, para 20-039.
29 Ruxley, above n 25, at 361.
30 This decision was found to be in line with the promisee's duty to mitigate all losses, see Farley v Skinner, above n 3, at 740.
31 1999 WL 1048346.
32 [2000] PNLR 441.
33 [2002] 2 AC 732.
34 Farley v Skinner, above n 31, at 3.
35 Farley v Skinner, above n 32, at 468.
36 Farley v Skinner, above n 3, at 751.
37 Farley v Skinner, above n 3, at 751 per Lord Steyn, at 763 per Lord Hutton and at 772 per Lord Scott of Foscote.
38 Ibid, at 751 per Lord Steyn.
39 Treitel on The Law of Contract, above n 1, para 20-047.
40 Chitty on Contracts, above n 1, para 26-039.
41 Kramer, A The Law of Contract Damages (Oxford: Hart Publishing, 2nd edn, 2017) p 540CrossRefGoogle Scholar.
42 For a detailed analysis of the importance of timely performance and when the time is of the essence see Stannard, J Delay in the Performance of Contractual Obligations (Oxford: Oxford University Press, 2nd edn, 2018) para 2.01 ffGoogle Scholar.
43 Nevertheless, these delayed performances would not eliminate the losses which would have been suffered between the time when the performance was due and its actual conferment. The recoverability of non-pecuniary losses caused as a result of delayed performance follows the same principles as those examined in Section 4 below. Generally, about the damages for delay, see Stannard, above n 42, para 9.01 ff.
44 This would be when the promisor insists on the promisee's acceptance of a delayed performance along with damages for delay instead of compensation for full non-performance. The amount of the latter might be significantly higher. Generally, about the promisor's right to offer delayed performance instead of damages for non-performance, see Stannard, above n 42, para 6.01 ff.
45 There are no works exploring the mitigation of damages for non-pecuniary losses, but generally about the principles of mitigation, see Chitty on Contracts, above n 1, para 20-087 ff.
46 Treitel on The Law of Contract, above n 1, para 20-039 ff.
47 Chitty on Contracts, above n 1, para 26-039.
48 See Stannard, above n 42, para 7.01 ff.
49 This rule is examined in Ruxley, above n 25, at 365, where it is accepted that this rule is applicable to all cases despite the type of losses suffered as a result of a defective or partial performance. The same opinion is expressed in Winterton, D Money Awards in Contract Law (Oxford: Hart Publishing, 2015) p 189Google Scholar.
50 Ruxley, above n 25, at 358 per Lord Jauncey of Tullichettle.
51 The concept of contractual interest is new and it is introduced in the present paper as aiming to denote the promisee's interest in fulfilment of his contractual aim as a result of the contractual performance. For a critique on finding new ‘interests’ or creating new labels for existing ones see D McLauchlan ‘Reliance damages for breach of contract’ (2007) New Zealand Law Review 417 at 424−427 (reprinted in Berryman, J and Bigwood, R (eds) The Law of Remedies: New Directions in the Common Law (Irwin Law, 2010) p 33 at pp 41–44Google Scholar).
52 Generally, about the nature of the expectation interest see Treitel on The Law of Contract, above n 1, para 20-020 and Chitty on Contracts, above n 1, para 26-023.
53 For comparison of the terms ‘performance’ and ‘expectation interest’ see Friedmann, D ‘The performance interest in contract damages’ (1995) 111 Law Quarterly Review 628 at 632Google Scholar, who states that ‘[t]he expectation interest is simply an inappropriate term describing the performance interest’ and see also Webb, C ‘Performance and compensation: an analysis of contract damages and contractual obligation’ (2006) 26(1) Oxford Journal of Legal Studies 41CrossRefGoogle Scholar.
54 Chitty on Contracts, above n 1, para 26-024.
55 Watts v Morrow, above n 3, at 1424 per Ralph Gibson LJ.
56 The defendant was able to dive safely into the defective swimming pool and therefore it could be concluded that his non-pecuniary contractual interest was satisfied despite the defective performance. For more detailed justification of this interpretation see ZM Zlatev ‘Approaches towards the concept of non-pecuniary losses deriving from breach of contract’ (PhD thesis, London School of Economics and Political Science, 2019) available at http://etheses.lse.ac.uk/4065/ at 100 ff.
57 Ruxley, above n 25, at 349 ff.
58 For other explanations of this case see Coote, above n 1, at 538–544 and 559–566 and McKendrick, E ‘Breach of contract and the meaning of loss’ (1999) 52(1) Current Legal Problems 37 at 41–46CrossRefGoogle Scholar.
59 See eg Chandler v Webster [1904] 1 KB 493.
60 Hobbs, above n 15, at 112.
61 Hobbs, above n 15, at 114.
62 All damages, including those for non-pecuniary losses, are subject to limitations, which are beyond the scope of the present paper, but see more generally McGregor on Damages (Sweet & Maxwell, 20th edn, 2019) para 8-001 ff.
63 Chitty on Contracts, above n 1, para 26-087.
64 1971 SLT (Sh Ct) 49.
65 The assessment of damages proposed in this section is also applicable to cases where the promisee seeks compensation for the period of delay in which he is deprived of the beneficial effect of the promised performance. This is because during this period the promisee could not enjoy the non-pecuniary benefits to which he was entitled, and the other methods of compensation, proposed in the preceding two sections, cannot provide such an outcome. For a more general overview of the compensation for delay, see Stannard, above n 42, para 9.01 ff.
66 Robinson v Harman (1848) 154 ER 363 at 855.
67 See Ford v White & Co [1964] 1 WLR 885 (CA).
68 See Winterton, above n 49, p 26.
69 Farley v Skinner, above n 3, at 748 per Lord Steyn.
70 Ibid, at 743 per Lord Steyn.
71 See Pegler v Ry Executive [1948] AC 332.
72 However, there are certain limitations to the recovery of the losses caused as a result of this suffering, including in terms of mitigation. For an alternative opinion about the applicability of the principle of mitigation to consequential losses only, see Winterton, above n 49, pp 165–166. For an objection against this opinion see Barnett, K ‘A critical consideration of substitutive awards in contract law’ (2018) 81 Modern Law Review 1064 at 1075–1078CrossRefGoogle Scholar.
73 The plaintiff was awarded £10,000: see Farley v Skinner, above n 3, at 763, 765, and 772.
74 However, it should be noted that in cases where the promisee recovers damages, his counter-performance must be either provided to the other party or its value must be subtracted from the compensation that he receives. Otherwise the promisee will be overcompensated as he will receive a substitution for the promised contractual performance without providing his correlative counter-performance. For more details about this general question, see subsection (c) below.
75 About principle of reasonableness, see also Rowan, S ‘Cost of cure damages and the relevance of the injured promisee's intention to cure’ (2017) 76(3) The Cambridge Law Journal 616CrossRefGoogle Scholar.
76 In all cases the principles for limitation of non-pecuniary losses should be applicable. For a general overview of the principles of limitation, see Chitty on Contracts, above n 1, para 26-066 ff.
77 Dunkirk Colliery Co v Lever (1878) 9 Ch D 20.
78 Treitel on The Law of Contract, above n 1, para 20-047.
79 McGregor, above n 62, para 8-001 ff.
80 Jarvis, above n 18, at 237.
81 Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 354 ff per Deane and Dawson JJ.
82 This would be under the third rule of mitigation of losses examined in McGregor on Damages, above n 62, para 9-108 ff.
83 For a detailed justification of this principle see Zlatev, above n 56, at 88. The opposite opinion was expressed in Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 406 per McHugh J.
84 McGregor on Damages, above n 62, para 1-004 ff.
85 Attorney General v Blake [2001] 1 AC 268 at 280.
86 See n 38 above.
87 Despite the general understanding expressed in the common law that the losses aim to place the promisee in an identical financial position to that in which he would have been had the contract been performed, there are some newer understandings where the promisee's factual position seems to be relevant too. See One Step (Support) Ltd v Morris-Garner and Another [2019] AC 649 at 674 per Lord Reed JSC.
88 See Winterton, above n 49, p 60 ff and the literature referenced there.
89 Moore v Scenic Tours Pty Ltd [2020] HCA 17 at paras 62–75 per Edelman J.
90 Treitel on The Law of Contract, above n 1, para 20-037 ff.