The Global Damages Review: United Kingdom

Overview

Under English law, the basic principle for a breach of contract is that a party is entitled to be put in the same position as they would have been had they not sustained the wrong.2 As the name suggests, compensatory damages are intended to compensate a claimant for losses suffered as a result of the other party's (wrongful) conduct.

While the concept of compensatory damages is common to several jurisdictions, a distinctive feature of English law is the emphasis on mitigation of loss. The claimant is expected to take all reasonable steps to minimise its loss resulting from the defendant's breach of its obligations. Loss that could have been avoided through reasonable action or inaction by the claimant will not be recoverable. By corollary, if the injured party takes reasonable steps to minimise the loss they incurred, the cost of these steps is recoverable and the damages owed by the defendant are reduced by the amount of the reduction of loss.3

There are three main categories of recoverable damages under English law: (1) expectation damages; (2) performance damages; and (3) reliance or 'wasted expenditures' damages. Other categories of damages include moral damages, punitive or exemplary damages and non-monetary damages such as specific performance.4 This chapter's focus however is on compensatory damages.

Expectation damages are awarded to put the claimant in the position it would have been in but for the breach of contract. The ability of a claimant to recover lost profits will depend on the subject of the breach in question.5 There are two types of 'expectation damages': normal or direct damages (also known as general damages), and consequential damages (also known as special damages).6 Normal or general damages follow as a natural and probable consequence of the breach,7 whereas consequential or special damages are those that do not flow directly from the breach and are particular to the injured party and can, therefore, be difficult to calculate in financial terms.8

Performance damages compensate the cost of curing the defective performance9 and 'wasted expenditures' or 'reliance damages' compensate the losses or expenditures incurred by the claimant in reliance on the contract.10 These damages are aimed at putting the claimant in as good a position as he or she was in prior to the promise.11

Quantification of financial loss

i Introduction

In English law, the purpose of an award of damages for breach of contract is to compensate the injured party for loss, rather than to punish the wrongdoer. The general rule is that damages should (so far as a monetary award can) place the claimant in the same position as if the contract had been performed.12 Therefore, damages are usually measured by the difference in value between the contemplated and actual performance of the contract.13

To establish an entitlement to damages, the claimant is also required to show that adequate steps have been taken to mitigate the damage resulting from the defendant's actions. Failure to take mitigating steps will likely result in the claimant's entitlement to damages being reduced.

In addition to mitigating factors, damages awarded under English law are also influenced by methods of calculation, application discount and interest rates and income tax or capital gains tax.

ii Evidence

If a claimant has suffered a loss,14 there are four key elements that are relevant to establishing a party's entitlement to damages and determining the amount of damages to be awarded: (1) the existence of a wrong; (2) reasonable foreseeability; (3) failure to mitigate the impact of the breach; and (4) chain of causation.

The first and most basic requirement is that, to establish an entitlement to damages, one must prove the existence of a 'wrong'15 – that is, a breach of contract. Second, a claimant must establish that the damage is not too remote and that the losses were reasonably foreseeable at the time the parties entered into the contract.16 The test for reasonable foreseeability was first outlined in Hadley v. Baxendale as:

Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it.17

For loss to have been foreseen, it must have been contemplated by the parties and 'not unlikely'18 at the date of entering into the contract. Loss is said to have been in contemplation of the parties (and therefore assumed)19 if, objectively assessed, it could be said to occur in the ordinary course of events, or, if subjectively assessed, there are special circumstances or knowledge attributable to the parties.20

Third, any damages awarded are subject to deductions for any failure to mitigate (or contributory negligence in the case of breaches of duty of care). The defendant carries the burden of proof in relation to establishing the claimant's actions (or lack thereof) to mitigate damage as a result of the defendant's breach.21 Provided the steps taken by the claimant to minimise the loss incurred are reasonable, the cost of such steps is recoverable even if the steps taken have increased the loss.22 However, any profit accrued as a result of the claimant's mitigating actions is also credited to the defendant if causation is established, with the latter having the burden of proving the existence and amount of such profit.23

Fourth, any damages awarded are also subject to any breaks in the chain of causation.24 Irrespective of factual causation, English law can treat some losses as not having been legally caused by the breach, on the basis that it is not fair to hold the defendant responsible for such losses because of a 'break in the chain' or novus actus interveniens.25 If the breach of contract was the 'effective' or 'dominant' cause of the loss, damages may be recoverable even if the breach was not the sole cause of the loss.26 Where there are competing causes, a balance of probabilities test applies.27

iii Date of assessment

Under English law, damages are normally assessed at the date of the breach of contract, unless to do so would not be in the interests of justice.28

However, the date of the breach may not be appropriate as the starting point for the calculation of damages. For example, a claimant's steps to mitigate the loss may impact the evaluation of the damages. Similarly, where the claimant has not in fact suffered any loss at the date that the actual breach occurred, but only began to suffer loss subsequently, the latter date may be the more appropriate starting point for the calculation.

iv Financial projections

Under English law, a claimant must prove the fact of loss and the amount of the loss on the balance of probabilities, that is, 'If the evidence shows a balance in favour of it having happened, then it is proved that it did in fact happen.'29 However, different principles apply for future or projected loss.

Where it is difficult to prove the amount of loss with certainty, the wrongdoer should not be relieved of his or her responsibility to pay.30 Damages can be recovered for 'loss of a chance'. However, this is an inherently uncertain head of loss, and can raise difficult issues for the purposes of both causation and quantification.31

The doctrine of 'loss of chance' was introduced in English law by the decision in Chaplin v. Hicks,32 but has since evolved considerably. In Mallett v. McMonagle, Lord Diplock opined:

Anything that is more probably than not [the court] treats as certain. But in assessing damages which depend on its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the changes that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages it awards.33

Establishing a loss of chance requires that there be both a real and a substantial chance – a chance that is negligible is not likely to support recovery of projected damages.34 Similarly, a chance to which only a speculative money value can be assigned is unlikely to succeed.35 However, where the realisation of a chance appears to be virtually certain, the court will consider it appropriate to award what would have been awarded against the defendant originally.36 The court recently held that where a claimant's recovery is dependent on the actions of a third party, then loss of chance principles must apply, rather than an assessment of the actions of the third party having taken place by reference to the balance of probabilities.37 If causation depends at least in part on the action of one or more third parties, the claimant must demonstrate that there would have been a real or substantial chance that the third party would have acted in the respect relied upon by the claimant.38

v Liquidated damages and penalties

Parties to a contract can agree between them the amount of damages payable for any breaches (stipulating different sums for different breaches).39 The long-standing common law rule is that a term in a contract, which constitutes a penalty, is unenforceable. Therefore, the court will have to determine whether the payment stipulated is a liquidated damage or a penalty. A penalty is a payment of money stipulated as in terrorem of the offending party and liquidated damages are a genuine pre-estimate of damage.40 The Supreme Court in the 2016 conjoined appeals in Cavendish Square Holdings v. Makdessi and ParkingEye Ltd v. Beavis41 revisited and reinstated the above law on penalties and liquidated damages.

The court held that the penalties doctrine is applicable only when there is a breach of contract and no matter how extreme a party is penalised, it will amount to a penalty only when it is a result of breach. The courts have no power to regulate parties' primary regulations and the rule is applicable only in the case of secondary obligations. In this judgment, Lords Neuberger and Sumption stated that 'the true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation'.42 The court further observed that whether a clause operates as a primary obligation or secondary obligation is a question of substance and not form.43

vi Discount rates

The calculation of compensatory damages often involves the determination of future losses or 'loss of chance'. When calculating future losses, the application of an appropriate discount rate is required to estimate the expected rate of return had the loss not occurred.

In a consultation by the Ministry of Justice in relation to the Damages Act 1996, the overriding aim behind discount rates was described as an attempt to set the rate of return as accurately as possible so that under-compensation or over-compensation by reason of the accelerated payment of the future losses was avoided as far as possible.44

While this principle was articulated in the specific context of personal injury claims, the general presumption is helpful when considering the general application of discount rates to the calculation of compensatory damages. In the discounted cash flow analysis (discussed further below), if a breach of contract results in loss of profits over time, a discount rate is applied to estimate the current value of the cash flow. The discount rate in such instances would typically depend on the asset being valued. For example, while valuing equity, the relevant discount rate would be that most appropriately reflecting the cost of the equity. Discount rates are influenced by a variety of factors including political changes, future inflation, currency devaluation and fluctuating interest rates.

Experts use a variety of discount rate calculation methods when valuing assets including, for example, the capital asset pricing model (which considers a stock's rate of return, the market's rate of return and a risk-free rate) and the weighted average cost of capital (which is usually used to assess a company's value as a whole by estimating the weighted average of new debt and equity needed to operate the company).

vii Currency conversion

The currency contemplated by the contract generally determines the currency of the damages to be awarded.45 Where the contract does not provide for a specific currency for the awarding of damages, the damages will be awarded in the currency in which the claimant suffered the loss.46

In Miliangos Respondent v. George Frank (Textiles) Ltd,47 the House of Lords found that the English courts had the authority to give judgment in foreign currency where under a contract, payment obligations were in a foreign currency and the proper law is that of the foreign country, with payment to be made outside the United Kingdom.48 The courts will take into account commercial considerations and give judgments in foreign currency or its sterling equivalent at the date when the court authorises the claimant to enforce the judgment.49 This protects the claimants against any decrease in the external value of sterling in relation to their own currency, save for in instances where the value of sterling is rising.50

The courts have also considered the issue of whether a court has the power to make a cost award to compensate for any exchange rate losses incurred in paying costs. In Elkamet Kunststofftechnik GmbH v. Saint-Gobain Glass France SA,51 the court held that 'order for costs is designed to compensate the successful party for its expenditure so that exchange rate losses can be compensated in the same way as it is entitled to be compensated by way of interest for being kept out of the money'.52

viii Interest on damages

The court has the authority to award interest on damages for any period between the date when the cause of action arose and the date of judgment.53 If the claimant caused unwarrantable delay, interest on damages for such period will be reduced accordingly. A damages claim (including a claim for interest) should, therefore, be clearly particularised and supported by the necessary written and oral evidence required to prove the claimant's case.

The court has the discretion to award interest at different rates in respect of different periods; in contractual claims, the interest rate should reflect the current commercial rate. The Commercial Court and the Court of Appeal generally award 1 per cent above the base rate. However, if such calculation would put either party in an unfair position (smaller business pays higher interest rate, etc.), the court can adopt an appropriate interest rate to suit the parties.54

Where the damages are calculated in a foreign currency, the commercial borrowing rate in the foreign currency in the relevant country is considered as the relevant interest rate.55

ix Costs

As a general principle, legal costs incurred as a result of the breach of contract can be recovered as damages, where they were incurred in actions against third parties or previous actions against the defendant. The costs of the dispute over the breach of contract itself, although caused by the breach, usually cannot be claimed as damages as they fall within the exclusive jurisdiction of the courts' costs regime.56

As a result of the mitigation principle, legal costs recoverable as contract damages are assessed in the same way as 'indemnity basis' of costs. That is, 'unreasonable' costs are not recoverable under common law principles, nor is proportionality always taken into account.57

x Tax

There are two types of taxation that may apply in relation to an award for damages: income tax and capital gains tax.

Prior to 1956, the English courts did not reduce awards of damages to account for income tax. However, in British Transport Commission v. Gourley,58 the House of Lords ruled that when calculating damages for personal injuries resulting from a tort, the court will take into account the tax liability in respect of his loss of earnings (both past and prospective). This rule has been modified over the years in instances where the damages sought would have been taxed.59

Capital gains tax differs from income tax in that it does not cause damages to be reduced. However, the impact of capital gains tax would need to be considered on a case-by-case basis where the application of capital gains tax affects the value of the asset that is said to have suffered the loss.

Expert evidence

i Introduction

The Civil Procedural Rules 1998 as amended (the Rules) and accompanying Practice Directions deal extensively with the appointment of experts and assessors. At a primary level, the aim of these Rules and Practice Directions is to regulate the use of expert evidence in civil proceedings, in particular to address concerns relating to independence of experts, excessive expenditure and increasing complexity.

ii The role of expert evidence in calculation of damages

Experts can play an important role in assessing damages, particularly where damages are influenced by a range of factors occurring both at and after the date of the breach or the application of rates of interest are in dispute.

For example, in Vasiliou v. Hajigeorgiou,60 the trial judge found the claimant to be an accomplished restaurateur whose restaurant would have been successful and assessed his loss of profits on that basis. The expected turnover, together with gross and net profit, was calculated with expert evidence and the ultimate decision not to apply a discount was upheld by the Court of Appeal.61

iii The court's role excluding and managing expert evidence

English law provides that expert evidence shall be restricted to that which is reasonably required to resolve the proceedings. The court may therefore control the evidence by giving directions in relation to the issues on which it requires evidence, the nature of the evidence required and the way in which the evidence is to be placed before the court.62 For instance, in Dudding v. Royal Bank of Scotland Plc,63 the court held that the claimants were entitled to rely on the expert evidence concerning the sale of derivatives by the defendant banks as the evidence was reasonably required to resolve the issues.

Courts are required to seek to restrict the excessive or inappropriate use of expert evidence. Under English law, parties are required to seek the court's permission prior to filing an expert report, and their application for permission must include an estimate of the costs of the proposed expert evidence. In British Airways plc v. Spencer, the court held that when assessing whether to admit expert evidence, the court will consider whether the evidence is necessary (i.e., whether a decision could be made without it) or if it is of marginal relevance. The courts will strike a balance if it is of marginal relevance by taking into account the value of the claim, the effect of a judgment on the parties, how the commissioning of the evidence would be paid for, and any delay likely to be entailed by the production of such evidence.64

Permission given by the court is limited to the expert or field specifically identified in the parties' application, and the court can limit the amount of the expert's fees and expenses that can be recovered from the other party.65 In Darby Properties Ltd and Darby Investments Ltd v. Lloyds Bank plc,66 the Master reviewed several authorities on expert evidence in interest rate swap cases together with case law. On finding that there was not a consistent approach, he concluded that while a judge would benefit from evidence explaining the specific financial products, this could be done by way of factual evidence and therefore expert evidence was not required.67

Judges are required to give reasons for preferring the evidence of one expert over another and failure to provide such reasoning may be considered valid grounds for appeal.68

iv Independence of experts

English law provides that experts must provide opinions that are independent and uninfluenced by the pressures of litigation. Experts are required to assist the court by providing objective, unbiased opinions on matters within their expertise by considering all material facts (including those that might detract from their opinions) and should avoid assuming the role of an advocate. If a question or issue falls outside their expertise or they are unable to reach a definite opinion, they should make this clear to the court and any change of view should be communicated to all the parties without any delay (and when appropriate, to the court).69 In the case of Arroyo and others v. Equion Energia Ltd (formerly known as BP Exploration Co (Colombia) Ltd),70 the court held that the 'deliberate and serious breach' of the expert was highly relevant in the court's assessment of order of costs paid on an indemnity basis. Similarly, in the case of Igloo Regeneration (General Partner) Ltd v. Powell Williams Partnership,71 a partial indemnity costs award was made against the claimant related to the conduct of its inexperienced expert engineer who made concessions in his joint statement, which undermined the claimant's case on liability.

The courts have reiterated the importance of experts' independence and impartiality in recent cases including Watts v. The Secretary of the State for Health72 and Bank of Ireland v. Watts Group.73 In the former, the court went so far as to criticise the expert for choosing to 'ignore or play down matters that were inconvenient to her assessment of the case'.74 In a recent judgment where the impartiality of experts was criticised, the court emphasised the need for all experts to read Practice Direction 35 to CPR Part 35.75 The judge also re-stated the principles laid down in The Ikarian Reefer case.76 Such principles include that issues of fact in a case that are relevant to the expert must be determined by the court and that experts of like discipline should have access to exactly the same materials.77

v Novel science and methods

Expert evidence is typically helpful in the calculation of damages under two methods: the discounted cash flow method and the comparable transactions and comparable trading multiples method.

The discounted cash flow method projects future cash flows and uses a discount rate to estimate the current value of the projected cash flows. This method is best used in instances where the parties are trying to calculate the earning potential of an asset in the future and require expert evidence in the accurate forecasting of such cash flows. Among other things, expert evidence is used to determine the time period in the future that should be used to assess the cash flows, and the appropriate discount rates to be applied in the calculation of the asset value. As explained above, discount rates such as the capital asset pricing model and weighted average cost of capital are two such methods.

Comparable transactions or comparable trading multiples method primarily use publicly reported transactions and share prices to arrive at an estimated value of the asset in question, provided that sufficiently comparable transactions and prices exist in the market. Expert evidence can be crucial in determining the comparability of prices in the public domain, and the relevance of the proposed comparisons.

The EU General Data Protection Regulation ((EU) 2016/679) (GDPR) became effective on 25 May 2018. The GDPR is aimed at addressing the collection of data and the way it is processed and used by both individuals and organisations, including in the communication and sharing of information. The full impact of the GDPR on evidence in litigation or arbitration remains to be seen.

Recent case law

i Triple Point Technology Inc v. PTT Public Co Ltd [2021] UKSC 29

Facts

In a contract for commodities trading software, an issue of principle arose as to how to apply a clause imposing liquidated damages for delay in circumstances where the contractor never achieved completion.

Triple Point Technology Inc (Triple Point) designs, develops and implements software for use in commodities trading. PTT Public Co Ltd (PTT) undertakes commodities trading. Both companies entered into a contract for commodity trading and risk management system for the provision of relevant commodities software within 460 calendar days. Under Article 5 of the contract, Triple Point would pay damages for delay at the rate of 0.1 per cent of undelivered work per day. The contract provided for payment in three phases, and Triple Point completed Phase I of the contract 149 days late. When Triple Point requested further payment, PTT refused because Triple Point had not completed the next phase of work. Unwilling to continue work until further payment, Triple Point suspended work and left the site. PTT then terminated the contract for wrongful suspension of work. Triple Point commenced an action to recover the outstanding sums claimed in its invoices. In response, PTT claimed damages for delay and damages due upon termination of the contract.

At first instance, the Court dismissed Triple Point's claims and awarded PTT liquidated damages for the delay in completing Phase I of the work and on all other phases until the termination of the contract pursuant to Article 5.3 of the Contract.

On appeal, the Court of Appeal found that, in situations where a contract provides for liquidated damages for delay, and the contractor fails to complete the task resulting in a second contractor stepping in, there was no strict rule that a provision for liquidated damages must be used as a formula to compensate the defendant, and that the court's approach will depend on the wording in the contract. On the basis that the clause focused specifically on delay between the contractual completion date and the date when the work was actually completed, the Court found that it had no application in a situation where the contractor never handed over completed work to the employer and that, in such circumstances, the remedy would be general damages for delay. PTT was therefore only entitled to liquidated damages according to Article 5.3 of the contract for the 149 days' delay to completion of Phase I by Triple Point but not the delay in completion of the remaining two phases. For these two phases, PTT could claim only damages in accordance with ordinary principles.

PTT appealed to the Supreme Court.

The decision

Allowing the appeal unanimously, the Supreme Court held that the Court of Appeal had erred in concluding that the liquidated damages provision for delayed performance did not entitle the employer under the contract to liquidated damages where the contractor never completed the work, as a result reverting to the decision at first instance.

It held that the liquidated damages clause applied up to the date of termination and that general damages were recoverable from then onwards.

Significance of the decision

This decision clarifies the interpretation of contractual provisions for liquidated damages. The Supreme Court's decision signals a return to what had previously been understood to be the orthodox approach prior to the Court of Appeal's judgment, that, subject to clear, express terms, liquidated damages cease to accrue on termination but rights accrued as at the date of termination survive.

Further, the Supreme Court clarified that the British Glanzstoff decision [1913] AC 143 to which the Court of Appeal had given significant importance, was confined to its specific facts and did not create a special rule applying to liquidated damages clauses.

ii Attorney General of the Virgin Islands v. Global Water Associates Ltd (British Virgin Islands) [2020] UKPC 18

Facts

The government of the British Virgin Islands entered into two contracts with Global Water Associates Ltd (GWA) relating to the construction of a water treatment plant: a design build agreement (DBA) and a management, operation and maintenance agreement (MOMA). GWA was to design and construct the water treatment plant under the DBA, and then operate it for a period of 12 years under the MOMA.

The DBA required the government to provide a prepared project site, which it failed to do. As a result, the plant was not built. GWA sued the government and claimed profit that it would have earned for operating the site had it been built, arguing that but for the government's breach of the DBA, it would have earned profit from managing, operating and maintaining the plant during the 12-year term of the MOMA.

GWA referred its claim for damages for breach of the DBA to arbitration. The arbitrators held that while there had been a breach of the DBA, the profits that would have been earned under the MOMA were too remote to be recoverable. Proceedings reached the Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands), which also held that the damages claimed were too remote, as the government could have had a treatment plant built by a third party and then offered it to GWA to operate.

GWA appealed to the Privy Council.

The decision

Allowing the appeal, the Privy Council accepted that an engineering contractor's claim for damages for breach of a construction contract could include loss of profit arising from the fact that the contractor was therefore unable to operate the completed plant under a separate operation and maintenance contract. It specifically held that the loss of profit was within the reasonable contemplation of the parties to the DBA when they made the contract. In support of its conclusion, the Privy Council identified the following facts:

The contracts were entered into between the same parties on the same day and they related to the same plant on the same site.

The government intended that the performance of each party's obligations under the DBA would lead to the commencement of the MOMA.

The design build documents incorporated into the DBA were the same documents as were incorporated into the MOMA.

There was no express term in the DBA limiting the government's liability in damages to the company's loss of earnings under the DBA, and no finding that such a term was to be implied in the DBA.

Significance of the decision

While the judgment creates no new law on the assessment of damages, it provides a helpful summary of existing authority and the correct test for remoteness of damage:

In principle the purpose of damages for breach of contract is to put the party whose rights have been breached in the same position, so far as money can do so, as if his or her rights had been observed.

The party in a breach of contract is entitled to recover only such part of the loss actually resulting as was, at the time the contract was made, reasonably contemplated as liable to result from the breach. To be recoverable, the type of loss must have been reasonably contemplated as a serious possibility.

What was reasonably contemplated depends upon the knowledge which the parties possessed at that time or, in any event, which the party, who later commits the breach, then possessed.

The test to be applied is an objective one. One asks what the defendant must be taken to have had in his or her contemplation rather than only what he or she actually contemplated. In other words, one assumes that the defendant at the time the contract was made had thought about the consequences of its breach.

Deciding what the defendant must be taken to have had in his or her contemplation as the result of a breach of their contract is a question of fact.

iii K Line Pte v. Priminds Shipping (HK) Co Ltd [2020] EWHC 2373 (Comm) (The Eternal Bliss)

The facts

K-Line (owners) and Priminds (charterers) entered into a charterparty for the Eternal Bliss for a shipment of soybeans from Brazil to China. At the discharge port, there was a 31-day delay as a result of congestion, and a lack of storage space for the cargo. During this period of delay, the cargo deteriorated, as a result of which owners faced a claim by the cargo owners and their insurers, which they settled for US$1.1 million, and then sought to recover this cost from charterers in arbitration proceedings. The only breach that the owners alleged against the charterers was the failure to discharge the cargo within the time allowed. The owners sought to recover the US$1.1 million from the charterers as damages or in the form of an indemnity, in addition to the demurrage due.

The decision

The issue for the court to decide was whether the owners could recover damages (for the cargo claim which they settled for S$1.1 million) in addition to demurrage.

After a thorough review of the authorities, Andrew Baker J concluded that it was unnecessary for an owner to prove a separate breach in order to recover damages in addition to demurrage. Where an owner suffers a different type of loss (i.e., a loss beyond the loss of use of the ship to earn freight by further employment) arising from a failure to load or discharge within the laytime, the owner does not need to demonstrate a separate breach in order to recover damages in addition to demurrage.

Significance of the decision

While this is a first instance decision currently subject to an appeal, it appears to settle an issue that has been a point of contention for many years. The legal position adopted by Andrew Baker J confirms that where, in consequence of a charterer's failure to load or discharge cargo within its allowed time, an owner has suffered a further type of loss in addition to its loss of use of the vessel, it does not need to prove breach of a separate term of the charterparty to recover that loss by way of damages.

Footnotes

1 Clare Connellan is a partner at White & Case LLP. The author thanks Arthur Lauvaux, Emiko Singh and Bryony Withers, associates at White & Case LLP, for their contributions to this chapter.

2 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 2-003, citing Livingstone v. Rawyards Coal Co [1880] 5 App Cas 25 at 39.

3 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 9-002–9-006.

4 J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Chapter 26, Sections 26-022–26-033, 26-047–26-049, and Chapter 27, 27-001.

5 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Sections 4-0018–19. See also the series of cases concerned with breach of restrictive covenants and damages to account for profits, e.g., Wrotham Park Estate Co v. Parkside Homes Ltd [1974] 1 WLR 798, giving rise to Wrotham Park damages.

6 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Sections 3-001–3-016.

7 For the position under English law, see Halsbury's Laws of England, Section 317, citing Ratcliff v. Evans [1892] 2 QB 524 at 528, CA, per Bowen LJ.

8 For the position under English law, see Halsbury's Laws of England, Volume 29, Section 317 and H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 3-009.

9 J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Sections 26-039–26-041.

10 Halsbury's Laws of England, Volume 29, Section 503.

11 J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Sections 26-039–26-041.

12 Robinson v. Harman (1848) 1 Ex 850.

13 H Wöss and others, Damages in International Arbitration under Complex Long-Term Contracts (Oxford University Press, Oxford 2014) paragraph 4.38. See, e.g., Durham Tees Valley Airport Ltd v. Bmibaby Ltd [2010] EWCA Civ 485.

14 Where a loss has been suffered by another party, this can give rise to the 'black hole' problem, where the damages risk falling into a black hole. The English courts have indicated a willingness to find a solution in such circumstances, where appropriate (see, e.g., McAlpine v. Panatown [2001] 1 AC 518), but it may depend on the particular facts of the case (see BV Nederlandse Industrie Van Eiprodukten v. Rembrandt Enterprises [2019] EWCA Civ 596). See also Palmali Shipping SA v. Lit Asco SA [2020] EWHC 2581 (Comm).

15 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 1-004.

16 Wagon Mound (No. 1) [1961] AC 388; J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Section 26-119. The notion of foreseeability is further analysed below.

17 Hadley v. Baxendale (1854) 9 Exch 341. For a recent case summarising the courts' approach to remoteness of damages, see Att-Gen of the Virgin Islands v. Global Water Associates Ltd [2020] UKPC 18.

18 Hadley v. Baxendale (1854) 9 Exch 341.; H Parsons (Livestock) Ltd v. Uttley Ingham & Co Ltd [1977] EWCA Civ 13.

19 Transfield Shipping Inc v. Mercator Shipping Inc (The Achilleas) [2008] UKHL 48; Supershield Ltd v. Siemens Building Technologies FE Ltd [2010] EWCA Civ 7; Rubenstein v. HSBC Bank plc [2012] EWCA Civ 1184.

20 Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [1949] 2 KB 528.

21 Lombard North Central plc v. Automobile World (UK) Ltd [2010] EWCA Civ 20. A claimant should nevertheless consider whether to take steps to show how it has mitigated its loss, as failure to do so can be risky. Bulkhaul Ltd v. Rhodia Organique Fine Ltd [2008] EWCA Civ 1452.

22 Lagden v. O'Connor [2004] 1 AC 1067, per Lord Scott, at paragraph 78.

23 Thai Airways International Public Co Ltd v. KI Holdings Co Ltd (formerly Koito Industries Ltd) [2015] EWHC 1250 (Comm). See also Globalia Business Travel SAU (formerly TravelPlan SAU) of Spain v. Fulton Shipping Inc of Panama [2017] UKSC 43, in which the Supreme Court confirmed that the issue turns on causation: where the claimant has obtained a benefit following a breach of contract and this benefit was caused either by the breach or by the claimant's act of mitigation, the recoverable loss will be reduced by the benefit. See also Assetco Plc v. Grant Thornton UK LLP [2020] EWCA Civ 1151.

24 C T Salomon, 'Chapter 10: Damages in International Arbitration', in J Fellas and J H Carter (eds), International Commercial Arbitration in New York (2nd ed Oxford University Press, Oxford 2016), p 353.

25 See, e.g., Corr v. IBC Vehicles Ltd [2008] 1 AC 884, per Lord Bingham at paragraph 15: 'The rationale of the principle that a novus actus interveniens breaks the chain of causation is fairness'.

26 Galoo v. Bright Grahame Murray [1994] 1 WLR 1360, at 1374–1375. See also J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Section 26-076: 'If a breach of contract is one of two causes, both co-operating and both of equal efficacy in causing loss to the claimant . . . the contract-breaker is liable so long as his breach was 'an' effective cause of his loss: the court need not choose which cause was the more effective'.

27 Nulty and others v. Milton Keynes Borough Council [2013] EWCA Civ 15, at paragraph 35: '[T]he court must be satisfied on rational and objective grounds that the case for believing that the suggested means of causation occurred is stronger than the case for not so believing'.

28 Johnson v. Agnew [1980] AC 367, per Lord Wilberforce at 401.

29 Davies v. Taylor [1974] AC 207 at 213.

30 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Sections 10-001–10-002.

31 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Sections 10-005–10-006.

32 [1911] 2 KB 786.

33 Mallett v. McMonagle [1970] AC 166 at 176.

34 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 10-052. For recent decisions discussing loss of chance issues, see Assetco Plc v. Grant Thornton UK LLP [2020] EWCA Civ 1151, and PCP Capital Partners LLP v. Barclays Bank Plc [2021] EWHC 307 (Comm).

35 Halifax Building Society v. Urquart-Dykes and Lord [1997] RPC 55 at 87, line 18.

36 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 10-098, referring to inter alia, McGrath v. Kiely and Powell [1965] IR 497 and White v. Jones [1995] 2 AC 207 CA.

37 This is the case even where the third party has given evidence, see Moda International Brands Limited v. Gateley LLP (later known as Gateley Heritage LLP), Gateley Plc [2019] EWHC 1326 (QB).

38 Assetco Plc v. Grant Thornton UK LLP [2020] EWCA Civ 1151.

39 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 16-001.

40 Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79.

41 [2016] AC 1172.

42 [2016] AC 1172 at [32].

43 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 16-015–16-016. For a recent case discussing liquidated damages, see Triple Point Technology, Inc v. PTT Public Company Limited [2021] UKSC 29.

44 Ministry of Justice Consultation Paper CP 3/2013, 'Damages Act 1996: The Discount Rate', at p 4.

45 Federal Commerce and Navigation Co Ltd v. Tradax Export SA [1977] 1 QB 324; J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Section 30-299.

46 Attorney General of Ghana v. Texaco Overseas Tankships Ltd (The Texaco Melbourne) [1994] 1 Lloyd's Rep 473 (HL). See also, Milan Nigeria Ltd v. Angeliki B Maritime Company [2011] EWHC 892 (Comm) paragraph 57.

47 [1975] 3 WLR 758.

48 Miliangos v. George Frank (Textiles) (No. 2) [1977] QB 489, 497; Helmsing Schiffahrts v. Malta Drydocks Corp [1977] 2 Lloyd's Rep 444, 449.

49 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 20-029.

50 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 20-053.

51 [2016] EWHC 3421 (Pat).

52 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 20-054.

53 Section 35A of the Senior Courts Act 1981.

54 J Chitty, H Beale, Chitty on Contracts (33rd ed incorporating Second Supplement, Sweet & Maxwell, London 2018 (updated 2020)), Section 26-272.

55 Miliangos v. George Frank (Textiles) (No. 2) [1977] QB 489, 497; Helmsing Schiffahrts v. Malta Drydocks Corp [1977] 2 Lloyd's Rep 444, 449.

56 Hutchinson v. Harris [1978] 10 BLR 19.

57 National Westminster Bank plc v. Rabobank Nederland [2007] EWHC 1742 (Comm). See also, Hawksford Trustees Jersey Ltd v. Halliwells LLP (In liquidation) [2015] EWHC 2996 (Ch).

58 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 18-002, citing British Transport Commission v. Gourley [1956] AC 185.

59 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 18-005. See, e.g., BskyB Ltd v. HP Enterprise Services UK Ltd [2010] EWHC 862 (TCC) at [77], and Taylor v. O'Connor [1971] AC 115.

60 [2010] EWCA Civ 1475 CA.

61 H McGregor, McGregor on Damages (21st ed Sweet & Maxwell, London 2020), Section 10-039; Vasiliou v. Hajigeorgiou [2010] EWCA Civ 1475 CA, paragraph 15.

62 CPR 35.1 and White Book commentary paragraph 35.1.1 at page 1127.

63 [2017] EWHC 2207 (Ch).

64 [2015] EWHC 2477 (Ch).

65 CPR 35.4.

66 [2016] EWHC 2494 (Ch), See also, Barings Plc (In Liquidation) v. Coopers & Lybrand (No. 2) [2001] Lloyd's Rep Bank 85.

67 See also White Book commentary paragraph 35.1.1 at page 1127.

68 Flannery and another v. Halifax Estate Agencies Ltd [2000] 1 WLR 377.

69 CPR 35 Paragraphs 2.1–2.5 and White Book commentary paragraph 35.18 at page 1160.

70 [2016] EWHC 3348 (TCC).

71 [2013] EWHC 1718 (TCC).

72 [2016] EWHC 2835 (QB).

73 Bank of Ireland and another v. Watts Group Plc [2017] EWHC 1667 (TCC).

74 Watts v. The Secretary of State for Health [2016] EWHC 2835 (QB) at paragraph 64.

75 Imperial Chemical Industries Ltd v. Merit Merrell Technology Ltd (No. 2 Quantum) [2018] EWHC 1577 (TCC).

76 National Justice Compania Naviera SA v. Prudential Assurance Co Ltd (The Ikarian Reefer) (No. 2) Ikarian Reefer, The (No. 2) [2000] 1 WLR 603.

77 Imperial Chemical Industries Ltd v. Merit. Merrell Technology Ltd (No. 2 Quantum) [2018] EWHC 1577 (TCC).

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