Cost of repair damages will be available (to avoid a windfall) only where the cost of repair or replacement was reasonable (not out of all proportion to benefit to be obtained) and an intention to repair was a relevant consideration.

The Commission sold an oil tanker, said to contain oil and lying at a particular location. It could not be found. P sued for breach and recovery of lost profits on tanker. Commission alleged common mistake (both thought the tanker existed). Held that the Commission was in breach of contract since it had promised that the tanker was lying at the location (had taken this risk so not common mistake) but since it was not possible to establish the lost profit on non-existent oil, P was limited to recovering the price paid and the cost of the salvage expedition.

Where lost profits are too speculative to prove, a claimant may be limited to recovering for wasted expenditure.

Charterer repudiated charter but the owner was able to rehire at a higher rate (no lost expectation). The judge rejected the claim for wasted expenditure in preparing the vessel for the original charter on the basis that it would put the owners in a better position overall (due to the rehire receipts) than they would have been in had the contract been properly performed.

Although the contract did not prevent recovery of the wasted expenditure (no provision as in C & P Haulage v Middleton), its recovery would not be permitted if overall it would put the claimant in a better position than if the contract had been performed.

This case arguably recognizes wasted expenditure as an element of expectation recovery.

Ps engaged Ds, a firm of carriers, to transport their broken mill shaft to Greenwich so that it could be used as a pattern for a new one. Carriage was delayed and Ps lost profits in operating the mill as a result of the delay. However, the lost profits were too remote a consequence of the delay to be recovered since they depended on the special fact that there was no spare mill shaft and this fact was not known to the carriers.

Remoteness rule in contract: the loss must fall within the reasonable contemplations of both parties as liable to result in the event of breach. This loss of profits was not in the contemplation of both parties at the time they made the contract as the probable result of a delay in the carriage since the carriers had no notice of the key facts.

Ps operated a laundry business and purchased a boiler for dyeing fabrics which they told Ds, suppliers, would be put to immediate use in their business. The boiler was delivered late and Ps were able to recover their normal loss of profits on the use of the boiler in the period of the delay but not the loss of profits on some lucrative government contracts which they ‘could have accepted’ had the boiler arrived on time. This loss was abnormal loss depending on these special facts and was too remote since there was no evidence that Ds knew of the intentions with regard to these special contracts.

Remoteness: normal loss can be recovered as both parties have imputed knowledge of such loss. However, abnormal loss is dependent on special facts and both parties must generally have actual knowledge of these special facts for the loss to fall within their contemplations.

Potential purchaser specifically asked surveyor whether property he intended to purchase would be seriously affected by aircraft noise. Surveyor’s report stated that this was unlikely. However, there was noise as the property was close to a navigation beacon outside Gatwick. HL held that damages for distress and disappointment were recoverable since the purchaser had specifically asked for a report on noise, making ‘peace of mind’ a major or important object of the contract. Obiter, such damages would have been recoverable for distress consequent on physical inconvenience, i.e. resulting from the aircraft noise.

Exceptional situations when damages for distress and disappointment can be recovered have been extended so that ‘contracts to obtain some form of pleasure or peace of mind’ no longer need to be the sole purpose of the contract as long as they are major or important objects.

Dunlop supplied tyres to dealers and the dealers received discounts for agreeing not to sell the tyres at below Dunlop’s list price. If they did, they had to pay £5 per tyre ‘by way of liquidated damages’. The dealer sold the tyres at below list price and pleaded that the clause was an unenforceable penalty. Held that it was an enforceable liquidated damages clause. Since any pre-estimate of loss would be difficult, this was just the situation where the sum agreed should be enforced as the parties’ bargain.

Making the traditional distinction between liquidated damages and penalty clauses: see Lord Dunedin.

The first case (Makdessi) concerned a share purchase contract, in respect of a marketing company, between commercial parties. Under the agreement the seller agreed not to compete with the marketing company. The contract provided that if the non-competition stipulation was breached (a) no further instalments would be payable under the contract (clause 5.1), and (b) the buyer would have an option to buy the seller’s remaining shares at a reduced price (as it would disregard goodwill, clause 5.6). The seller breached the non-competition stipulation and the buyer sought to exercise clauses 5.1 and 5.6. The seller claimed that these clauses were unenforceable on the ground that they were penalty clauses. This claim was rejected at first instance but accepted by the CA.

The second case (ParkingEye) involved a car park where parking was free for the first two hours but, if that period was exceeded, a fee of £85 was payable. The defendant parked his car for almost three hours and subsequently refused to pay the £85 fee on the ground that it was a penalty clause. At first instance and in the CA the defendant’s argument failed.

The SC held that law relating to penalty clauses needed to be recast. More specifically a penalty clause is a secondary obligation which bears no proportion to the legitimate interest, if any, which the innocent party has in the enforcement of the primary obligation(s). Applying this to the facts of Makdessi the SC held that relevant clauses were not penal. The buyer had a legitimate interest in the compliance with non-competition stipulations which were crucial to the health of the company. Moreover, both parties were experienced commercial parties with the benefit of legal advice.

As regards ParkingEye, the SC also held that the fee was not penal in nature. Although it did not represent the loss which the claimant would suffer as a result of the defendant staying beyond two hours, the claimant had a legitimate interest in the efficient functioning of the car park and was comparable to parking charges in the locality.