ACCA F4 - Corp and Business Law (ENG)

98 6: Breach of contract and remedies Part B The law of obligations

Azimut-Benetti Spa v Darrell Marcus Healey 2010

The facts: The defendants entered into a ship building contract with the claimants. A liquidated damages

clause stated that in the event the contract is terminated by the defendants, the claimants could receive a

sum equal to 20% of the contract price (€7.1 million).

Decision: The court held that the clause represented a commercially justified balance between the parties'

interests and the claimants could receive the €7.1 million when the defendants failed to pay the first

instalment due.

A contractual term designed as a penalty clause to discourage breach is void and not enforceable. Relief

from penalty clauses is an example of the influence of equity in the law of contract, and has most

frequently been seen in consumer credit cases.

A penalty clause can be defined as 'a clause in a contract providing for a specified sum of money to be

payable in the event of a subsequent breach. If its purpose is merely to deter a potential difficulty, it will be

held void and the court will proceed to assess unliquidated damages.'

Bridge v Campbell Discount Co 1962

The facts: A clause in a hire purchase contract required the debtor to pay on termination both arrears of

payments due before termination and an amount which, together with payments made and due before

termination, amounted to two thirds of the HP price, and additionally to return the goods.

Decision: This was a penalty clause and void since, in almost all circumstances, the creditor would receive

on termination more than 100% of the value of the goods.

7 Other common law remedies

7.1 Action for the price

A simple action for the price to recover the agreed sum should be brought if breach of contract is failure

to pay the price. But property must have passed from seller to buyer, and complications arise where there

is anticipatory breach.

If the breach of contract arises out of one party's failure to pay the contractually agreed price due under

the contract, the creditor should bring a personal action against the debtor to recover that sum. This is a

fairly straightforward procedure but is subject to two specific limitations.

The first is that an action for the price under a contract for the sale of goods may only be brought if

property has passed to the buyer, unless the price has been agreed to be payable on a specific date.

Secondly, whilst the injured party may recover an agreed sum due at the time of an anticipatory breach,

sums which become due after the anticipatory breach may not be recovered unless they affirm the

contract.

7.2 Quantum meruit

A quantum meruit is a claim which is available as an alternative to damages. The injured party in a breach

of a contract may claim the value of their work. The aim of such an award is to restore the claimant to the

position they would have been in had the contract never been made. It is a restitutory award.

In particular situations, a claim may be made on a quantum meruit basis as an alternative to an action for

damages for breach of contract.

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