Keenan and Riches’BUSINESS LAW

Chapter 7Introduction to the law of contract

Breaches of contract for the sale of goods are subject
to the rules laid down in the Sale of Goods Act 1979.
They will be considered in more detail in Chapter 10.
Although as a general rule damages for breach of con-
tract should be assessed as at the date of the breach, there
are exceptions, as can be illustrated by this recent case.

4 Once a breach of contract has occurred, the innoc-

ent party is under a duty to mitigate (minimise) his

loss.He cannot stand back and allow the loss to get

worse. A seller whose goods have been rejected, for

example, must attempt to get the best possible price for

them elsewhere. The claimant will not be able to recover

for that part of the loss which has resulted from his fail-

ure to mitigate.

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The trial judge held that, even though the pool was not

as deep as specified in the contract, it was still safe for

diving. There was no evidence that the value of the pool

had decreased because of the shortfall in depth. The

only way of curing the defect would be to demolish the

pool and build a new one at a cost of £21,560. The judge

doubted whether Mr Forsyth would build a new pool as

it would not be reasonable to do so. The judge awarded

£2,500 for loss of amenity. The Court of Appeal reversed

the decision of the trial judge and awarded Mr Forsyth

the full cost of achieving a cure, i.e. £21,560. The House

of Lords reversed the decision of the Court of Appeal

and reinstated the trial judge’s original decision. Their

Lordships took the view that if the cost of cure was

unreasonable, the measure of damages should be the

difference in value. Although the pool was probably no

less valuable, Mr Forsyth was entitled to some compen-

sation for his loss of satisfaction.

into account. (ii) Although, as a general rule, damages

should be assessed as at the date of the breach, the rule

was subject to exceptions and should not be applied

mechanistically, and there may be another date which

might be used as the basis for compensating the injured

party.

Golden Strait Corporationv Nippon

Yusen Kubishka Kaisha (The Golden

Victory)(2007)

In 1998 GSC chartered a tanker (The Golden Victory) to

NYKK for a period of seven years. The charterparty con-

tained a clause which entitled either party to terminate

the contract if war broke out between any two or more

countries which included the United States, the United

Kingdom and Iraq. In 2001 NYKK repudiated the charter

by redelivering the tanker to the owners GSC. There

were nearly four years left to run on the charter and GSC

claimed damages for the remaining term of the contract.

NYKK argued that they would have been entitled to ter-

minate the contract in March 2003 when the second Gulf

War broke out and therefore damages should only be

assessed up to this (earlier) date. The House of Lords

held (by 3:2) that (i) damages for breach of contract

are designed to compensate the injured party for the

loss of his contractual bargain and he should be placed

in the position he would have been in had the contract

been performed. However, if the contract would have

terminated earlier (because of the occurrence of an event

anticipated in the contract), then this should be taken

Bracev Calder(1895)

The claimant was dismissed by his employers but offered

immediate re-engagement on the same terms and con-

ditions as before. He refused the offer and instead sued

to recover the salary he would have received for the

remaining 19 months of his two-year contract. It was held

that the claimant should have mitigated the loss by accept-

ing the employer’s reasonable offer of re-employment.

He was entitled to nominal damages only.

The duty to mitigate any loss does not arise until there

has been a breach of contract which the injured party

has accepted as a breach.

White and Carter (Councils) Ltdv

McGregor(1961)

The claimants were advertising agents who supplied

local authorities with litter bins on which they displayed

advertisements. The defendant entered into a contract

with the claimants to advertise his garage in this way for

a three-year period. Later the same day, however, the

defendant cancelled the contract. The claimants refused

to accept the cancellation and proceeded to carry out the

contract by preparing advertising plates and attaching

them to litter bins. The claimants sued for the full amount

due under the contract. The House of Lords upheld their

claim. The claimants were under no duty to mitigate their

loss because they had not accepted the defendant’s

breach.

Comment. Although the reasoning in this case is logical,

the result, as Lord Keith put it, is ‘startling’. However, a