Compensation for Non-Pecuniary Loss

1. Compensation for Non-Pecuniary Loss Lorna Richardson 1 June 2016 www.law.ed.ac.uk

2. GENERAL RULE IN CONTRACT LAW • No recovery for non-pecuniary loss. • “A contract breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party.” Watts v Morrow [1991] 1 WLR 1421 per Bingham LJ at 1445. • “Contract breaking is an incident of commercial life which players in the game are expected to meet with mental fortitude” Johnson v Gore Wood & Co [2002] 2 AC 1 per Lord Cooke of Thorndon at 49.

3. Exceptions to the general rule • Where the very object of the contract is to provide pleasure, relaxation, peace of mind or freedom from molestation – for example Diesen v Samson 1071 SLT (Sh Ct) 49 and Jarvis v Swan’s Tours [1973] QB 233 CA. • Where physical inconvenience and discomfort are caused by the breach; mental suffering directly related to that inconvenience and discomfort – for example Hobbs v London and South Western Railway Co (1875) L.R 10 QB 111. • But see also Ruxley Electronics v Forsyth [1996] AC 344 where damages were awarded for loss of amenity (where no other damages could be awarded).

4. A widening of availability for non-pecuniary loss • Farley v Skinner [2002] 2 AC 732: • Not necessary that the provision of pleasure, relaxation or peace of mind be the main object of the contract. Sufficient if the provision of pleasure, etc is an important term of the contract. • Not confined to physical inconvenience and discomfort. For Lord Clyde the important distinction is between inconvenience and disappointment. “Inconvenience” covers the kinds of difficulty and discomfort which are more than mere matters of sentimentality (at 753); for Lord Scott if the damage or inconvenience is a sensory (sight, touch, hearing, smell, etc) experience damages are recoverable (at 768).

5. Protecting the expectation interest? • “The rule of the common law is, that where a party sustains a loss by reason of breach of contract, he is, as far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed” Robinson v Harman (1848) 1 Exch. 850 per Parke B at 855. • The current law - no recovery unless the case can be brought within the exceptions - does not fully protect the expectation interest.

6. Proposed solution Allow recovery of non-pecuniary loss based on broad approach to Ruxley Electronics - damages available for non-pecuniary loss where there has been loss of amenity. • Available even where the amenity was not an important term of the contract. • Not pre-requisite that no other damages can be awarded.

7. Proposed solution • See Lord Mustill in Ruxley Electronics: • “..that… unless the [claimant] can prove that the defects have depreciated the market value of the property the householder can recover nothing at all. This conclusion would be unacceptable to the average householder, and it is unacceptable to me…” • “To say that…to escape unscathed the [defendant] only has to show that to the mind of the average onlooker… the results which he has produced seem just as good as those which he had promised would make a part of the promise illusory, and unbalance the bargain… It was for the plaintiff to judge what performance he required in exchange for the price. The court should honour that choice. Pacta sund servanda.” (at 360)

8. Potential problems • Floodgates!!!! • Controls: • No recovery for disappointment or frustration simply due to the fact of breach itself. Contracting parties take the risk of breach and must respond with a measure of fortitude. • Only natural persons can seek damages for loss of amenity. • Recovery only where the expected amenity from the contract is not received as a result of the breach or where amenity is reduced as a result of the breach. • Onus of proof on claimant.

9. Potential problems • Use existing contract law rules to limit liability including remoteness of loss and mitigation. • Remoteness: 2 limbed test in Hadley v Baxendale (1854) 9 Ex 341 per Alderson B at 354 – • Damages that may fairly and reasonably be considered as arising naturally, i.e., according to the usual course of things, from the breach of contract or • Damages that 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.

10. Potential problems • More recently Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 A.C. 61: • A party may not be liable for foreseeable losses because they are not of the type or kind for which he can be treated as having assumed responsibility. The presumed intention of the risk assumed by the parties is key. • Difficulty in quantifying non-pecuniary loss but that has not stopped the courts from doing so in other areas where compensation, as a matter of principle, should be granted, for example, personal injury.

11. benefits • Protects the expectation interest in all contracts. • Party providing goods or services cannot breach contract with impunity. • Incentive for the party providing goods or services to invest in necessary precautions to ensure contractual compliance. • No need for court to determine whether the term of the contract breached is an important one.