Legal News

Home

Legal News

CONTRACT LAW CASES:

Damages - difficult application of basic principles for the assessment of damages

The established principles concerning the recovery and assessment of damages for breach of contract can be hard to apply to particular fact situations.

In The Golden Victory the English House of Lords had to apply the basic principles relating to the assessment of damages in contract law in a situation where there had been a repudiation of a long term contract to charter a ship. The question was whether the damages should be reduced to take into account the fact that, by the time of the hearing, it could be established that the repudiated contract would have been capable of legitimate termination by the party in breach, before it had run its full course. This involved considering whether the damages should be calculated as at the date of breach (as is the usual position), or by evaluating the value of the lost contract rights by reference to subsequent events. By a three to two majority the House of Lords held that the damages should be reduced to reflect the fact that, after the time of breach, subsequent events had effectively reduced the value of the contract. The decision can be seen as a “contest” between what the majority saw as a just measure of damages in the particular case, and the need for certainty in the application of contractual rules which the minority saw as necessary for commercial good order. There is much to be said for the opinions of the minority which support the assessment of contract damages as at the time of repudiatory breach.

While the particular factual situation involving a long term charter is less likely to come before the New Zealand courts, the question may well arise in New Zealand law where there is a wrongful termination of a long term contract.

Payment in relation to the sale and purchase of land and options to purchase

In Greenmount v Southbourne the New Zealand Supreme Court held that, on its true construction, the exercise of an option to purchase land in a lease required the payment of a deposit, and that this payment had to be either by legal tender or by bank cheque for the option to be validly exercised. Tendering a personal cheque was not proper payment under the option. This decision followed Otago Estates v Parker in which the Court had held that payment of the deposit under the standard form for the sale and purchase of land, required payment by legal tender or bank cheque. Greenmount involved an application for summary judgment for specific performance of the option. The issue for trial will be whether the party receiving the personal cheque met the obligation (which is spelt out in Otago Estates) to object to the form of payment as soon as he or she is aware of it, or be prevented from denying that the tender of the personal cheque is valid tender.

Both decisions involve the interpretation of clauses providing for payment with the Supreme Court deciding in favour of a meaning for payment which accords with the legal meaning of the term. The qualification of this approach to the meaning of payment by the application of the estoppel explained in Otago Estates is necessary, if the approach is to operate in a sensible way in commerce.

EXEMPLARY DAMAGES IN CONTRACT

In a recent appeal in Paper Reclaim Ltd v Aotearoa International Ltd, the New Zealand Court of Appeal has given a welcome endorsement of the general principle that exemplary damages are not available as a remedy for breach of contract. While the Court did not say never, it did say that New Zealand law should conform with the trend of overseas authority which was against the possibility.

For more on these decisions and other recent contract law decisions, see Contract Law Review 2008.

MARITIME LAW - US SUPREME COURT RULES ON PUNITIVE DAMAGES IN EXXON VALDEZ

The long running litigation arising from the grounding of the Exxon Valdez in Prince William Sound, Alaska in 1989 has just come to an end with the decision of the US Supreme Court in Baker and Others v Exxon Mobil. This part of the litigation concerned the award of exemplary damages of US$5 billion in favour of a class of litigants made in the District Court, and reduced in the Court of Appeal to $2.5 billion. The Supreme Court heard an appeal by Exxon Mobil against the award of punitive damages and a cross-appeal by the class (seeking to resuscitate the jury award). A majority held that exemplary damages for maritime torts, in a case such as the Exxon Valdez, should not exceed a ratio of 1:1 to the compensatory damages. Accordingly, the Court reduced the damages to $507,500 million.

The Court was evenly divided on the question whether, in US maritime common law, a corporation could be liable for punitive damages for the acts of its managerial agents. As a result, the decision below that Exxon could be so liable remained in place.

While the case concerns the legislative and common law position in the United States, which is very different from the position in common law countries like New Zealand, it provides a good illustration of the range of possible claims and legal issues which may arise as a result of a large oil spill. For a consideration of some of the issues and the New Zealand position on legal liability for pollution claims, see, Chapter 9, Marine Pollution by Paul David in Environmental Law 3rd Edition.

RECENT PAPERS

Paul has given a paper at the 2008 Contract Law Conference in Auckland, Contract Law Review 2008, which followed his 2007 paper Contract Law Review, and 2006 paper on Developments in Contract law. He has also given papers on recent developments in Shipping Law and took part in a recent Panel discussion on the draft UNCITRAL Carriage of Goods Convention at the MLAANZ Conference in Canberra.