Judgments - Farley v. Skinner

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    75. In my opinion, the issue can and should be resolved by applying the well known principles laid down in Hadley v Baxendale (1854) 9 Exch 341 (as restated in Victoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528) in the light of the recent guidance provided by Bingham LJ in Watts v Morrow [1991] 1 WLR 1421 and by this House in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344.

    76. The basic principle of damages for breach of contract is that the injured party is entitled, so far as money can do it, to be put in the position he would have been in if the contractual obligation had been properly performed. He is entitled, that is to say, to the benefit of his bargain: see Robinson v Harman (1848) 1 Exch 850, 855.

    77. In Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 builders had agreed to construct a swimming pool with a diving area 7 feet 6 inches deep. The pool when constructed had a depth of only 6 feet. The cost of rebuilding the pool to the contractual depth would have been £21,560. But the trial judge, having heard the evidence, concluded that the pool owner did not have the intention of using the damages to reconstruct the pool. He found also that the residential property of which the pool formed part had suffered no diminution in value by reason of the lack of one foot of depth in the pool's diving area. Nonetheless the pool owner claimed the £21,500 as damages. The builders, on the other hand, contended that, on the facts as found, the pool owner had suffered no loss and the damages should be nil. The trial judge accepted neither contention but instead awarded the £2,500 expressed as compensation for "a loss of amenity brought about by the shortfall in depth" (see at p 363). The Court of Appeal [1994] 1 WLR 650 set aside the £2,500 award and substituted an award of the cost of rebuilding, ie the £21,560. This House restored the trial judge's order.

    78. Lord Mustill [1996] AC 344, 360 referred to situations where, in the carrying out of building works on residential property, there had been minor deviations from the contractual specifications but where the deviations had not reduced the value of the property below the value it would have had if the work had been properly carried out. He went on:

    "Yet the householder must surely be entitled to say that he chose to obtain from the builder a promise to produce a particular result because he wanted to make his house more comfortable, more convenient and more conformable to his own particular tastes; not because he had in mind that the work might increase the amount which he would receive if, contrary to expectation, he thought it expedient in the future to exchange his home for cash. To say that in order to escape unscathed the builder has only to show that to the mind of the average onlooker, or the average potential buyer, 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. In the valuable analysis contained in Radford v De Froberville [1977] 1 WLR 1262, Oliver J emphasised, at p 1270, that it was for the plaintiff to judge what performance he required in exchange for the price. The court should honour that choice. Pacta sunt servanda. If the plaintiff's argument leads to the conclusion that in all cases like the present the employer is entitled to no more than nominal damages, the average householder would say that there must be something wrong with the law."

Lord Lloyd of Berwick, to the same effect, said, at p 374:

    "What is then to be the position where, in the case of a new house, the building does not conform in some minor respect to the contract, as, for example, where there is a difference in level between two rooms, necessitating a step. Suppose there is no measurable difference in value of the complete house, and the cost of reinstatement would be prohibitive. Is there any reason why the court should not award by way of damages for breach of contract some modest sum, not based on difference in value, but solely to compensate the buyer for his disappointed expectations? Is the law of damages so inflexible . . . that it cannot find some middle ground in such a case? I do not give a final answer to that question in the present case. But it may be it would have afforded an alternative ground for justifying the judge's award of damages."

    79.     Ruxley's case establishes, in my opinion, that if a party's contractual performance has failed to provide to the other contracting party something to which that other was, under the contract, entitled, and which, if provided, would have been of value to that party, then, if there is no other way of compensating the injured party, the injured party should be compensated in damages to the extent of that value. Quantification of that value will, in many cases be difficult and may often seem arbitrary. In Ruxley's case the value placed on the amenity value of which the pool owner had been deprived was £2,500. By that award, the pool owner was placed, so far as money could do it, in the position he would have been in if the diving area of the pool had been constructed to the specified depth.

    80. In Ruxley's case the breach of contract by the builders had not caused any consequential loss to the pool owner. He had simply been deprived of the benefit of a pool built to the depth specified in the contract. It was not a case where the recovery of damages for consequential loss consisting of vexation, anxiety or other species of mental distress had to be considered.

    81. In Watts v Morrow [1991] 1 WLR 1921, however, that matter did have to be considered. As in the present case, the litigation in Watts v Morrow resulted from a surveyor's report. The report had negligently failed to disclose a number of defects in the property. The clients, who had purchased the property in reliance on the report, remedied the defects and sued for damages. The judge awarded them the costs of the repairs and also general damages of £4,000 each for "distress and inconvenience" (p 1424). As to the cost of repairs, the Court of Appeal substituted an award of damages based on the difference between the value of the property as the surveyor's report had represented it to be and the value as it actually was. Nothing, for present purposes, turns on that. As to the damages for "distress and inconvenience" the Court of Appeal upheld the award in principle but held that the damages should be limited to a modest sum for the physical discomfort endured and reduced the award to £750 for each plaintiff. Bingham LJ, at p 1445, in an important passage, set out the principles to be applied where contractual damages for distress and inconvenience are claimed:

    "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. This rule is not, I think, founded on the assumption that such reactions are not foreseeable, which they surely are or may be, but on considerations of policy.

    But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category.

    In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort."

    82. In the passage I have cited, Bingham LJ was dealing with claims for consequential damage consisting of the intangible mental states and sensory experiences to which he refers. Save for the matters referred in the first paragraph, all of which reflect or are brought about by the injured party's disappointment at the contract breaker's failure to carry out his contractual obligations, and recovery for which, if there is nothing more, is ruled out on policy grounds, Bingham LJ's approach is, in my view, wholly consistent with established principles for the recovery of contractual damages.

    83. There are, however, two qualifications that I would respectfully make to the proposition in the final paragraph of the cited passage that damages "for physical inconvenience and discomfort caused by the breach" are recoverable.

    84. First, there will, in many cases, be an additional remoteness hurdle for the injured party to clear. Consequential damage, including damage consisting of inconvenience or discomfort, must, in order to be recoverable, be such as, at the time of the contract, was reasonably foreseeable as liable to result from the breach: see McGregor on Damages, 16th ed (1997), para 250, pp 159-160.

    85. Second, the adjective "physical", in the phrase "physical inconvenience and discomfort", requires, I think, some explanation or definition. The distinction between the "physical" and the "non-physical" is not always clear and may depend on the context. Is being awoken at night by aircraft noise "physical"? If it is, is being unable to sleep because of worry and anxiety "physical"? What about a reduction in light caused by the erection of a building under a planning permission that an errant surveyor ought to have warned his purchaser-client about but failed to do so? In my opinion, the critical distinction to be drawn is not a distinction between the different types of inconvenience or discomfort of which complaint may be made but a distinction based on the cause of the inconvenience or discomfort. If the cause is no more than disappointment that the contractual obligation has been broken, damages are not recoverable even if the disappointment has led to a complete mental breakdown. But, if the cause of the inconvenience or discomfort is a sensory (sight, touch, hearing, smell etc) experience, damages can, subject to the remoteness rules, be recovered.

  

    86. In summary, the principle expressed in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 should be used to provide damages for deprivation of a contractual benefit where it is apparent that the injured party has been deprived of something of value but the ordinary means of measuring the recoverable damages are inapplicable. The principle expressed in Watts v Morrow [1991] 1 WLR 1421 should be used to determine whether and when contractual damages for inconvenience or discomfort can be recovered.

    87. These principles, in my opinion, provide the answer, not only to the issue raised in the present case, but also to the issues raised in the authorities which were cited to your Lordships.

    88. In Hobbs v London and South Western Railway Co (1875) LR 10 QB 111 the claim was for consequential damage caused by the railway company's breach of contract. Instead of taking the plaintiff, his wife and two children to Hampton Court, their train dumped them at Esher and they had to walk five miles or so home in the rain. The plaintiff's wife caught a cold as a result of the experience. The plaintiff was awarded damages for the inconvenience and discomfort of his and his family's walk home but his wife's cold was held to be too remote a consequence. The plaintiff's recovery of damages attributable, in part, to the discomfort suffered by his wife and children was in accordance with principle. The contractual benefit to which he was entitled was the carriage of himself and his family to Hampton Court. It was reasonable in my opinion, to value that benefit, of which he had been deprived by the breach of contract, by reference to the discomfort to the family of the walk home. This was, in my view, a Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 case.

    89. Jarvis v Swans Tours Ltd [1973] QB 233 was a case in which the plaintiff had contracted for a holiday with certain enjoyable qualities. He had been given a holiday which lacked those qualities. His holiday had caused him discomfort and distress. The trial judge awarded him £31.72, one half of the price of the holiday. This must, I think have been the value attributed by the judge to the contractual benefit of which the plaintiff had been deprived. But on the plaintiff's appeal against so low an award, the Court of Appeal allowed him £125.

    90. Somewhat different reasons were given by the three members of the court. Lord Denning MR said, at pp 237-238:

    "In a proper case damages for mental distress can be recovered in contract … One such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach."

    The reference in this passage to the "contract for a holiday, or any other contract to provide entertainment and enjoyment" is consistent with an intention to compensate the plaintiff for the contractual benefit of which he had been deprived. The reference, however, to "the disappointment, the distress …" etc reads like a reference to consequential damage.

    91. Edmund Davies LJ based his decision on the defendant's failure to provide a holiday of the contractual quality". He held that the amount of damages was not limited by the price for the holiday. He said, at p 239:

    "The court is entitled, and indeed bound, to contrast the overall quality of the holiday so enticingly promised with that which the defendants in fact provided."

He regarded the plaintiff's vexation and disappointment as relevant matters to take into account in "determining what would be proper compensation for the defendants' marked failure to fulfil their undertaking". This was a Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 approach. Stephenson LJ, at p 240, based his decision on the "reasonable contemplation of the parties … as a likely result of [the holiday contract] being so broken". He said, at pp 240-241, that where there are contracts "in which the parties contemplate inconvenience on breach which may be described as mental: frustration, annoyance, disappointment ….." damages for breach should take that inconvenience into account. This was a Watts v Morrow [1991] 1 WLR 1421 approach.

    92.     Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 was a case brought by another disappointed holiday-maker. He had booked a holiday for himself, his wife and children. Its quality turned out to be substantially below contractually justified expectations. The plaintiff recovered £1,100 damages as compensation not only for his own discomfort but also for the discomfort experienced by his wife and children. In my opinion, the justification for such an award is that the plaintiff was entitled to be compensated for the value of the contracted benefit of which he had been deprived. This case, like Jarvis v Swans Tours Ltd, [1973] QB 233, 239 per Edmund Davies LJ, and like Hobbs v London and South Western Railway Co LR 10 QB 111 is a Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 type of case.

    93.     Knott v Bolton 11 Const LJ 375 is, in my opinion, inconsistent with Ruxley's case and should now be regarded as having been wrongly decided. The plaintiffs had been deprived of the wide staircase and gallery and baronial entrance hall to which they were contractually entitled and had to put up with lesser facilities. A value should, in my opinion, have been placed on the benefit of which they had been deprived.

    94. In Heywood v Wellers [1976] QB 446 a firm of solicitors was sued for failure to provide adequate legal services to the plaintiff in connection with proceedings to protect her from molestation by an ex boyfriend. The failure had the result that the plaintiff continued to suffer molestation. She was awarded damages as compensation for the vexation, anxiety and distress that the continuing molestation had caused her. This, in my opinion, is a clear example of compensation for consequential loss within the reasonable contemplation of the parties at the time of the contract as liable to be caused by the solicitors' failure to deal properly with the anti-molestation proceedings.

    95. Contrast Cook v S [1967] 1 All ER 299 and Hayes v James & Charles Dodd [1990] 2 All ER 815, both solicitors' negligence cases where it was claimed that the solicitors' failure to provide the services to which the plaintiffs had been contractually entitled had caused the plaintiffs anguish, distress and vexation.

    96. In Cook v S Lord Denning MR said, at p 302:

    "if anything goes [wrong] with the litigation owing to the solicitor's negligence … [it] can be foreseen that there will be injured feelings; mental distress; anger and annoyance. But for none of these can damages be recovered."

As Bingham LJ pointed out in Watts v Morrow [1991] 1 WLR 1421, 1445, these damages are ruled out on public policy grounds.

    97. In Hayes v James & Charles Dodd Staughton LJ said, at p 824, that contractual damages for mental distress were, as a matter of policy limited to certain classes of case and that the classes -

    "should not … include any case where the object of the contract was not comfort or pleasure, or the relief [from] discomfort, but simply carrying on a commercial activity with a view to profit."

    So he disallowed the claim for damages for anguish and vexation.

    98. In my opinion, the distinction between commercial contracts and other contracts is too imprecise to be satisfactory. I think the decision of Staughton LJ was plainly correct for the reason that the commercial character of the contract required a negative answer to the question whether the anguish and vexation caused by the breach and for which recovery was sought was within the reasonable contemplation of the parties at the time of the contract (see also Lord Reid's point in C Czarnikow Ltd v Koufos [1969] 1 AC 350, 383 that the loss in question should, to be recoverable, be "not very unusual and easily foreseeable").

    99. In Perry v Sydney Phillips & Son [1982] 1 WLR 1297, contractual damages for distress and discomfort caused to the plaintiff by having to live for a while in a house with a leaking roof and defective drains were awarded as compensation for a surveyor's negligent failure to draw attention to these defects in his report. The Court of Appeal adopted a foreseeability approach.

    100. In R v Investors Compensation Scheme Ex parte Bowden [1994] 1 WLR 17, 28 decided after Watts v Morrow [1991] 1 WLR 1421 had been reported, Mann LJ said this:

    "Unless the very object of the contract is as stated by Bingham LJ [at p 1445], then a contract breaker is not liable to compensate for mental and physical distress consequent upon his breach of contract."

    101. This statement is not, in my opinion, accurate. It concentrates only on the first part and ignores the second part of Bingham LJ's proposition. I agree with Mann LJ that a contract relating to the investment of money is not such a contract as Bingham LJ had in mind as a contract "the very object" of which is to provide pleasure etc. But if a breach of any contract has caused physical inconvenience or discomfort that is within the recognised rules of remoteness and mental distress is a part of that inconvenience or discomfort, it would, in my opinion, in principle be recoverable.

    102. Mr Simpson referred to Johnson v Gore Wood & Co [2001] 2 WLR 72, which he said was indistinguishable from the present case. The case raised a number of difficult issues which have nothing whatever to do with the present case but the case did involve also a claim for damages for mental distress caused by solicitors' negligence. The alleged negligence was the solicitors' failure to advise Mr Johnson, the client, about various financial matters. Mr Johnson claimed, among other heads of damage, damages "for the mental distress and anxiety which he has suffered" as a result of the alleged negligence. Lord Bingham of Cornhill cited, at p 96, the first two paragraphs of the passage from his own judgment in Watts v Morrow [1991] 1 WLR 1421, 1445 that I have cited at paragraph 20 above. He referred to Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 and said, at p 97:

    "It is undoubtedly true that many breaches of contract cause intense frustration and anxiety to the innocent party."

    103. He did not, however, think that Mr Johnson's claim for damages for mental distress and anxiety came within the established principles for the recovery of such damages.

    104. The decision in Johnson v Gore Wood & Co [2001] 2 WLR 72 is, in my view, plainly distinguishable from the present. It was not, in my view, remotely arguable that Mr Johnson's alleged mental distress was a consequence that, at the time he retained the solicitors, was reasonably in the contemplation of the parties as liable to result from a breach.

    105. It is time for me to turn to the present case and apply the principles expressed in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 and Watts v Morrow [1991] 1 WLR 1421. In my judgment, Mr Farley is entitled to be compensated for the "real discomfort" that the judge found he suffered. He is so entitled on either of two alternative bases.

    106. First, he was deprived of the contractual benefit to which he was entitled. He was entitled to information about the aircraft noise from Gatwick bound aircraft that Mr Skinner, through negligence, had failed to supply him with. If Mr Farley had, in the event, decided not to purchase Riverside House, the value to him of the contractual benefit of which he had been deprived would have been nil. But he did buy the property. And he took his decision to do so without the advantage of being able to take into account the information to which he was contractually entitled. If he had had that information he would not have bought. So the information clearly would have had a value to him. Prima facie, in my opinion, he is entitled to be compensated accordingly.

    107. In these circumstances, it seems to me, it is open to the court to adopt a Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 approach and place a value on the contractual benefit of which Mr Farley has been deprived. In deciding on the amount, the discomfort experienced by Mr Farley can, in my view, properly be taken into account. If he had had the aircraft noise information he would not have bought Riverside House and would not have had that discomfort.

    108. Alternatively, Mr Farley can, in my opinion, claim compensation for the discomfort as consequential loss. Had it not been for the breach of contract, he would not have suffered the discomfort. It was caused by the breach of contract in a causa sine qua non sense. Was the discomfort a consequence that should reasonably have been contemplated by the parties at the time of contract as liable to result from the breach? In my opinion, it was. It was obviously within the reasonable contemplation of the parties that, deprived of the information about aircraft noise that he ought to have had, Mr Farley would make a decision to purchase that he would not otherwise have made. Having purchased, he would, having become aware of the noise, either sell - in which case at least the expenses of the re-sale would have been recoverable as damages - or he would keep the property and put up with the noise. In the latter event, it was within the reasonable contemplation of the parties that he would experience discomfort from the noise of the aircraft. And the discomfort was "physical" in the sense that Bingham LJ in Watts v Morrow [1991] 1 WLR 1421, 1445 had in mind. In my opinion, the application of Watts v Morrow principles entitles Mr Farley to damages for discomfort caused by the aircraft noise.

    109. I would add that if there had been an appreciable reduction in the market value of the property caused by the aircraft noise, Mr Farley could not have recovered both that difference in value and damages for discomfort. To allow both would allow double recovery for the same item.

    110. Whether the approach to damages is on Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 lines, for deprivation of a contractual benefit, or on Watts v Morrow [1991] 1 WLR 1421 lines, for consequential damage within the applicable remoteness rules, the appropriate amount should, in my opinion, be modest. The degree of discomfort experienced by Mr Farley, although "real", was not very great. I think £10,000 may have been on the high side. But in principle, in my opinion, the judge was right to award damages and I am not, in the circumstances, disposed to disagree with his figure.

    

 
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