Docstoc

the Liquidated damages

Document Sample
the Liquidated damages Powered By Docstoc
					                                                                             LOUISE MERRETT
                                                                            TRINITY COLLEGE


                      COMMERCIAL LAW LECTURES 2012 -2013
                             SALE OF GOODS (6)

                            SELLER’S PERSONAL REMEDIES


                                           Introduction

1. Action for the price - in the majority of cases available only when property in goods has
   passed to the buyer. The effect of this remedy is to affirm the contract - goods passing to
   the buyer.

2. Action for damages for non-acceptance. This is in a sense the opposite to an action for
   the price - it is based on the fact that the buyer has refused the goods and the sale has not
   taken place. When property has passed the seller will have a choice between these 2
   remedies.


                                       Action for the price

3. Section 49(1) SGA provides:

        where, under a contract of sale, the property in the goods has passed to the buyer and he
        wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the
        seller may maintain an action against him for the price of the goods

4. Section 49(2) SGA provides:

        Where, under a contract of sale, the price is payable on day certain irrespective of delivery
        and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an
        action for the price, although the property in the goods has not passed and the goods have not
        been appropriated to the contract


Nature of action for the price

5. Claim in debt rather than a claim for damages.


The passing of property

6. The crucial factor in most cases is that property in the goods has passed. Therefore, can
   be before delivery and/or acceptance.

7. If property has not passed cannot maintain an action for the price even if the wrongful act
   of the buyer prevents property from passing or payment from being due.

    o   Colley v Overseas Explorers Ltd [1921] 3 KB 302: in an fob contract property passes
        when goods are put on board ship. Here the buyer failed to nominate a ship.
        Property could not pass therefore seller could not sue for the price.




                                                                                                     1
    o   Stein, Forbes & Co v County Tailoring Co (1916) 86 2 LJKB 448: in a cif contract
        property passes on payment on documents. The buyer wrongfully refused to take up
        the documents. Property had not passed therefore could not sue for the price.

Price payable on day certain


8. Section 49(2) is based on Dunlop v Grote (1845) 2 Car & K 153. Contract required
   payment by cash for every ton of iron ore delivered as requested. If delivery not required
   before a certain date then payment to be on that date. On meaning of day certain see
   further:

    o   Workman, Clark & Co v Lloyd Brazilenno [1908] 1 KB 968: also applied when price
        of a ship was to be paid by 5 installments as the work progressed. Held could sue for
        each instalment as it became due because the date then became ascertained by
        reference to the stage which had been reached in the construction of the vessel.

Wrongful refusal to pay the price

9. Action for price can only lie where B wrongfully neglects or refuses to pay for the goods.
   Depends on the terms of the contract eg not until expiry of any period of credit and not if
   waiver.

10. Also, not if there is a justification for refusal to pay eg if the seller has previously broken
    his contractual obligation in such a way as to disentitle him to the price eg by delivering
    defective goods.


Action for the price in other situations

Eg what if a contract provides for net cash before delivery ie property to pass on delivery but
price payable on demand or within a reasonable time.

11. Conflicting views.
       (1)      no action for price will lie unless the property in the goods has passed save
       only for the special case provided for by s 49(2) eg dicta in Colley. (op cit) “no action
       will lie for the price of goods until the property has passed, save for the one special
       case provided by s 49(2)” (p 310).
       (2)      Action for price simply an action for a liquidated sum and depends on terms
       of contract.
    o Minister for Supply & Development v Servicemens’s Co-op Joinery Manufactures Ltd
       (1951) 82 CLR 621:
    o McEntire v Crossly Brothers Ltd [1895] AC 457: until all instalments were paid for
       goods remained the property of the seller, save that on default or bankruptcy the
       whole amount became due. Held could sue for the balance as a debt.
    o Castle v Playford (1872) LR 7 Exch 98
    o Manbre v Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198
    o See recent full discussion of this issue in FG Wilson v John Holt [2012] EWHC 2477


Additional claim for consequential damages

12. No common law general damages for being kept out of money but interest may be
    payable under the contract or under statute eg SCA 1981 s 35A or Late Payment of



                                                                                                 2
      Commercial Debts (Interest) Act 1998 implied term; or special damages if within
      contemplation of parties and interest actually incurred.


                                    Seller’s claims for damages

Introduction

13. Section 50 SGA provides:

          (1)      where the buyer wrongfully neglects or refuses to accept and pay for the goods, the
          seller may maintain an action against him for damages for non-acceptance


Measure of damages for non-acceptance

Prima facie measure

14. Section 50(2) SGA provides:

          the measure of damages is the estimated loss directly and naturally resulting in the ordinary
          course of events, from the buyer’s breach of contract

15. Section 50(3) SGA provides:

          Where there is an available market for the goods in question the measure of damages is
          prima facie to be ascertained by the difference between the contract price and the market
          price or current price at the time when the goods ought to have been accepted or (if no time
          was fixed for acceptance) at the time of the refusal to accept

16. These provisions reflect general principles of the assessment of damages (in particular the
    2 limbs of Hadley v Baxendale (1854) 9 Ex 341 and the doctrine of mitigation).

          Where two parties have made a contract which one of them has broken, the damages which
          the other party ought to receive in respect of such breach of contract should be (1) such as
          may fairly and reasonably be considered either arising naturally ie. according to the usual
          course of things from such breach of contract itself, or (2) such as may reasonably be
          supposed to have been in the contemplation of both parties, at the time they made the contract,
          as the probable result o the breach of it


(a)       available market

17. Originally seen as some place eg an exchange where goods could be sold. Later tied to a
    particular level of trade. No firm definition - some have been suggested in the cases eg.

      o   Charter v Sullivan [1957] 2 QB 117 - I will content myself with the negative
          proposition that I doubt if there can be an available market for particular goods in any
          sense relevant to s 50(3) unless those goods are available at the market or current
          price whatever it may be at a price fixed by reference to supply and demand as the
          price at which a purchaser for the goods in question can be found.
      o   Shearson Lehman Hutton Inc v MacLaine Watson & Co Ltd [1990] 3 All ER 723 -
          not unless on that day there are in the market sufficient traders potentially in touch
          with each other to evidence a market in which goods could be sold.




                                                                                                       3
18. Question of fact and all part of general question of mitigation ie comes down to
    reasonableness.


19. Unique goods - no available market
    o Lazenby Garages v Wright [1976] 1 WLR 459: second hand cars

(b)       When market price to be assessed


20. Two questions arise: first when the second limb of s 50(3) applies, and, secondly, how do
    the provisions apply in the case of anticipatory breach by buyer.

      o   Millett v Van Heeck [1921] 2 KB 369: Bankes LJ - raises 2 questions : first whether it
          applies to anticipatory breach and secondly whether the contract was one where no
          time was fixed for delivery. Held that no application to anticipatory breach (left open
          second question). But only prima facie, if it can be should by either party that the
          reasonable course for minimizing damages would be otherwise should not be
          followed eg if reasonable to enter into a contract at date of repudiation.
          Atkin LJ agreed and left open the second question but postulated that it was difficult
          to see why delivery at a reasonable time to be fixed by a jury was not a fixed time.

      o   Approved by Privy Council in Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory
          [1979] AC 91.

(c)       Proof of market price - relevance of price actually obtained on re-sale


21. If market price proved, in theory actual price obtained by seller upon re-sale at a later date
    irrelevant (and does not matter if seller actually still has the goods). But
         (i)     evidence of market price and
         (ii)    depends on whether re-sale immediate or not

          o Campell Mostyn (Provisions) Ltd v Barnett Trading Co [1954] 1 Lloyds Rep 65
          P agreed to sell and D agreed to buy 500 cases of South African York hams - 50 cases
          to be shipped in April, 100 May and 250 June.             First 150 cases delivered and
          accepted but D refused to accept remaining 350. S wrote to Ds on 24/10 - day of
          breach - reserving the right to sell goods but they were not in fact sold until after 7/11
          at a sum in excess of the market price (therefore on the face of it suffered no loss).
          However, accepted that if the seller retains after breach, the speculation as to the way
          the market will go is for S not B, therefore if the market price falls cannot recover
          loss - accordingly cannot be liable for profit if market rises.
          In Aercap Partners v Avia Asset Management [2010] EWHC 2431 the fact that there
          was a delay before re-sale was taken as evidence that no available market

Cases when the prima facie measure not appropriate

22. The prima facie measure set down in section 50(3) may not be applicable even if there is
    an available market.

          o   Bem Dis A Turk Ticarey S/A TR v International Agris Trade Co Ltd [1999] 1 All
              ER (Comm) 619. By a contract dated 21/12/93 sellers sold to B 22,000 tonnes
              10% more or less of Thailand manioc chips (tapioca) for US$ 90.90 per tonne - to
              be delivered to Turkish ports on a named vessel - estimated time of arrival
              20/1/94 - payment by letter of credit. On 4/1/94 B informed S that the Turkish


                                                                                                  4
            Gov’t had announced a new regime from 1/94 whereby importation of tapioca
            into Turkey prohibited and that they had cancelled the letter of credit but that
            trying to persuade the Gov’t to grant a permit. Eventually on 18/1 B told S that
            they had failed to obtain a permit and asked them to stop the goods being
            shipped. B claimed cancellation costs of stopping loading on to the vessel. B
            argued that s 50(3) was the governing principle and that it was incumbent on S to
            positively establish that there was no available market before he can invoke the
            more general rule in s 50(2). Held - that was putting the cart before the horse
            since sub-s (2) lays down the general rule and sub-s (3) is expressed to apply
            prima facie. In any event clear that where to the knowledge of both B and S
            goods are bought cif or fob for shipment to a particular market relevant values are
            the values of goods upon that market on arrival there - therefore here Turkey and
            it was clear that because of the export ban there was no available market.
            Accordingly on any view s 50(2) applied and loss directly and naturally arising
            was the cancellation expenses. But court also made in clear, obiter, that in a
            situation where the seller does not actually have the goods but is in a position to
            obtain them from a third party, section 50(3) N/A. Cannot be obliged to buy
            goods once the contract is terminated.

Fixed retail price

23. Unlikely to be important now in practice, but cases show important general principles
    regarding ability to make further sale which may apply in other cases of “lost volume
    sales”


        o   WL Thompson Ltd v Robinson (Gunmakers) Ltd [1955] : supply exceeded
            demand, recovered loss of profit.

        o   Charter v Sullivan [1957] 2 QB : demand exceeded supply.

        Jenkins LJ held: unnecessary to decide whether there was an available market but “I
        would find it difficult to hold that there was”. If the only price at which a car can be
        sold is a fixed retail price and no purchaser can be found at that price - no market or
        current price. If the state of trade was such that S could sell all the cars he could get
        at that price - so that D’s default did not result in effecting one less sale it may well be
        nothing more than nominal damages. But not because of the equality between
        contract price and fixed retail price, but because of the application of the general
        principle laid down by s 50(2) the P would be found to have suffered no damage.
        Distinguished Thomson on the basis that there were no shortage of cars to meet all
        immediate demands in the locality which I take to mean supply exceeded demand.

        o   See also Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd
            [2008] EWCA Civ 955.

        o   Cf Lazenby Garages v Wright ( op cit). As second hand car unique no available
            market within s 50(3). S could receive as damages only the particular loss
            sustained through that transaction and nothing more. As S had re-sold car at
            higher price no loss. Overruled judge who had held 50/50 chance that could have
            sold an additional similar car to someone else at a profit and had awarded 50%
            loss of profit.

                                        Special damages

24. Section 54 SGA provides:


                                                                                                  5
        Nothing in this Act affects the right of the buyer or the seller to recover interest or special
        damages in any case where by law interest or special damages may be recoverable, or to
        recover money paid where the consideration for the payment of it has failed


                        Acceptance of buyer’s repudiation of contract

25. A distinction must be drawn between non-acceptance and a mere failure to take delivery
    which may denote no more than that the buyer is not yet ready to receive the goods and is
    therefore not always repudiatory (since time of taking delivery is not always of the
    essence).

                                        Return of deposits

26. Obviously a buyer who is himself in breach of contract has no right to sue for damages -
    but buyers sometimes pay some of price in advance and difficult questions arise as to
    whether the seller must return such sums.


        o   Dies v British and International Mining Co [1939] 1 KB 724

        P contracted with D to buy rifles and ammunition for 270,000l. Goods stated to be
        destined for Turkey - delivery to be made by 15/12/1936 (this was later extended to
        15/1/1937. 100,000l was paid by P on 14/11/86 - balance to be paid by letter of
        credit. P then unable to take delivery - admitted contract was broken. By letter dated
        4/2 D accepted repudiation. The contract contained a term providing for refund of
        payment save for an agreed sum of liquidated damages - held only to apply to
        impossibility akin to frustration. Therefore return of the part payment was to be
        governed by common law. Considered whether a deposit in the nature of a guarantee
        of performance or merely part payment. Held where the language was neutral - part
        payment - can be recovered. If it had been intended to be a payment by way of
        earnest only ie a forfeitable deposit - not recoverable by the party in breach.




                                                                                                     6

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:12
posted:10/31/2012
language:Unknown
pages:6