The Differing Principles of Assessment of Damages in Tort and Contract

By Raphael Kok

1. Introduction

For those in the legal fraternity, the question of whether a legal wrong has been

committed in various situations predominantly occupies their concentration. This holds true,

even purely in the civil context. When confronted with a problem, the question that

immediately blazes in their mind is this: “Is there a breach of tortious duty or a breach of

contract here?”

However, the layman’s perspective is a stark contrast. He is not interested in knowing

whether it is a case of breach of tortious duty, or a breach of a contractual duty, or both. He is

not interested in knowing how does a tortious or contractual liability arises. Instead, he is

only interested in a single thing: compensation. His mind is only focused on a single

question: “How much can I get out of this?”

This is why the law of damages deserves meticulous analysis in any given civil case.

And why any legal practitioner, wishing to serve his clients’ interest best, must command a

firm grasp of the principles of assessment of damages in tort and contract. More importantly,

he must appreciate the reality that there are essential theoretical and practical differences

between the two. As Scrutton L.J. noted in The “Arpad”1: “It is often said that the measure of

damages in contract and tort is the same; I do not think that this is strictly accurate”. Indeed,

such differences affect both the question of recoverability and quantum.

Conveniently, the approach in assessing damages in tort and contract are mainly

identical. Thus, any differences in their principles can be analysed in parallel. Such principles

can be divided into three categories i.e. (1) basis of compensation; (2) principles limiting

compensatory damages; and (3) types of loss. They are by no means mutually exclusive, but

instead may overlap each other. They are merely categorised as such to ease understanding to

the law of damages and arguably, provide a practical step-by-step methodology for legal

practitioners to approach the question of “How much can I get out of this?”.

Next, the issue of concurrent liability arises. This issue has become more pertinent in

light of the recent House of Lords decision of Henderson v Merrett Syndicates Ltd,2 where

Lord Goff stated that ‘the common law is not antipathetic to concurrent liability, and that

there is no sound basis for a rule which automatically restricts the claimant to either a tortious

1 [1934] P. 189 (CA), p. 216.2 [1995] 2 AC 145, p. 193-194.

or a contractual remedy’. Also, concurrent liability cases are becoming more prevalent, due to

the recent liberalisation of the tort of negligence to allow the recovery of pure economic loss

(which has traditionally been confined to the contract realm) in not only situations of

negligent misstatement,3 but also for negligent acts (particularly in cases of defective building

liability) across the Commonwealth4 including Malaysia,5 but for the notable exception of

England.6

In light of the progressive expansion of concurrent liability cases, the question of

practical differences between assessment of damages in tort and contract becomes crucial.

This is because understanding such differences would enable legal practitioners to determine

how best to recover maximum damages i.e. either through an action in tort or contract.

In short, this assignment analyses the different legal principles of assessing damages

in tort and contract, and the resulting practical differences when such principles collide in

concurrent liability cases.

2. Basis of Compensation

Generally, the basis of awarding damages, in both an action in tort or contract, is ‘to

give the claimant compensation for the damage, loss or injury he has suffered’7 or

alternatively, ‘to put the claimant in the position that he would have occupied if the wrong

had not been done’.8 Such an overarching proposition is not wrong. However, it overlooks the

fundamental premise of all contractual claims i.e. the existence of an enforceable contract.9 In

such light, and for practical purposes, we can narrow our outlook to distinguish the

compensatory aims for damages in tortious and contractual breaches.

2.1. Tort

3 See, for example, Hedley Bryne & Co Ltd v Heller & Partners [1964] AC 465 (HL); Caparo Industries plc v Dickman [1990] 1 All ER 568 (HL); White v Jones [1995] 2 AC 207 (HL). 4 In Australia, see Bryan v Maloney [1995] ALR 163 (HC); in Canada, see Winnipeg Condominium Corporation v Bird Construction Co Ltd [ 1995] 121 DLR 193 (SC); in New Zealand, see Invercargill City Council v Hamlin [1996] All ER 756.5 See Majlis Perbandaran Ampang Jaya v Steven Phoa [2006] 2 MLJ 389 (FC) and Dr Abdul Hamid Abdul Rashid v Jurusan Malaysia Consultants [1997] 1 AMR 637 (HC). 6 See Murphy v Brentwood District Council [1991] 1 AC 398 (HL).7 McGregor H., McGregor on Damages, 17th ed, London: Sweet & Maxwell, , 2003 (“McGregor”), p. 12. 8 Waddams, S.M., The Law on Damages, Toronto: Canada Law Book Limited, 1983 (“Waddams”), p. 684. See also Burrows A., Remedies For Torts and Breach of Contract, 3rd ed., Oxford University Press, 2004 (“Burrows”), p. 33.9 Ibid.

In damages for tortious breaches, its compensatory aim is ‘to put the claimant into as

good a position as it would have been in if no tort has been committed’.10 A classic statement

of this is found in Livingstone v Raywards Coal Co,11 where Lord Blackburn explained that

the measure of damages in tort is ‘to put the party who has been injured in the same position

as he would have been in if he has not sustained the wrong for which he is now getting his

compensation’.

2.2. Contract

In damages for contractual breaches, its compensatory aim is ‘to put the claimant into

as good a position as it would have been in if the contract has been performed’. As Parke B in

Robinson v Harman12 succinctly puts it: ‘the rule of common law is that where a party

sustains a loss by reason of a breach of contract, he is to be placed in the same situation with

respect to damages as if the contract has been performed’. Such a view was echoed in the

Malaysian case of Tan Sri Khoo Teck Puat v Plenitude.13

2.3. Practical Differences in Concurrent Liability Cases

Such theoretical differences between the compensatory aims for damages in tortious

and contractual breaches can give rise to practical differences, in terms of the recoverable

quantum of damages, in concurrent liability cases. In short, pursuing an action in tort or

contract in such cases may produce different results in the total quantum of recoverable

damages. Burrows illustrates this emphatically in the case of a contract entered in reliance of

a tortious misrepresentation:14

Imagine that a claimant buys a car for $5,000 from a salesman who falsely

misrepresents that the car is one-year old (which, if true, has a market value of $5,500), when

it is actually four-years old (which has a market value of $4,000). If the claimant keeps the

car and sues in tort, he should be put into ‘as good a position as if he had never entered the

contract’. His damages would be $5,000 - $4,000 = $1,000. If the claimant instead sues in

contract, he should be put into ‘as good a position as the contract had been performed based

on the statement’. His damages would be $5,500 - $4,000 = $1,500. If, however, the market

value of a one-year old car is $4,500 instead, the claimant would gain more in damages if he

10 Burrows, p. 33.11 (1880) 5 App Cas 25, p. 39.12 (1848) 1 Exch 850, p. 855.13 [1995] 1 AMR 41; [1994] 3 MLJ 777 (FC). 14 Burrows, p. 34.

sued in tort as his damages would still be $1,000, but reduced to $4,500 - $4,000 = $500 if he

sued in contract.

This clearly shows that in specific concurrent liability cases, different quantum of

damages are recoverable, depending on whether a claimant sues in tort and contract. The

example also shows that when a claimant makes a good bargain, as in the first situation, he

would be better off suing in contract. But when he makes a bad bargain, as in the second

situation, he would be better off suing in tort.15

3. Principles in Limiting Compensatory Damages

Although it is a ‘general rule’ for the compensatory aim of damages in tort and

contract to put the claimant in a position as if the wrong was never committed,16 this does not

automatically result into the defendant bearing all the burden of restoring him into such a

position.17 Instead, the law places limitations to ‘reduce damages that full adherence to the

compensatory aims would dictate’, based on certain principles i.e. (1) remoteness; (2)

intervening cause; (3) duty to mitigate; and (4) contributory negligence.18

3.1. Remoteness

Whether a breach is tortious or contractual, a principal restriction on compensatory

damage is that the loss sought to be claimed by the claimant must not be too remote from the

breach of such duty.19 The essential rationale behind this principle is that ‘it is unfair to a

defendant, and imposes too great a burden, to hold it responsible for losses that it could not

have reasonably contemplated or foreseen’.20

3.1.1. Tort

The test of remoteness used in tort is none other than the famous ‘reasonable

foresight’ test.21 Propounded by Viscount Simonds in Overseas Tankship (UK) Ltd v Morts

Dock & Engineering Co Ltd, The Wagon Mound,22 it is a ‘principle of civil liability that a

15 Ibid16 McGregor, p. 1517 Id, p. 15 and 75.18 Burrows, p. 73.19 Id, p. 76.20 Ibid.21 Although primarily a test used in the tort of negligence, it has been also applied in cases of nuisance (see Overseas Tankship (UK) v Miller SS Co Pty Ltd (The Wagon Mound No 2) [1967] 1 AC 617) and strict liability (see Cambridge Water Co v Eastern Counties Leather plc. [1994] 2 AC 264). Its applicability to intentional torts is yet debatable (see Burrows, p. 81).22 [1961] AC 388 (PC)

man must be considered to be responsible for the probable consequences of his act’23 and as

such, ‘it is the foresight of the reasonable man which alone can determine responsibility’. 24

Such a test only ‘bars recovery for unreasonable types of damage’.25 Thus, so long the

damage is a type which is foreseeable, it can be recovered even if the degree of damage is

unforeseeable26 or if the precise manner in which the damage occurs is unforeseeable.27

So what degree of likelihood of the loss occurring is required under the test? Rarely

addressed in tort cases themselves,28 the answer can be found instead in contract cases. In

Koufos v Czarnikov Ltd, The Heron II,29 the House of Lords held, in contrast with the contract

test of remoteness, that the tort test requires only a low degree of likelihood of loss to be

reasonably foreseeable. Similarly in H Parsons Ltd v Uttley & Co Ltd, 30 Lord Denning

described the degree of likelihood as ‘a slight possibility’.

3.1.2. Contract

The contract test for remoteness is commonly known as the ‘reasonable

contemplation’ test. It originated from Hadley v Baxendale,31 where Alderson B held that

losses from contractual breaches can only be recovered if they ‘arise naturally, i.e. according

to the usual course of things from such breach of contract’ or when they ‘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.’ The Court of Appeal in Victoria Laundry

(Windsor) Ltd v Newman Industries Ltd32 later combined both rules into a single rule based

on ‘reasonable contemplation’, but seemed to suggest that it was similar to the ‘reasonable

foresight’ test.

Predictably, the latter view was subsequently criticised in Heron II,33 where Lord Reid

stated that the proper test was whether the loss is ‘of a kind which the defendant, when he

made the contract, ought to have realised was not unlikely to result from the breach’, and

Lord Upjohn similarly reiterating that damages ‘should depend on assumed common

knowledge or contemplation and not on foreseeable but most unlikely consequence’. In short,

a stricter test than the ‘reasonable foresight’ test should be applied.

23 Id, p. 422-42324 Id, p. 424.25 McGregor, p. 150.26 See, for example, Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1997] 1 QB 8827 See, for example, Hughes v Advocate [1963] AC 837.28 Burrows, p. 80. 29 [1969] 1 AC 350.30 [1978] QB 791.31 [1854] 9 Exch 341, p. 35432 [1949] 2 KB 528, 539-54033 [1969] 1 AC 350, p. 382-383 (per Lord Reid), p. 422 (per Lord Upjohn)

This then begs the question: how different is the degree of likelihood of loss required

for both tests? Despite the Law Lords’ best efforts in Heron II, there was no coherent,

definitive answer to this. Burrows’ educated guess is that ‘while a slight possibility of the loss

occurring is required in tort, a serious possibility of the loss occurring is required in

contract’.34 The rationale for applying a stricter remoteness test for contract is essentially an

issue of contractual relationship and knowledge. As explained by Lord Reid in Heron II, ‘in

contract, if one party wishes to protect himself against a risk which to the other party would

appear unusual, he can direct the other party’s attention to it before the contract is made’,

whereas ‘in tort, there is no opportunity for the injured party to protect himself in that way’.35

But this was not the end of judicial development of the contract test of remoteness just

yet. In Parsons v Uttley Ingham,36 Lord Denning added a new spin to the law. He felt there

was not just a single test, but instead two tests. The two tests is applied depending on the

nature of the loss i.e. (1) physical harm or incidental expense; and (2) loss of profit or

opportunities for gain.37 Where damages for physical harm is sought (as was the case here),

Lord Denning held that the ‘reasonable foresight’ test applied, in that the degree of likelihood

of loss required was ‘a possible consequence even if it was only a slight possibility’.38 In

contrast, only when damages for loss of profits is sought should the stricter ‘reasonable

contemplation’ test apply, in that the degree of likelihood of loss required was contemplated

by the parties ‘as a serious possibility or real danger’.39 As the cases of Hadley, Victoria

Laundry and Heron II all dealt with loss of profits, this was why, in Lord Denning’s opinion,

the latter test was applied in such cases.

Why this novel way of distinguishing the remoteness test based not on the cause of

action (tort or contract), but on the nature of loss? Lord Denning reasoned that ‘where a

defendant is liable for his negligence to one man in contract and to another in tort, each

suffers like damage’ and thus, ‘the test of remoteness is, and should be, the same in both’40.

Also, according to Hart (of whom Lord Denning drew his analysis from) and Honore, both

such losses should be treated separately as they essentially deal with different causation

considerations.41 As loss of profits are concerned with ‘hypothetical gains’, it is ‘reasonable to

limit these to gains which would be made in circumstances likely to occur or contemplated by

34 Burrows, p. 88.35 [1969] 1 AC 350, p. 385-386. See also p. 411 (per Lord Hodson) and p. 422-423 (per Lord Upjohn)36 [1978] QB 791.37 See Hart H.L.A and Honore T., Causation In Law, 2nd ed., Oxford: Clarendon Press, 1985 (“Hart and Honore”), p. 313-314. 38 [1978] QB 791, p. 802.39 Ibid.40 Id, p. 804. He also cited examples like product liability, occupier’s liability and medical negligence41 Hart and Honore, p. 313.

the parties’. In contrast, for physical harm (which would not have occurred but for the

defendant’s earlier wrongful act), the question of damages is ‘more reasonably determined by

considering not hypothetical events’, but the surrounding causal circumstances.42 In short, it

is reasonable to use a stricter test for hypothetical pure economic losses, but not for actual

physical harm caused by a contractual breach.

Despite the force of such arguments, the majority in Parsons declined to adopt such a

‘dual’ remoteness test in contract. Scarman LJ stated, with whom Orr LJ concurred, that all

losses are only recoverable in contract ‘provided the parties contemplated as a serious

possibility the type of consequence that ensued the breach’.43 And recently in Brown v KMR

Services Ltd., the majority’s view was affirmed.44

At any rate, both approaches to the remoteness test in contract are equally compelling.

In Malaysia, Section 74 of the Contracts Act 1950 has been consistently held by the courts45

to encapsulate the Hadley v Baxendale rule. Unfortunately, the courts have made no

definitive judicial pronouncement on which approach to be adopted. In light of strong judicial

support in England, it appears that the Heron II approach would prevail. Nevertheless, it is

submitted that Lord Denning’s and Hart’s approach is more sensible.

3.1.3. Practical Differences in Concurrent Liability Cases

Due to the different remoteness tests applied in tort and contract, many interesting

implications can result from concurrent liability cases. Firstly, let us take the prevailing law

as it stands today i.e. that the Wagon Mound ‘reasonable foresight’ test is used in tort, while

the Heron II ‘reasonable contemplation’ test is used in contract. The most obvious question

which arises is this: in concurrent liability cases, which test is to be applied? The answer to

this can be drawn from Lord Reid’s statements justifying the use of the ‘reasonable

contemplation’ remoteness test in contract i.e. in a contractual relationship, parties have the

opportunity to inform each other of any unusual risks requiring protection.46 It thus

necessarily follows that when a tort action is brought in the context of a contractual

relationship, the stricter ‘reasonable contemplation’ remoteness test should also apply, as the

parties have such a similar opportunity.47 In short, the stricter remoteness test in contract

prevails over that in tort in concurrent liability cases.

42 Id, p. 321.43 [1978] QB 791, p. 813.44 [1995] 4 All ER 598, p. 621 (per Stuart-Smith LJ)45 See, for example, Toeh Kee Keong v Tambun Mining Co Ltd [1968] 1 MLJ 39 (FC); Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd [1994] 3 AMR 2407.46 Refer to the third paragraph of Part 3.1.2.47 See Burrows, p. 92.

If, however, Lord Denning’s approach is to be considered, different implications are

reached. As different remoteness tests are applied depending on the nature of loss, it is no

longer even necessary to speculate what test to be used in tort, contract, or in concurrent

liability. The only issue is whether the loss is of physical harm, or loss of profits. If the

former loss is sought to be claimed, the Wagon Mound ‘reasonable foresight’ test applies,

regardless of whether the loss is consequent to a contractual breach, tortious breach, or both.48

Similarly, if loss of profits is sought to be claimed, the Heron II ‘reasonable contemplation’

test applies, regardless the nature of the breach. Thus, in concurrent liability cases, as in

purely a tort or contract case, the remoteness test to be used depends solely on the nature of

the loss.

3.2. Intervening Cause

Another limiting principle is that a claimant cannot recover damages for loss if an

intervening cause, combining with the defendant’s breach of duty, breaks the chain causation

between the loss and the breach.49 There are three main types of intervening causes i.e. (1)

natural events; (2) conduct of third party; and (3) conduct of the claimant. The limiting

principles of all such types of intervening causes are generally similar both in tort and

contract. Thus, as there are neither any substantial theoretical nor practical differences

between the two, no further discussion on this point will be pursued.

3.3. Duty to Mitigate

The duty to mitigate is essentially a duty imposed upon the claimant to ‘take all

reasonable steps to mitigate the loss consequent on the breach’50. He is thus debarred ‘from

claiming any part of the damage which is due to his neglect to take such steps’.51 Similarly

like intervening cause, its basic principles are applicable in tort and contract, without any

substantial differences. Thus, no further discussion on this principle will be pursued.

3.4. Contributory Negligence

As its name suggest, contributory negligence originated as a creature of tort. Where it

once operated as a complete defence to many torts,52 it has now been relegated to a partial

48 Id, p. 89.49 Id, p.97. 50 British Westinghouse Electric v Underground Electric Rlys Co of London Ltd [1912] AC 673, p. 689.51 Ibid.52 Id, 129. Although yet to be confirmed either by definitive judicial pronouncements or legislation, there are strong reasons, mainly due to policy, not to extend the principle to intentional torts. See McGregor, p. 90; Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2002] UKHL 43 (HL) (no defense for the

defence due to the passing of the Law Reform (Contributory Negligence) Act 1945

(‘LRCNA’) in England. Section 1(1) of the LRCNA provides that where a claimant suffers

damage due to partly his own fault, his claim shall not be defeated, but the damages

recoverable shall be reduced to such extent as the court thinks just and equitable having

regard to the claimant’s share in the responsibility of the damage. In Malaysia, such a pari

materia provision is found in Section 12(1) of the Civil Law Act 1956.53

3.4.1 Contract

The applicability of contributory negligence as a defence in tort is axiomatic. The

crucial question, instead, is whether it is similarly applicable as a defence in contract to

enable the defendant to reduce the damages resulting from his contractual breach. For a long

time, the courts were uncertain of the LRCNA’s applicability to contracts, and cases moved

to either direction.54 It was only until the Court of Appeal case of Forsikringaktieselskapet

Vesta v Butcher55 in 1989 that the uncertainty was resolved. Even then, the decision raised

many criticisms and intensified the debate further.

The Court of Appeal essentially adopted Hobhouse J’s solution and reasoning in the

court below56 to the issue. In determining the applicability of the LRCNA, Hobhouse J firstly

identified three categories of cases:57 (1) breach of a strict contractual duty; (2) breach of a

contractual duty of care; (3) breach of contractual and tortuous duty of care.58 As such, it was

held that contributory negligence can only be a defence for breaches of contract falling under

category (3) cases (as was the case in Vesta).

After Vesta, the English courts59 have consistently approved such an approach. In

Malaysia, the High Court in Karintina Trading v Cornelder’s (Sabah) Sdn Bhd60 similarly

followed Vesta, and held that since the wrong gave an action both in tort and contract,

contributory negligence applied.

tort of deceit). 53 Act 6754 McGregor, p. 92. For support of LRCNA’s applicability to contracts, see Quinn v Burch Bros (Builders) [1966] 2 QB 839. For support of the contrary view, see Basildon District Council v J. E. Lesser (Properties) [1985] QB 839.55 [1989] AC 852. The case went on appeal to the House of Lords, but the issue of contributory negligence was not addressed.56 [1986] All ER 488.57 Id, p. 508; affirmed in the Court of Appeal at [1989] AC 852, p. 860.58 Burrows, p. 13759 For an example of a category (1) case where contributory negligence was applied, see UCB Bank plc v Hepherd Winstanley and Pugh [1999] Lloyd’s Rep PN 963 (CA). In contrast, for examples of category (2) and (3) case where it was not applied, see Raflatac Ltd v Eadie [1999] 1 Lloyd’s Rep 506 and Barclays Bank Plc v Fairclough Building Ltd [1995] QB 214 respectively.60 [1995] 2 CLJ 604.

Despite the law now being settled, serious criticisms can be levelled against such an

approach. Essentially, such criticisms call for contributory negligence to apply as a defence to

not only category (3) cases, but all other contract cases.61 The first criticism is that it

perpetuates an odd reversal of roles where a blameworthy claimant will be better off

establishing that a defendant is only in breach of a strict contractual duty or a contractual duty

of care, but not liable for negligence.62 Secondly, there should be nothing inherently wrong

with reducing a claimant’s recoverability of damages because he was also partly at fault for

his loss. As the law already provides that a blameworthy claimant can recover no damages

due to his failure to mitigate his losses or his own actions constituting an ‘intervening cause’,

it naturally follows that he should recover less damages due to his partial blameworthiness in

causing his own loss.63

The final, and perhaps the most compelling criticism is that such an approach forces

an ‘all-or-nothing’ injustice upon either the claimant or defendant.64 A perfect example where

a claimant suffers from unfairness is the unreported Court of Appeal case of Schering

Agrochemicals Ltd v Resibel NV SA.65 The facts were that the defendants breached their

contractual duty by supplying defective equipments which caused a serious fire to break out

at the claimant’s factory. However, the court held that as the plaintiff had either failed in their

duty to mitigate their loss or broken the chain or causation by not properly maintaining their

safety procedures in the factory, damages were irrecoverable Indeed, such a harsh result

could have been avoided if the court was able to award damages reduced due to the

claimant’s contributory negligence.66 Also, if the court had chosen to award full damages to

the claimant, this then causes injustice to the defendants. In short, contract cases does not

allow courts to choose a ‘mid-position’ which can best serve fairness in situations where both

parties are blameworthy. Thus, it is submitted that the law needs to be reformed to allow

contributory negligence to be used as a defence in contract cases.

3.4.2. Practical Differences in Concurrent Liability Cases

Clearly, category cases (3) under Vesta refer to cases of concurrent liability. This

would appear to bode well for the defendant in such cases. It does not matter if the claimant

61 Support for the non-applicability of contributory negligence to purely contract cases is grounded upon fears that allowing its applicability would make contractual breach claims as complex disputes of comparative blameworthiness: See Burrows, p. 14362 Burrows, p. 141. Much more discussion will be dealt in the next part.63 Id.64 McGregor, p. 95; Burrows, p. 141 and 143.65 (26 November 1992, unreported). See Burrows, p. 141 for a summary of the facts and decision.66 Burrows, p. 142.

chooses to frame his action solely in contract, or if he also frames it in tort, but subsequently

succeeds only in his action in contract. According to Vesta, the defence of contributory

negligence would still apply in such cases.67

More interestingly is the role-reversal dilemma that a claimant faces. In contract cases

closely resembling a category (3) case, the defendant will attempt to prove that the he was

also liable in tort, while the plaintiff will attempt to prove the contrary.68As explained supra,69

the claimant gains more from denying that the defendant’s contractual breach is also a breach

of tortious duty. It becomes truly a dilemma to a blameworthy claimant considering that he

also has good reasons to pursue an action both in tort and contract as it would maximise his

chances of establishing liability. In short, a blameworthy claimant in such a situation is faced

with the dilemma of whether to: (1) play it safe i.e. sue both in tort and contract but risk

recovering less damages than his actual loss; or (2) go for broke i.e. sue only in contract and

stand to recover damages equivalent to his actual loss, but risk recovering nothing at all.

4. Types of Loss

Lastly, it should be noted that there are restrictions on the recoverability of certain

types of loss. The two types of losses which deserve discussion are: (1) loss of reputation;

and (2) mental distress.

4.1. Loss of Reputation

Loss of reputation is a non-pecuniary loss. It deals with society’s perception and

feelings towards the claimant.70 Nevertheless, a claimant complaining of loss of reputation is

generally not only concerned with the loss of reputation itself, but also the pecuniary loss

flowing from it.71

4.1.2. Tort

Both loss of reputation and pecuniary loss flowing from it are recoverable for some

torts.72 This is especially true for defamation, where its very basis is the protection of persons’

67 See Burrows, p. 138; Palmer and Davies (1980) 29 ICLQ 415, p. 445.68 Burrows, p. 141.69 Refer to the fourth paragraph of Part 3.4.2. 70 Burrows, p. 34371 Ibid.72 Id, p. 317.

reputation,73 and for malicious prosecution.74 Generally, pecuniary loss flowing from loss of

reputation is recoverable in all torts,75 but for some torts, notably negligence,76 loss of

reputation itself is irrecoverable.

4.1.3 Contract

For breach of contract, Addis v Gramophone Co Ltd77 is the leading authority that

damages are irrecoverable for loss of reputation and any pecuniary loss flowing from it.

Subsequently, cases have continued to deny recovery for the former, but allowed recovery for

the latter, for certain types of cases.78

The first type is where the breach causes the claimant to suffer a ‘loss of income

flowing from the loss of chance to enhance his reputation’,79 including the refusal to allow an

actor’s appearance80 and to publish an author’s book.81 The second type is where the

contractual breach causes a mismanagement of advertising.82 The third type is where a bank

refuses to honour the claimant trader’s cheque.83 And the last type is where the defendant

supplies goods below the standard required of the claimant’s customers.84

4.2. Mental Distress

Mental distress covers, inter alia, frustration, anxiety, displeasure, vexation or

tension.85 It is to be distinguished from psychiatric illness, and any mental distress consequent

on personal injury or death.86 As

will be explained infra, it is also closely related, but not identical, to physical inconvenience.

4.2.1. Tort

73 See McCarey v Associated Newspapers Ltd [1965] 2 QB 86, p. 108.74 See Savile v Roberts (1969) 2 Ld Raym 374.75 Burrows, p. 319.76 See Calveley v Chief Constable of Merseyside [1989] AC 1228, p. 123877 [1909] AC 488.78 See Aerial Advertising Co v Batchelors Peas Ltd [1938] 1 KB 269 where the court clearly distinguished the two types of loss.79 Burrows, p. 313.80 See Marbe v George Edwardes (Daley’s Theatre) Ltd [1928] 1 KB 269.81 See Tolnay v Criterion Film Productions Ltd [1936] 2 All ER 1625.82 See Aerial Advertising Co v Batchelors Peas Ltd [1938] 1 KB 26983 See Robin v Steward (1854) 14 CB 59584 See Anglo-Continental Holidays Ltd v Typaldos Lines (London) Ltd [1967] 2 Lloyd’s Rep 61.85 Watts v Morrow [1991] 1 WLR 1421, p. 1445.86 Burrows, p. 323-324.

Mental distress is only recoverable if it is consequent on physical inconvenience in

certain torts (e.g. false imprisonment and nuisance).87 However, it is irrecoverable most

notably for negligence.88

4.2.2 Contract

Again, Addis is the leading authority that damages are irrecoverable for mental

distress for contractual breach. However, later cases have developed two exceptions to this

general rule. Bingham LJ neatly identifies them in Watts v Morrow:89 (1) ‘when the very

object of a contract is to provide pleasure, relaxation, peace of mind or freedom from

molestation’; and (2) ‘mental suffering directly related to physical inconvenience’. The first

exception includes most notably ruined holiday cases.90 The second exception includes cases

of defective houses causing physical inconvenience (as was the case in Watts).91

4.2.3. Practical Differences in Concurrent Liability Situations

As noted supra, mental distress for negligence is irrecoverable. However, it is

possibly recoverable in concurrent liability situations. For example, in Watts, damages for

both physical inconvenience and resulting mental distress were recoverable in an action in

negligence and contractual breach. It is of course uncertain whether mental distress is

recoverable if solely an action in tort was brought. But as long as there is a contract in which

its object was to provide mental satisfaction, or that the mental distress is directly consequent

on physical inconvenience, it is submitted that it should be recoverable.

5. Conclusion

It should be appreciated that assessing damages in tort and contract is like navigating

through a mazy labyrinth. Thus, it is paramount to know of the correct paths to take, and the

traps that lurk in the shadows. Firstly, that the quantum of recoverable damages differs

according to the perceived ‘position’ which the claimant seeks to be restored to. Secondly,

that the remoteness test which limits recoverability of loss varies in tort and contract; the

latter is stricter, and prevails in concurrent liability cases. Thirdly, that contributory

negligence cannot be used to reduce the quantum of damages in contract, except in

concurrent liability cases, and this arguably produces injustice to contracting parties, and 87 Burrows, p. 333.88 See McLoughlin v O’Brian [1983] 1 AC 410, p. 431.89 [1991] 1 WLR 1421, p. 1445.90 See Jarvis v Swan’s Tours [1973] QB 233 and the local case of Abdul Karim v T & R United [1987] Butterworth’s Law Digest91 Watts v Morrow [1991] 1 WLR 1421

strange results in concurrent liability cases. And lastly, that there are additional restrictions of

recoverability for certain types of loss.

Nevertheless, the law of damages is still evolving. Lord Denning beckons us to depart

from such well-trodden paths, and it may be that the better starting point to take, as suggested

by Lord Hoffmann in Banque Bruxelles Lambert v Eagle Star Insurance,92 is by looking at

the type of loss, rather the ‘position’ of the claimant. At any rate, all such eventualities must

be known to the legal practitioner. For when approached by a lost wanderer, he must be ready

to light the torch, and lead the way forward through the labyrinth. And he must be able to say,

with confidence: “And that is how much you can get out of this.”

92 [1997] AC 191, p. 211