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Discussion Paper on Remedies for Breach of Contract

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Discussion Paper on Remedies for Breach of Contract SCOTTISH LAW COMMISSION Discussion Paper No 109 Discussion Paper on Remedies for Breach of Contract April 1999 This Discussion Paper is published for comment and criticism and does not represent the final views of the Scottish Law Commission The Commission would be grateful if comments on this discussion paper were submitted by 16 July 1999. Comments may be made on all or any of the matters raised in the paper. All correspondence should be addressed to: Mrs Gillian B Swanson Scottish Law Commission 140 Causewayside Edinburgh EH9 1PR Tel: 0131 668 2131 Fax: 0131 662 4900 E-mail: [email protected] NOTES 1. In writing a later report on this subject, the Commission may find it useful to be able to refer to, and attribute, comments submitted in response to this paper. If no request for confidentiality is made, the Commission will assume that comments on the paper may be used in this way. 2. Those who wish a copy of this paper for the purpose of commenting on it should contact the Commission at the above address. ii Contents Paragraph Page PART 1 - INTRODUCTION Background to discussion paper 1.1 1 Scope of discussion paper 1.2 1 Matters covered 1.2 1 Matters not covered 1.5 2 Nature of discussion paper 1.7 2 Strategy for reform 1.8 2 Earlier work of the Law Commissions 1.9 2 International models 1.10 3 Terminology 1.14 3 Acknowledgements 1.20 5 PART 2 - REMEDIES FOR BREACH IN GENERAL What is breach? 2.1 6 Anticipatory breach 2.5 7 Repudiation 2.5 7 Anticipated material breach 2.7 8 Anticipatory breach of severable part of contract 2.8 8 Material breach 2.9 9 Importance and nature of concept 2.9 9 Is terminology satisfactory? 2.10 9 Options 2.11 9 International models 2.12 10 Assessment 2.16 11 Request for views 2.17 11 The structure of remedies 2.18 11 The relationship between the remedies 2.20 12 The position of the contract breaker 2.21 13 A general discretionary control? 2.28 14 PART 3 - SUSPENSION OF PERFORMANCE Nature of the remedy 3.1 16 Existing law 3.5 17 Criticisms of existing law 3.9 18 Can there be suspension in response to anticipated breach? 3.10 18 Can there be suspension in response to a non-material breach? 3.11 18 Danger of abuse 3.12 19 iii PART 4 – RESCISSION Nature of the remedy 4.1 21 Need for the remedy 4.2 21 Intimation to party in breach 4.3 21 Rescission for remediable breach 4.7 22 The question 4.7 22 The concept of remediable breach 4.8 23 Existing law 4.9 23 Assessment 4.16 25 International models 4.20 27 Request for views 4.22 28 Loss of right to rescind 4.23 29 By lapse of time 4.23 29 By waiver or personal bar 4.25 29 By tender of performance 4.26 30 Prospective effect of rescission 4.27 30 Existing law 4.27 30 International models 4.29 31 No need for change 4.30 31 Redressing economic imbalances after rescission 4.31 31 Nature of the problem 4.31 31 Existing law 4.36 33 Assessment 4.40 36 Leave to the law on unjustified enrichment? 4.44 38 International models 4.48 39 Request for views 4.52 40 PART 5 – DECREE FOR PAYMENT Nature of the remedy 5.1 42 Definition 5.2 42 Assessment of existing law 5.3 42 Payment for unwanted performance 5.6 43 The existing law 5.6 43 Criticism 5.12 45 Options for reform 5.13 45 International models 5.18 46 Assessment and request for views 5.22 47 Deduction of rectification costs 5.23 47 The problem 5.23 47 The existing law 5.24 47 Criticism 5.26 48 Options for reform 5.27 48 Request for views 5.28 49 iv PART 6 – SPECIFIC IMPLEMENT Nature of the remedy 6.1 50 When will specific implement be refused? 6.2 50 Decree sought not sufficiently precise 6.2 50 Performance not possible 6.3 51 Performance would be of a highly personal nature 6.4 51 Replacement performance readily available 6.5 51 Decree could not be enforced 6.6 51 Enforcement would cause exceptional hardship or injustice 6.7 51 Interim remedy 6.8 51 International models 6.9 52 Assessment 6.10 52 Request for views 6.13 53 PART 7 – INTERDICT Nature of interdict 7.1 54 Scope of discussion 7.2 54 The law reform question 7.3 54 Positive and negative interdicts 7.4 54 Interdicts which bring about positive results 7.9 55 The modern case law 7.11 56 Criticisms of the existing law 7.19 59 Proposal for reform 7.20 59 PART 8 – DAMAGES Nature of the remedy 8.1 61 Types of loss or harm 8.6 62 Loss of what was contracted for 8.10 63 Other loss or harm 8.11 63 Existing law on compensatable loss or harm 8.13 64 Remoteness 8.15 65 The present law 8.15 65 International models 8.18 67 Assessment 8.19 67 Request for views 8.22 68 Non-patrimonial loss or harm 8.23 68 The question 8.23 68 Existing law 8.24 69 International models 8.26 70 Assessment 8.27 70 Request for views 8.28 70 Damages based on the "reliance interest" 8.29 71 The question 8.29 71 English law 8.30 71 v Scottish law 8.31 72 International models 8.32 72 Is there a problem? 8.33 73 Assessment 8.35 73 Request for views 8.36 74 Unreasonable rectification costs 8.37 74 The problem 8.37 74 The swimming pool case 8.38 74 Scottish law 8.39 75 Assessment 8.41 76 Request for views 8.42 76 Damages for loss or harm to third parties 8.43 76 The problem 8.44 77 Some possible solutions under the existing law 8.45 78 Assessment 8.46 79 Request for views 8.49 80 PART 9 – REDUCING UNCERTAINTY Introduction 9.1 81 Requiring adequate assurance of performance 9.2 81 An ultimatum procedure 9.3 82 A summary declarator procedure 9.6 83 Using replacement transaction as a basis for damages 9.7 83 Using current market price as the basis of damages 9.11 84 PART 10 – MISCELLANEOUS Interest 10.1 86 Loss or harm attributable to aggrieved party 10.2 87 General request for views 10.9 90 PART 11 – SUMMARY OF PROPOSITIONS AND QUESTIONS 91 vi ������������������������� Gloag, Contract W M Gloag, The Law of Contract (2nd edn, Edinburgh, 1929) McBryde, Contract W M McBryde, The Law of Contract in Scotland (Edinburgh, 1987) McGregor, Code H McGregor, Contract Code: Drawn up on behalf of the English Law Commission (Milan, 1993) European Principles The Principles of European Contract Law (Part I: Performance, Non-performance and Remedies), Prepared by the Commission on European Contract Law (Chairman, Professor Ole Lando) (Dordrecht, 1995) Schlechtriem P Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG) translated by G Thomas (2nd edn (in translation), Oxford, 1998) Stair Memorial Encyclopaedia The Laws of Scotland: Stair Memorial Encyclopaedia (25 volumes; Edinburgh, 1987-96) Treitel, Contract G H Treitel, The Law of Contract (9th edn, London, 1995) Unidroit Principles Principles of International Commercial Contracts (UNIDROIT, Rome, 1994) US Restatement American Law Institute, Restatement of the Law Second, Contracts 2d (St Paul, Minn., 1981) Vienna Convention The United Nations Convention on Contracts for the International Sale of Goods (adopted at Vienna, April 1980) Walker, Contracts D M Walker, The Law of Contracts and Related Obligations in Scotland (3rd edn, Edinburgh, 1995) vii Part 1 Introduction 1. Background to discussion paper 1.1 Many thousands of contracts are entered into every day in Scotland. They are not all performed according to their terms. Often discussions and negotiations can resolve matters. Sometimes the contract will itself provide some mechanism for resolving disputes. But in many cases the difficulties caused by breach of contract cannot be resolved informally. The law has to provide a range of remedies to enable the party aggrieved by the breach1 to obtain either the performance contracted for or some compensation for not receiving it. In the absence of such remedies one of the most basic of legal principles - that contracts must be kept - would be legally unsupported. Problems of breach of contract are by no means confined to large commercial contracts. They can affect anybody. In this paper2 we consider the adequacy of the existing Scottish law on remedies for breach of contract. Scope of discussion paper Matters covered 1.2 The paper deals with both non-judicial and judicial remedies for breach of contract. The non-judicial remedies covered are suspension of performance (whereby the aggrieved party can withhold performance temporarily until the party in breach performs) and rescission (whereby the aggrieved party can bring the contract to an end so far as all future performance is concerned). The judicial remedies fall into two categories. Some, such as a decree for payment of what is due under the contract and a decree for specific implement, are designed to ensure that the aggrieved party receives the performance contracted for. An interdict may in practice serve the same function in certain types of case. The second category consists of those remedies designed to ensure that the aggrieved party receives monetary compensation. The main example is an award of damages.
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