LawAfrica -Hot From The Bench

What's Wrong with General Damages for Breach of Contract?

In this week’s Hot from the Bench, LawAfrica’s Charles Kanjama looks at the circumstances where general damages are awardable in breach of contract scenarios. He concludes that the local courts have not lucidly and coherently handled the issue of general damages for breach of contract.

The question of whether general damages can be awarded for breach of contract is one that arises from the fateful marriage of two everyday areas of law: civil procedure, as it relates to pleadings and proof, and contract law. It is a tribute to the complexities of law that right at the core of these well-defined and much-practised areas of law lies the paradoxically nebulous question of whether, and if so when, general damages can be awarded for breach of contract.

The courts from way back in the 19th Century have dealt with this question. The general principle is that the purpose of an award of damages is to put the plaintiff in the position he would have been in had the breach not occurred and the contract been performed. It is also trite since Hadley v Baxendale (1854) that damages would only be awarded to compensate the claimant for and to the extent of losses that arise and flow naturally from the breach of contract, which damages were or ought to have been within the contemplation of the party in default.

Hence, where a plaintiff successfully establishes breach of contract, he will only receive nominal – not substantial - damages to vindicate his claim unless he also leads evidence to prove real financial loss suffered in consequence. Here, precisely, is where the rules of pleading come into play. For according to the rules of pleading, damages will be held to be of two types: general damages, whose quantum is not easily ascertainable prior to the hearing due to the nature of the loss suffered or compensation desired, and special damages, which can be quantified and set out in the pleadings prior to the hearing of the suit.

Lord Donovan in Perestrello v United Paint Co (1969) explains plainly: “The basic test of whether damage is general or specific is whether particularity is necessary or useful to warn the defendant of the type of claim and evidence, or of the specific amount of claim, which he will be confronted with at the trial.” Devlin, J in Anglo Cyprian Agencies v Paphos Industries (1951) is unequivocal: “There exists an impression that, when pleading special damage, one can plead a certain figure, arrived at in some way, and one can then set up any lower figure in court and seek to justify it. In my view, that is not the proper way to plead… and it would reduce to a farce the pleading of special damage.”

It is clear in respect of injury claims (which are recoverable in contract or tort) that the quantum of damages for, say, discomfort and future inconvenience due to loss of a limb or other permanent injury, is not easily ascertainable and will therefore fall under general damages. It is also clear that where expenses have been incurred due to default by the other party, these expenses, by virtue of having already accrued, are specific and ascertainable. There is a vague area between these two extremes: damages for inconvenience and discomfort (Bailey v Bullock, 1950), loss of enjoyment (Jarvis v Swan Tours, 1973), harmful publicity (Foaminol Labs v British Plastics, 1941), loss of user (Ouya v Adeba, 1991), loss of reputation (Patel v Grindlays Bank, 1969 & Shiraku v CBA, 1988), loss of revenue (CosmoAir v Diani Beach, 1998), loss of profits (Sande v KCC, 1994), etc. In Kenya, the failure of Order VI of the Civil Procedure Rules (entitled “Pleadings Generally”) to state in precise terms what damages must be specifically pleaded and proved has not helped to clear up the uncertainty.

In Shiraku v CBA (1988), the case involved breach of contract, to wit, cheques dishonoured by a bank without due cause. The court (Gachuhi, Nyarangi, Platt) analysed a long line of English decisions culminating in Gibbons v Westminster Bank (1939). “In Marzotti v Williams (1830),” Platt argued, “one would have thought that the plaintiff, a trader, would have received general damages. [He did not.] It was left to Rolin v Steward (1859) to award substantial damages to a trader who had not proved actual damages.”

In the U.K., Lord Atkinson at the turn of the last century in Addis v Gramophone Co. (1909) had dealt with the question of whether loss of credit must be specifically proved. He distinguished the assessment of damages in contract and tort, inter alia because in tort, motive may be taken into account to aggravate or mitigate damages. He added, “[T]o apply in their entirety the principles on which damages are measured in tort to cases of breach of contract would lead to uncertainty and confusion in commercial affairs, while to apply them only in part and in particular cases would create anomalies, lead occasionally to injustice and make the law a still more lawless science than it is said to be.” Speaking almost a century ago, the man must have been a prophet.

After reviewing the above authorities, Nyarangi JA sided with the reasoning in the local decision in Patel v National Grindlays (1969) and proceeded to award general damages of 40,000 shillings to compensate for the ill effects of the bank’s wrongful acts on the reputation of the appellant. The English Court of Appeal in Addis was alive to the unique nature of breach of contract by a banker’s dishonour of cheques and conceded the unique remedy of general damages, even of aggravated nature. Their Kenyan counterparts in Shiraku, by failing to make an exception of contracts whose breach involves dishonoured cheques, had laid open the gates to a gradual blurring of the lines of distinction between assessment of damages in contract and tort. It is a failure whose fruits we continue to reap.

Hence in Ouya v Adeba (1991), Gachuhi joined Masime and Cockar, JJ.A in an appeal where both parties had claimed general damages for breach of contract. The defendant had appealed because he had not received general damages for loss of use of a car, which was subject of a contract with the plaintiff. The lower court had found no merit in the claim. Without reflecting on whether loss of use is a special damage that should be pleaded and proved, the court held, “At the trial … there was all the opportunity to be had for the appellant to lead evidence on the issue of damages that the appellant had suffered on account of the non-delivery and non-transfer of the Datsun to him… No evidence at all was led on these matters, which is essential before a court can correctly assess damages.

However, the zenith of confusion regarding the question of general damages for breach of contract remains Sande v KCC (1994, Cockar, Omolo, Tunoi). The plaintiff/appellant had sued on breach of a contract to supply skimmed milk, as a result of which he forfeited a performance bond of 1.7 million shillings, which he claimed as special damages. He also claimed under the head of general damages, for loss of profits, loss of reputation and loss of future earnings occasioned by the said breach. During the trial, evidence was led by the plaintiff to show that these losses amounted to 14 million shillings. The judge refused to award the claim for 14 million shillings on the ground that it was in the nature of special damage that should have been specifically pleaded and proved. However, the judge awarded “general damages” of 500,000 shillings, in addition to the special damages for the performance bond. On appeal by both parties, the court upheld the lower court ruling, save as to a certain special damages claim that had been overlooked in the High Court decision.

The appellant urged the court to award the claim for 14 million shillings. This part of the court’s judgment was remarkable for its aptitude. The court vigorously resisted this claim, which had not been pleaded, and which the court concluded was in the nature of special damage. “We would endorse the well-established view that a Judge has no power to decide on cases not raised before him… In our view, the only way to raise issues before a Judge is through the pleading and as far as we are aware, that has always been the legal position. All the rules of pleading and procedure are designed to crystallise the issues which a Judge is to be called upon to determine and the parties are themselves made aware well in advance as to what the issues between them are.”

While it is doubtful whether loss of reputation and future earnings are easily ascertainable losses, so as to fall under the label ‘special damage’, loss of profit, as the court held, is evidently a special damage whose particulars must be pleaded and specifically proved. This part of the court’s ruling is not easily faulted, and in fact has been followed with approval in CosmoAir v Diani Beach (1998).

The nadir of the judgment in Sande v KCC was in respect of the respondent’s cross-appeal on the ground that the award of general damages of 500,000 shillings “was too excessive.” The judges held “we are far from convinced that this sum is so inordinately high that it must represent an entirely erroneous estimate of the damages suffered by the Appellant.” It was with this terse sentence, without any ceremony of mourning or nostalgic memories, that the court finally erased the distinction between assessment of damages in contact and tort, and simultaneously made a mockery of the rules of pleading and proof.

P.S. Atiyah, formely Professor of English Law at the University of Oxford says in his excellent book (‘An Introduction to the Law of Contract) that “… the law of contract does not seek to punish; its purpose is compensation and compensation alone… thus the exemplary damages which may sometimes be awarded in the law of tort as a sort of punishment are almost unknown in the law of contract…”

Rule 8 (1) of Order VI Civil Procedure Rules (derived from rule 12 of the UK Supreme Court Rules, Ord. 18) requires that every pleading shall contain the necessary particulars of any claim pleaded. It has also been one of the cornerstones of contract law (see Addis v Gramophone Co), that the only necessary and immediate consequence of breach of contract is the lost price or value of the subject matter. Hence the particulars - or at least the nature - of other losses suffered ought to be pleaded. Lord Donovan in Perestrello is unmistakable: “The limits of this requirement are not dictated by any preconceived notions of what is general or special damage but by the circumstances of the particular case… If the claim is one which cannot with justice be sprung on the defendants at the trial, it requires to be pleaded so that the nature of that claim is disclosed… A mere statement that the plaintiffs claim ‘damages’ is not sufficient to let in evidence of a particular kind of loss which is not a necessary consequence of the wrongful act.”

One cannot help but wonder how the court could award any sum as “general damages for breach of contract” in the absence of some specific evidence or basis. Sande v KCC is a tragic fissure in the jurisprudence of our courts that marks the descending slope to ever-greater confusion over the question of general damages for breach of contract. The question threatens to become the nemesis of contract jurisprudence in our local courts. Witness for example the confusion spawned in the area of employment contracts regarding general damages. (Termination of Employment Law hot-bench).

The courts are unable to decide definitively whether general damages lie for breach of contract, if so what kinds of damages and how they ought to be pleaded. In Continental Credit v Deto Investment (1999), Akiwumi and Tunoi were part of the bench that awarded “general damages” for interest that had accumulated on a loan in a breach of contract claim. The same judges in Kinyanjui v Thande (1998) pray away the claim for general damages, stating: “As Madan JA pointed out in the Choitram case, we trust the rest of the suit in the High Court will be allowed to fade away and die as general damages are not claimable normally for breach of contract.”

In March 1999, Kwach JA was part of the bench in Kedera v Kavai that overruled an award of 250,000 shillings general damages on the ground that “there can be no general damages for breach of contract.” The court, confronted with Foaminol Labs (1941) where general damages had been awarded for loss of publicity, could only state, “We are satisfied that even on the basis of that case there is no evidence to support an award of 250,000 shillings.” One week later, the same judge in Hems Group v Cotecna Inspectors upheld a claim of general damages for breach of contract with the proviso that the same be proved by evidence in the lower court.

The end result of the above is that the ‘uncertainty and confusion in commercial affairs’ that Lord Atkinson feared and bemoaned is becoming ever more an everyday reality. Where before general damages was only the exceptional auxiliary to breach of contract cases, it is now becoming an indispensable companion, threatening even to dwarf the place of special damages in contract law. When Mbaluto, J in a breach of contract claim (Le Monde v ABN Amro, June 2001) awarded special damages of 7 million shillings and general damages for injury to plaintiff’s credit and loss of convenience of 4 million shillings, no one batted an eyelid. Some advocates are already routinely adding a prayer for “general damages” in breach of contract cases, confident that if successful in an Order VI application, there will be an expeditious outcome to the whole trial (see Hems Group v Cotecna).

As the law becomes more irreversibly drawn into the quagmire of misplaced pleadings and awards in contract, one can only hope that incessant vigilance by advocates and judicial officers will be enough to reverse the tide and bring sanity back into this time-old area of law.

Cases cited
1. Marzotti v Williams (1830) [1830] All ER 842
2. Rolin v Steward (1854) [1854] All ER 245
3. Hadley v Baxendale (1854) [1854] All ER
4. Addis v Gramophone Co. (1909) [1908-10] All ER 1
5. Gibbons v Westminster Bank (1939) [1939] 3 All ER 577
6. Foaminol Labs v British Plastics (1941) [1941] 2 All ER 493
7. Bailey v Bullock (1950) [1950] 2 All ER 1167
8. Anglo Cyprian Agencies v Paphos (1951) [1951] 1 All ER 873
9. Perestrello v United Paint Co (1969) [1969] 3 All ER 479
10. Jarvis v Swan Tours (1973) [1973] 1 All ER 71

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(The Following cases cited above are available to LawAfrica Law Reports Subscribers)

11. Patel v Grindlays Bank [1969] E.A. 76
12. Shiraku v CBA [1985] LLR 1407 (CAK)
13. Ouya v Adeba [1991] LLR 2334 (CAK)
14. Sande v KCC [1992] LLR 314 (CAK)
15. CosmoAir v Diani Beach [1998] LLR 757 (CAK)
16. Kinyanjui v Thande [1998] LLR 644 (CAK)
17. Kedera v Kavai [1998] LLR 624 (CAK)
18. Hems Group v Cotecna Inspectors [1998] LLR 752 (CAK)
19. Continental Credit v Deto Investment [1998] LLR 762 (CAK)
20. Le Monde v ABN Amro [1998] LLR 1079 (CCK)