In the now famous Blake case the majority in the House of Lords has granted a (restitutionary) remedy for a breach of contract which has been alien to the law of contract so far. Although it was held to be available only in exceptional circumstances the judgment prompted Lord Hobhouse to express the following warning in his dissenting opinion:
"If some more extensive principle of awarding non compensatory damages for breach of contract is to be introduced into our commercial law, the consequences will be very far-reaching and disruptive."
It is the goal of this essay to examine whether Lord Hobhouse’s fear of a silent reconceptualisation of the law of contract is justified. In order to fully understand the potential impact of the Blake case it is vital to bring oneself to mind what the law of contract was before the judgement in Blake was rendered. Accordingly the essay will start with an outline as to which remedies were and in fact still are available to a claimant under the pre-Blake law.
After a summary of the Blake case itself, it will be described why a broad Blake remedy indeed might have a revolutionary effect on the conventional law of contract. However, – as history shows – not all revolutions are bad. Thus, even if Blake should have far-reaching and disruptive consequences on the law of contract it is by no means said that this is an undesirable result. It should be borne in mind that the law of contract is a default system that provides remedies for a breach of contract in case the parties did not – unconsciously or deliberately – stipulate their own remedies which they are free to do. Ideally this default system leads to just and economically reasonable results. By this measure a default system has to prove its value and practicability. Thus, if it turns out that a law of contract under which the Blake remedy is generally available is superior to the current law its implementation must not be declined only because of its revolutionary character. Part IV of this essay draws the necessary comparison between the two alternatives in terms of economic efficiency. In doing so special attention is given to what is called the “efficient breach theory”, which is often called upon to defend the current contractual rules. The essay will then conclude with a final assessment as to what the contract of law should be like in the author’s opinion.
Table of Contents
I. Introduction
II. The Law of Contract De Lege Lata – The Law of Contract as It Is
A. The Remedies for Breaches of Contract
B. Compensatory Damages as the primary remedy
1. The Protected Interests
2. Limitations on the Recovery of Damages
C. Literal Enforcement as Exceptional Remedy
1. Specific Performance
2. Injunctions
D. The Settled Restitutionary Remedies
E. The law of contract as a default system
III. A-G v Blake
A. The Factual Background
B. The Judgement
C. The Potential Consequences of a Generally Available Blake Remedy on the Orthodox Law of Contract
IV. The Law of Contract De lege ferenda – The Law of contract as it should be?
A. The Morality Approach
B. The Economic Approach
C. Statement
D. Efficient Breach or Efficient Performance?
1. The efficient breach theory
2. Maximizing Profit Breaches
(a) Cost-related arguments
(i) Allocation of the Contractual Resources
(ii) Transaction Costs
(1) The Need to Negotiate for Release
(2) The Need to Oust the Default System
(b) Non-cost Related Arguments
(i) Who Should Make the First Move?
(ii) The Parties’ Expectations
(iii) The Non-Monetary Inconviences
(iv) Disincentive to Co-operate
(v) The Impact on Third Parties
(vi) Inconsistency of the theory of efficient breach with other legal institutions
(vii) The Risk of Uncompensated Losses
3. Minimizing loss cases
(a) Example 1
(b) Example 2
(c) Example 3
(d) Evaluation
V. Conclusion
Objectives & Core Themes
This essay examines whether the introduction of a more extensive principle for awarding non-compensatory damages, inspired by the Blake judgment, would fundamentally disrupt commercial law. It seeks to determine if the traditional reliance on compensatory damages is sufficient, or if a "Blake remedy" (gain-based disgorgement) should be integrated into the default system to ensure fairer outcomes and discourage breaches.
- The tension between compensatory damages and performance-based remedies.
- The "efficient breach" theory and its role in justifying the current remedies regime.
- The impact of A-G v Blake on the concept of contract law.
- The debate between morality and economic efficiency as a basis for contract remedies.
- Proposals for a "mixed-remedies-default-system" to handle different types of contract breaches.
Excerpt from the Book
The Law of Contract as a Default System
It was already stated elsewhere that the law of contract only provides a default system. That is to say that these rules only come into play if the parties to the contract omitted to stipulate their own regime of remedies. It is crucial to understand the subsidiary function of the law of contract.
The right to do so follows from the generally accepted principle of freedom of contract. Not only allows this principle the parties – subject to certain limits (e.g. fraud) – to determine their primary economic obligations freely. Additionally they are also free to choose the remedies they want to apply in the event of a breach of the contract. Only where the parties did not install their own set of remedies the default remedies provided by the law of contract come into effect as soon as the contract is breached.
Chapter Summaries
I. Introduction: Presents the Blake case and the dissenting opinion of Lord Hobhouse regarding the potential disruptive effects of non-compensatory damages.
II. The Law of Contract De Lege Lata – The Law of Contract as It Is: Outlines the existing legal framework of remedies, focusing on compensatory damages, literal enforcement, and restitution.
III. A-G v Blake: Analyzes the facts, judgment, and the broader implications of the Blake case on the orthodox law of contract.
IV. The Law of Contract De lege ferenda – The Law of contract as it should be?: Compares the moral and economic approaches to contract law, specifically evaluating the "efficient breach" theory.
V. Conclusion: Synthesizes findings to suggest a "mixed-remedies-default-system" that balances efficiency with the necessity of addressing uncompensated losses.
Keywords
Contract Law, Blake Remedy, Compensatory Damages, Efficient Breach Theory, Restitutionary Damages, Disgorgement, Performance Interest, Expectation Interest, Mitigation Rule, Specific Performance, Commercial Law, Economic Efficiency, Breach of Contract, Default System, Unjust Enrichment.
Frequently Asked Questions
What is the central focus of this legal study?
The paper examines whether introducing an extensive principle of non-compensatory damages (the "Blake remedy") would have disruptive consequences on commercial law and whether such a shift is desirable.
What are the primary themes discussed in the work?
Key themes include the distinction between compensatory and gain-based remedies, the economic theory of efficient breach, the moral implications of breaking promises, and the adequacy of current legal remedies.
What is the core research question?
The research asks if the default remedy for a breach of contract should remain compensatory damages or if it should evolve into a system that de facto enforces the performance interest, mirroring the Blake outcome.
Which scientific approach is utilized?
The author employs a legal-analytical and economic approach, assessing legal doctrines against the criteria of economic efficiency, transaction costs, and resource allocation.
What is covered in the main body of the work?
The main body covers the pre-Blake legal landscape, the specific details of the Blake case, the theory of efficient breach, and an evaluation of how different remedies affect various breach scenarios.
Which keywords best describe this research?
Key terms include Contract Law, Blake Remedy, Efficient Breach, Disgorgement, Compensatory Damages, and Economic Efficiency.
What is the "efficient breach" theory?
It is an economic theory suggesting that parties should be allowed to breach a contract if the cost of performance exceeds the benefits, provided the non-breaching party is fully compensated.
How does the author propose resolving the flaws in the current system?
The author proposes a "mixed-remedies-default-system" where compensatory damages serve as the primary remedy for "minimizing loss" cases, while gain-based remedies are available for "maximizing profit" breaches.
- Arbeit zitieren
- Sebastian Röder (Autor:in), 2010, Possible consequences of awarding non compensatory damages for breach of contract on Commercial Law, München, GRIN Verlag, https://www.hausarbeiten.de/document/282323
