Monetary Obligations—Unliquidated Amounts

10
MONETARY OBLIGATIONS—UNLIQUIDATED AMOUNTS

























A. Introduction


10.01


B. The Assessment of Damages


10.06


Breach of contract


10.08


Damages in tort


10.18


Mitigation of damage


10.26


Experience in the United States


10.29


C. Other Valuation Questions


10.33


A. Introduction


10.01


As has been shown in Chapter 9, nominalism has developed and operated in the context of liquidated sums. The origins of the principle depend upon the presumed intention of the parties—whether that intention is mutually expressed (as in the case of a contract) or unilaterally stated (as in the case of a statutory provision, a judgment or award, or a pecuniary legacy). It must follow that the principle of nominalism can only apply to fixed or stated sums and that the principle cannot apply to obligations involving an unliquidated amount or claim.1 Instead, the extent of unliquidated amounts depends upon the principles applicable to the relationship at issue; it does not depend upon the law of money. It is the law of damages, breach of trust, restitution, agency, or other legal area which must determine the relevance and impact of variations in monetary value. In all these cases, the claims are unliquidated and require assessment by means of a valuation in terms of money. The extent of these obligations—and the outcome of the valuation process—depends upon the time and criteria by reference to which such process is carried out. As the German Supreme Court has noted, unliquidated claims contemplate the payment of money, but their extent is determined by relation to non-monetary elements, such as the price of goods at a particular time.2 In other words, unliquidated claims imply that an amount of money must be ascertained by reference to (or by comparison with) the value of the goods, services, or other items at issue. Whilst a fixed or liquidated sum is constant and unchanging in character, the valuation of a particular item implies that the monetary value attributable to an unliquidated claim can vary from time to time, with the result that the time at which the valuation process is undertaken will itself be one of the key determinants of value.3


10.02


This abstract point can perhaps be illustrated by an example. Suppose that a claimant succeeds in proceedings in tort against a defendant and that, at all relevant times, money has been depreciating. In such a case:


(a) If the amount of damages is assessed with reference to the circumstances existing as at the date of judgment or payment, then the claimant is thereby protected. He will receive a higher, nominal amount in damages reflecting the fact that money has depreciated between the date on which the claim arose and the eventual date of judgment or payment.4


(b) If, however, the claim is valued with reference to the date on which the claim arose or the action was brought, then the claimant will necessarily be awarded a lesser amount, for the assessment would inevitably have to leave out of account any monetary depreciation occurring after the valuation date. If this second solution is adopted, then the claimant is disadvantaged and (it may be added) a quasinominalistic approach is introduced in the context of unliquidated claims.5


10.03


It follows that the date by reference to which the valuation is made may have a significant impact upon the ultimate amount of damages awarded, whether the case involves the commission of a tort, a breach of contract, or any other basis of claim. But which valuation date is to be adopted in any particular case? The law of money does not itself supply an answer to this question. Instead, the proper date must usually be identified by reference to the law which governs the substance of the obligation, although the question may very occasionally be influenced by the procedural law of the forum.6


10.04


If the date of valuation of the claim itself may be of critical importance, then it should not be forgotten that the claim may have to be adjusted by reference to other factors which themselves require valuation. In particular:


(a) If the claimant is under a duty to mitigate his loss and either (i) incurs expense to that end or (ii) fails to comply with that duty, what are to be the consequences for the valuation of his claim?


(b) Is the defendant required to make good any further damage resulting from late payment?


Once again, it is necessary to emphasize that neither of these questions is governed by the law of money. But they do have a monetary consequence, in the sense that the selection of any particular valuation date—be it the date of the breach, the date on which the proceedings are commenced, or the date on which judgment is ultimately given—necessarily involves a decision to exclude the consequences of monetary depreciation which occur after the selected date.


10.05


Against this general background it is now proposed to consider the approach adopted by the English courts in this area. This will be followed by a review of the position adopted by courts in the United States.7


B. The Assessment of Damages


10.06


The English law of damages has become more clearly drawn over the last few decades. Referring to the so-called ‘breach-date’ rule, Lord Wilberforce made two observations. First of all, he noted that ‘as a general rule in English law, damages for tort or breach of contract are assessed as at the date of breach’. But he then continued ‘it is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered’.8


10.07


It is debatable how far the ‘general rule’ may continue to exist; it is fair to say that a more flexible approach—based upon the restoration of the claimant to his former position9—is now likely to be adopted. The application of this approach underlines the court’s natural desire to achieve a result which meets the demands of justice on the particular facts of the case. But the detailed position must be considered separately in relation to contract and tort claims.


Breach of contract


10.08


Before 1979, the breach-date rule was rigidly applied in a number of contractual cases.10 In other cases, however, the court took into account factors occurring after the breach, thus effectively postponing the date of valuation of the claim.11


10.09


In 1979, the House of Lords stated:12


The general principle for the assessment of damages is compensatory, ie the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach—a principle recognised and embodied in s. 51 of the Sale of Goods Act 1893. But this is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.


10.10


The general principle of restoration and the overriding intention to ensure justice as between the parties in the assessment of damages cannot seriously be impugned on the grounds of either policy or general merit. Inevitably, however, the application of such an open-textured principle is likely to cause difficulty in individual cases. But if the principles of compensation and justice are kept in mind, it becomes possible to formulate the following (non-exhaustive) list of general propositions:


(a) It remains appropriate for the claim to be valued as at the date of the breach where (i) substitute performance is readily available in the market concerned and (ii) it is reasonable to expect the claimant to access that market in the appropriate manner.13 Under such circumstances, it may be unjust to the defendant to value the claim at a later date, for the claimant would have failed in his obligation to mitigate his loss. Likewise, damages for late redelivery of a vessel under charter will generally be limited to the excess of the rate which the owner would have earned during the period of the delay, unless it can be shown that the charterer had in some way assumed responsibility for the loss of a subsequent fixture.14


(b) If there is no readily available market for the items concerned (or if, under the circumstances, it is not reasonable to expect the claimant to access such market) then damages should be assessed as at the date of judgment. Thus, if the claim relates to the non-delivery of goods, the valuation date should be the date of judgment, such that the claimant could purchase the goods on that date. As a result, increases in the value of the goods concerned must normally be taken into account as consequential loss, for this is in line with the compensatory requirements of the award.15 This approach may, of course, favour the defendant if the price of the goods concerned has fallen by the time judgment is given, but it is consistent with the overriding principles of compensation and restitution.


(c) It must follow from the points made in (b) above that increases in, say, the cost of living attributable to inflation generally (as opposed to specific factors affecting the price of the particular goods concerned) should not usually be taken into account in contractual cases, simply because they are not relevant to the assessment which the court is required to make. There is thus no general right to have inflation taken into account in this area.16 Once again, this approach is a necessary ingredient of the compensation principle.


10.11


With these points in mind, it is necessary to turn to the Court of Appeal decision in Philips v Ward.17 In that case, the plaintiff purchased a house in 1952. He relied upon a report by the defendant surveyor, who had broken his contract with the plaintiff by failing to report on the need for certain repairs which (in 1952) would have cost £7,000. The Court of Appeal held the defendant liable only for the difference between the price actually paid for the house (£25,000 in 1952) and the actual value of the house without the necessary repairs (£21,000 in 1952). Denning LJ remarked that the fall in value of money since 1952 ‘does not affect the figure, for the simple reason that sterling is taken to be constant in value’.18 For reasons discussed earlier in this chapter, the nominalistic principle has only limited relevance in the context of unliquidated claims, and the validity of this statement in its particular context is therefore highly questionable.19 Nevertheless, the decision was followed by a later Court of Appeal.20 It is, however, submitted that the compensatory principle required (as a minimum) an award reflecting the excess of (a) the value of the house in 1956 had the report been accurate; and (b) the actual value of the house in 1956 in its unrepaired state. In other words, the date for the valuation of the unliquidated claim should have been the date of the judgment itself—there was no basis for adopting an earlier date. It has also been held by the House of Lords that, where an architect fails to discover building defects and is thus in breach of his contract, the owner is entitled to the cost of reinstatement at or at a reasonable time after the discovery of the defect—in other words, the date of valuation of the unliquidated claim reflects the cost of repairs to the claimant as at the date on which he could reasonably be expected to effect them, and thus pre-dates the date of judgment itself.21 In such a case, a subsequent fall in the value of money (and a consequent increase in the cost of repairs) should be left out of account in computing damages, for they occur after the valuation date.22


10.12


There matters rested until the House of Lords handed down its decision in The Golden Victory23 where the House signalled an even more flexible approach, holding by a bare majority that the claimant’s loss could be valued with reference to the circumstances subsisting as at the date of the judgment. This approach allows the court to take into account factors or later changes in circumstances which occurred after the date of the breach.24


10.13


The factual background to the case is relatively straightforward. In July 1998, a Liberian shipowner chartered a tanker, The Golden Victory