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Recent case revisits damages principles
PRACTICE AREA GROUP: Commercial Litigation and Dispute Resolution
In a recent High Court decision(1) Justice McMahon considered the principles applicable to damages when deciding what to award a plaintiff for losses arising from a breach of agreement. Although the decision does not establish new law, it shows that when faced with unusual facts and difficulties in quantifying damages, the Irish courts will be "alert, energetic and, if necessary, ingenious to assess damages where they are satisfied that a significant injury has flowed from breach".(2)
The Department of Agriculture, Fisheries and Food seized 355 cattle from Mr Hanrahan's dairy herd on March 15 2006 and March 16 2006 as a result of alleged welfare issues. On April 11 2006 agreement was reached between the parties whereby a certain number of cattle would be returned to Hanrahan's farm. By letter dated April 25 2006 the defendant alleged that Hanrahan had not complied with the agreement and stated that the minister intended to sell some of the animals, a move that Hanrahan unsuccessfully sought to restrain by way of injunction. Ultimately, in early May 2006 some animals were returned to Hanrahan, but on June 2 2006 the minister proceeded to sell 223 cattle. The court found, in a separate liability hearing, that the minister had breached the agreement of April 11 2006 by failing to return the 223 cattle and selling them instead. The present decision focused on the question of quantum arising from that finding.
The defendant contended that the plaintiff's losses should be calculated in one of two ways. The first, and preferred, option of the defendant was that the losses should be referable to the value of the animals as of May 5 2006, the date on which the unreturned animals should have been returned. Alternatively, compensation should be given only for the loss of profits which the plaintiff suffered due to the failure to return the animals in accordance with the agreement. Furthermore, the defendant argued that the competing compensation models it advanced were mutually exclusive; therefore, that compensation should be given on the basis of one or other model, but not both.
The court rejected the first model for a number of reasons. It noted that, where the goods are generic and are readily available on the market at the time of the breach, market value may be the proper method of determining loss. However, that model is unsuitable where the goods are less readily available. It felt that it would not be easy to purchase immediately 223 animals of the kind, size and classification of the cohort in question within a reasonable time, especially since a substantial period (over four years) had passed between the breach and the determination against the defendant. Moreover, the contract at issue was for the return of identified cattle - it was never contemplated that money would be an alternative. The court also felt that this approach completely ignored the loss of profits that the plaintiff might have suffered in the meantime. It also expressed the view that applying such a model could permit a defendant to 'play the market', by fixing the compensation payable to particular point in time as against a rising market.
The defendant's alternative approach to compensation was also rejected by the court, notwithstanding expert evidence to the effect that good accounting principles required such an approach. In particular, the court refused to accept that the capital value of the cohort of cattle could be written down to nothing, because it was properly a renewing asset (through heifers calving), rather than a wasting one. It felt that, as a matter of law, the defendant was entitled to be compensated appropriately for the failure to return the cattle on May 5 2006, as well as for the losses incurred in the interim period until determination of the legal dispute.
Consideration of damages
At the outset, the court acknowledged that a plaintiff may recover such damages for a breach of contract "as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things" or "such as 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".(3)
In this case, the court identified that, to apply a general principle, damages should put the defendant into the position in which he would have been had the animals been returned as agreed, for which a sum of money to represent their value should be awarded. It also recognised that the plaintiff was entitled to foreseeable consequential losses, principally relating to the loss of milk from the milking cows not returned. However, any compensating gains should be offset against his losses, such that only net losses are recoverable. The court also stated that a wronged party is obliged to take reasonable steps to mitigate its losses, with the costs reasonably incurred in doing so also being recoverable. However, the court noted that on the facts before it, not least the plaintiff's failure to keep proper farm accounts, it was not easy to apply the above principles or quantify the losses in monetary terms. "[T]he court must do its best," it felt, and commented that difficulty in assessing the damages does not disentitle the plaintiff, before proceeding to consider the heads of damage claimed by the plaintiff.
First, the court had to value the 223 cattle which should have been returned on May 5 2006 in order to properly compensate the plaintiff for their non-return. The court relied on the figure of €166,320 applied by a professional valuer to the cattle involved, which it discounted by €20,000 since that specific valuer typically dealt with the upper end of the market and this necessarily informed his valuation.
With regard to the loss of profit, the court accepted that the cattle's absence had caused a significant drop in milk sales for the period 2006 to 2010. The experts on both sides came up with similar annual loss figures, which the court accepted as being in the order of €50,000. By the time the trial ended, the period involved was some four-and-a-half years. Moreover, based on expert evidence, the court accepted that it would take a further year before the herd would be fully restored to its original position and, on that basis, awarded a further €50,000, to give a total of €275,000. Against that figure the court imposed a reduction of €110,000 to reflect the cost of rearing heifers in 2006 and 2007 until they became milk producing.
The defendant also claimed that the plaintiff had failed to mitigate his losses by not reducing his labour costs and his landholding while there were fewer animals on the farm. The court felt that this was unrealistic because of the uncertainty caused by the non-return of the cattle, particularly with respect to the reduction of the landholding. However, it did accept that there was some opportunity to reduce labour costs and it accordingly deducted €20,000. The defendant also claimed that it should be given credit for the rent received by the plaintiff in letting out his milk quota during the period. However, this was only partially accepted by the court as, on the evidence, the plaintiff would not have met his quota even if the cattle had been returned, and would still have been able to let some of his quota. Accordingly, a partial deduction of €18,000 was approved.
The plaintiff also sought to recover the cost of purchasing some replacement cattle during the period, but the court refused on the basis that this would amount to a double recovery, as the plaintiff had already been compensated for the failure to return the whole herd. Using the same reasoning, the court rejected a separate claim advanced for the costs of rearing the replacement cattle. Hanrahan also claimed for loss of a portion of a farm waste management grant for which he would have been eligible had he been returned his full herd. This was also rejected on the basis that he did not qualify for this grant because the relevant planning permission for the development had not been obtained, which was not consequential upon the defendant's breach of contract. A further claim for procuring forage and animal accommodation for which he was not grant-aided was rejected on the same reasoning. However, the court accepted that a winter milk bonus would have been payable to the plaintiff had he been returned the cattle and it awarded him a further €6,000 in that regard, along with an additional sum of €25,000 for stress, upset and inconvenience occasioned by the breach of contract. In total, the plaintiff was awarded €304,320 in damages.
Although the case is unusual in nature, it identifies the basic principles applicable to contractual damages under Irish law. Loss following directly from a breach and foreseeable consequential losses caused by it are compensable. Only net losses are recoverable and there is a duty to mitigate loss, although reasonable costs incurred in doing so are also recoverable.
This article first appeared on the International Law.com website (15 March 2011).
(1) Hanrahan v Minister for Agriculture, Fisheries and Food  IEHC 442, November 26 2010.
(2) Per Finlay P, Grafton Ct Ltd v Wadson Sales (Unreported, High Court, February 17 1975, p21).
(3) Hadley v Baxendale (1854) 9 Ex 341 at 354-355, as approved in Irish cases such as Lennon v Talbot Ireland Ltd (Unreported, High Court, December 20 1985) and Lee v Rowan (Unreported, High Court, November 17 1981).