measured. On the contrary, damages are assessed according to a deemed performance interest loss by the claimant. This is an entirely fictional approach, as the claimant is not required to show that it would have agreed to the waiver if it had been sought (indeed, the recovery is available even if the evidence indicates that it would not have agreed to the waiver). Appreciating this, the exceptional approach adopted in breach of covenant cases should not be seen as a radical departure from the traditional assessment of damages.

(b)  Damages for mere breach of contract, or for fault?

Making damages dependent upon the demonstration of fault in every case can be said to be at odds with the promissory principle: quite often a promisor does not promise to do something ‘if he is able’ or ‘unless he is prevented’, but simply to do it. Any failure is thus a breach of that promise, yet an invariable fault requirement for damages claims would exclude from compensation breaches of such simple and unconditional promises. One could argue that caveats such as ‘if I am able’ or ‘unless I am prevented’ should be read into promises, but such implications seem improper in the face of the practice of adding such caveats only where promisors wish that to be the case.

As seen below in the discussion of German law, automatic fault-based liability in damages has been argued to be an ‘ethically superior’ position by some, but such claims seem spurious. A more promising way of justifying a fault requirement in damages claims might be to argue as follows. When a promisor undertakes to do (or not do) something in a promise, that is a strict and unqualified undertaking. For that reason, the remedy of enforced performance does not require the fault of the promisor to be shown. However, promisors often say nothing about the circumstances in which they will or will not be willing to pay damages instead of performing, and one should not assume that the willingness to pay damages will also be a strict undertaking. Of course, if strict liability to pay damages is stated (in a so-called ‘penalty’ or ‘liquidated damages’ clause) then that position ought to prevail, given the principle of pacta sunt servanda. But, if no such choice is expressly made, it could place too heavy a burden on the promisor to impose strict liability to pay damages; on the contrary, and acting consistently with the approach in delict, the duty to pay should only be held to arise where fault on the promisor’s part can be demonstrated.

A critical appraisal of this justification would seem to depend at least in part on how the default duty to pay damages is seen as arising: does it derive from an implied or tacit agreement of the parties, or is it a duty imposed by law (unless excluded by the parties)? If the duty arises by implied or tacit agreement of the parties, then it might seem somewhat harsh to impose a strict standard of liability on the promisor. In effect one would be saying that the promisor had promised as follows: ‘I promise to do x [the express part of the promise]; in the event that I do not do x, for whatever reason, I promise to pay damages for not doing x [the implied promise]’.147 It might be argued that if one is going to imply a promise on the promisor’s part, such implication should be of no more onerous a duty than is necessary to provide reasonable protection of the promisee’s interests. If correct, that would suggest the implication of a faultbased duty to pay damages would be sufficient protection. However, it is far from obvious that the duty to pay damages should be seen as arising from an implied promise to pay. Especially in systems where a civil code is the source of the duty to pay damages, but even in those where the duty to pay damages is imposed by courts as a result of the unwritten law, it seems equally if not more plausible to suggest that the nature of the duty to pay damages is that of a default legal rule, and one which ought therefore to be able to embody a policy of either strict or fault-based liability as the particular legal system sees fit. Whilst some of those who support promissory based liability might not approve of this view, given that it diminishes the extent of contractual duties conceived of as resting upon the promises of the parties rather than externally imposed legal policy, it avoids the fiction of implied promises, a fiction which too often brings promissory liability into disrepute.

If this view – that the duty to pay damages derives not from an implied promise, but by application of a default legal rule to pay – is correct, then there need be no concern about trying to tie either strict or fault-based liability to the supposed wishes of a promisor, nor is there any force in the idea that an absence of a harsher regime for deliberate breaches of contract undermines a promissory view of contract.148 The

147Smith, Contract Theory, pp. 384–6, takes the view that, in the Common law, the duty to pay damages is a ‘conjunctive obligation’ (that is, a secondary obligation applicable in cases of default of performance) agreed to by the parties, thus rooting the duty to pay damages in implied promises of the parties.

148Even if the default obligation to pay damages were conceived of as resting upon an implied promise to pay damages, rather than a legal rule that they be paid, an absence of penal damages in a legal system would not undermine a promissory view of contract for

promisor is simply subject to a duty to pay imposed by the law, unless and to the extent that the promisor varies or excludes such a default duty.149 That still leaves the question of which policy should be adopted by the default legal rule. This brings us back to the first point made in this discussion, namely that this ought to depend upon the nature of the promise made by the promisor. If, as often happens, a promisor has made an unqualified promise of performance to achieve a particular result, then the remedial position which most respects such a promise is a position which makes available contract remedies for any deviation from the promised performance. Thus, if A says to B ‘I promise to deliver the goods to your depot by 9 a.m. on Monday morning’, then, short of the operation of force majeure, any failure to meet that promise ought to trigger liability in damages (or the availability of other remedies). On the other hand, if A only promises to act with skill and care in achieving delivery of the goods – so that end result x is subject to a fault-based caveat – or if no specific end or result is specified as act x, but the promise made is simply one to act generally with skill and care in the interests of the promisee (for instance, ‘I hereby undertake to perform with ordinary skill and care such legal services on your behalf as you may instruct me in relation to’), then it would be consistent with respect for the nature of that type of promise to permit a damages claim only where the promisor has demonstrated the necessary want of skill or care. What is suggested therefore is that it is the nature of the promise undertaken which should determine the type of liability, strict or faultbased, which triggers the remedy of damages. Such an approach, flexible according to the nature of the promise made, is that which would seem to be most respectful of the nature of promissory liability. Most legal systems appear to show some appreciation of the wisdom of such a view, but those which begin from a default position of fault-based damages run the greater risk of failing to show respect for the precise nature of the promises made, because they have the greatest difficulty in dealing with those promises which on their face promise strict achievement of a specific outcome.

the simple reason that a penal response to a breach of a promise is by no means a necessary or obvious response. On the contrary, it is just as consistent with a proper response to a breach of promise that some remedial or restorative remedy be imposed, rather than a penal one.

149Though such an ability to vary or exclude liability in damages is itself subject to ­external control in some cases, by virtue of statutory control of potentially unfair terms.

by virtue of one of the measures ordinarily adopted to compensate for non-conforming performance in construction cases, but will instead, where the case concerns the construction of a ‘pleasurable amenity’, have regard to a third measure which can equally be said to be performancebased, given that performance was intended to provide the claimant with a certain measure of pleasure of which he has been deprived. Assessment of the quantum of such measure will inevitably be a somewhat uncertain exercise for the courts, but this does not detract from the point that it is the loss occasioned by the skimped performance of a pleasurable amenity which they are attempting to assess.

As to the second issue, it was suggested earlier that the English law approach that damages are the primary contractual remedy undervalues the promises of performance made by contracting parties, and tacitly condones the behaviour of those who break their contractual promises. The place of damages as the primary remedy gives the impression that English law adopts the attitude that breach kills off the right to performance, and that damages are simply compensation for having lost that right to perform. Such an entrenched attitude created a legal environment in which the important (though dissenting) ideas of Lord Goff in Alfred McAlpine Construction Ltd v. Panatown Ltd153 concerning the nature of damages might be advanced. In the context of a so-called ‘transferred loss’ claim,154 his Lordship proposed a radical restatement of the purpose and assessment of contractual damages in general.155 According to Lord Goff, the loss which a party suffers as a result of a breach of contract, and for which it ought to be compensated, lies in not having received the performance it bargained for. It does not matter, in Lord Goff’s view, that, having not received the bargained-for performance, a party is no worse off in the sense of suffering a pecuniary loss, because the real loss is the failure to receive the expected performance. That loss of a bargained-for performance might arise equally in cases where the performance is to be tendered to a third party, as much as where it is to be tendered to the party suffering the breach. Such a theory of the nature of the loss suffered in breach of contract cases was able to

153[2001] 1 AC 518; [2000] 4 All ER 97; [2000] 3 WLR 946.

154See discussion of this topic in the previous chapter, at pp. 320–32.

155Lord Goff’s new approach was developed in part by reference to the broad approach to damages claims in respect of third party loss of Lord Griffiths in St Martin’s Property Corp. Ltd v. Sir Robert McAlpine & Sons Ltd [1994] 1 AC 85. Lord Griffiths had remarked (at 97) of a hypothetical claim for such damages that the claim would arise because the party claiming ‘did not receive the bargain for which he had contracted’.

explain, in Lord Goff’s view, why recovery of damages was permissible in transferred loss cases.

Lord Goff attempted to find support for his radical redefinition of the nature of loss and the assessment of damages in breach of contract cases from contemporary academic re-emphasis on the protection of the performance interest.156 But is his redefinition in fact consistent with a high regard for performance and the promises of the parties? Lord Goff’s approach seems essentially to compensate a claimant for having lost the rights bargained for in the contract. But this ignores the fact that a party’s contractual rights are not lost by the other party’s breach; on the contrary, the innocent party can still insist upon performance, or, if it chooses, to seek a substitute for performance (monetary damages). True, this point is more easily made in civilian or mixed systems, with their emphasis upon performance remedies, but even in English law damages are properly viewed as substitutionary performance, not compensation for the loss of contractual rights. Lord Goff’s theory concedes too much to the contract breaker, who does not have a unilateral power to extinguish the other party’s contractual rights. As Lord Clyde correctly put it in Panatown, a ‘failure in performance of a contractual obligation does not entail a loss of the bargained-for contractual rights’.157

Lord Goff’s approach has not been followed in later judgments of the English courts. On the contrary, the line of transferred loss cases was described in a later decision of the Court of Appeal as demonstrating a concern that ‘where a real loss has been caused by a real breach of contract, then there should if at all possible be a real remedy which directs recovery from the defendant towards the party which has suffered the loss’.158 Such a characterisation, in emphasising the idea of a ‘real loss’, shows a preference for not conceiving of the mere failure to receive a promised performance as in itself a loss. While Lord Goff’s approach purported to be based upon respect for the performance interest, in fact it could be said to undermine a genuine respect for performance given its approval of the idea that a defaulting party has in effect destroyed the other party’s entitlement to performance. It is also hard to reconcile with the traditional stress in the assessment of damages on the position which the parties would have been in had the contract not been broken:159 if damages are, in Lord Goff’s view,

156 See Lord Goff, [2001] 1 AC 518, 546C. 157 See Lord Clyde, [2001] 1 AC 518, 534.

158Offer-Hoar and others v. Larkstore Ltd and another [2006] EWCA Civ 1079; [2006] 1 WLR 2926, per Mummery LJ at para. 85.

159Golden Strait Corporation v. Nipon Yusen Kubishika Kaisha (‘The Golden Victory’)

[2007] UKHL 12; [2007] 2 AC 353; [2007] 3 All ER 1.