Lloyd's Maritime and Commercial Law Quarterly
THE MINIMUM PERFORMANCE RULE IN CONTRACT DAMAGES
David McLauchlan *
This article challenges the long-standing rule concerning the assessment of damages for breach of contract that, where the contract allows for alternative methods of performance by the promisor, damages are to be calculated by reference to the minimum level of performance provided for in the terms of the contract. It is argued that the rule is inconsistent with the compensatory principle and that, since it has been undermined by various qualifications or exceptions that severely curtail its operation, it would improve the coherence of the law of damages if it were abandoned.
1. Introduction
An often-repeated rule of the law concerning the assessment of damages for breach of contract is that, where the contract allows for alternative methods of performance by the defendant promisors, damages are to be calculated by reference to the minimum level of performance consistent with the terms of the contract, ie the performance “least burthensome”1 to the defendants. The rule is usually said to be justified on the basis that defendants cannot be liable for not doing what they are not obliged to do.2 Accordingly, it is not by reference to what the defendants would have done if the contract had not been breached that damages are to be assessed. That is irrelevant. Rather it is what the defendants could have done without breaching the contract that will determine the quantum of recovery. As Scrutton LJ explained in Withers v General Theatre Corp Ltd:3
“Now where a defendant has alternative ways of performing a contract at his option, there is a well settled rule as to how the damages for breach of such a contract are to be assessed … A very common instance explaining how that works is this: A. undertakes to sell to B. 800 to 1200 tons of a certain commodity; he does not supply B. with any commodity. On what basis are the damages to be fixed? They are fixed in this way. A. would perform his contract if he supplied 800 tons, and the damages must therefore be assessed on the basis that he has not supplied 800 tons, and not on the basis that he
* Professor of Law, Victoria University of Wellington; Professorial Fellow, The University of Melbourne; Honorary Professor, The University of Queensland. Thanks to Michael Pratt and Andy Summers for their comments on an earlier draft. Any errors are of course mine.
1. Cockburn v Alexander (1848) 6 CB 791, 814; 136 ER 1459, 1470 (Maule J).
2. Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 (CA), 482 (Scrutton LJ).
3. [1933] 2 KB 536 (CA), 548–549. His Lordship also gave the following further example (at 549–550): “[Consider] a lease for seven, fourteen or twenty-one years which is wrongfully determined at the end of five years by the landlord. On what basis are damages to be assessed? Answer: On the basis that the landlord can determine the lease in seven years, and therefore the plaintiff can only recover damages on the assumption that he had only two more years of the lease to run.”
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