Shipment, Delivery and Damages

A. Shipping and Delivery


The terms "shipping" and "delivery" are often seen in the terms and conditions of commercial contracts. Most customers use these terms interchangeably as if they mean the same thing. However, there are marked differences between the two and sellers should clearly inform customers of them to prevent potential complaints.


1. What is meant by Shipping?


The term "shipping" means when the goods left the supplier's warehouse. Therefore, the shipping date represents the date when the order was issued from the supplier warehouse. 

2. What is meant by Delivery?


The term "delivery" means when the goods will arrive at the customer's door.  In most cases, delivery depends on a range of factors and unforeseen circumstances, so suppliers normally would provide an estimated date. 


These terms often confuse customers; however, one can avoid the confusion by providing two dates: both the shipment date and the delivery date.


B. Damages


Damages for breach of contract is a common law remedy and is feasible in terms of rights. Its purpose is to compensate the plaintiff for the actual loss caused by the breach of the wrongdoer, not to punish the wrongdoer. If the plaintiff did not suffer any damage, it would only receive symbolic damages.


1. Damages claim for Goods and Services


The plaintiff may not be able to recover all the losses caused by the defendant's breach of contract. The loss suffered by the victim must be caused by the defendant, not too remote to obtain damages. In relation to goods, it could mean the cost or replacement value of the goods. In relation to services, it could mean any loss resulted from the provision or non-provision of services.


In addition, the plaintiff has an obligation to mitigate his losses. For example, if the plaintiff knows that the product is defective but nevertheless still uses it. It may not be able to claim damages resulting from the use of the defective product. A service provider should mitigate his /her damages by finding another job if the customer did not turn up for the booking. One should not sit around idly and sue the customer for the loss opportunity.


In situations where actual damages are difficult to determine, liquidated damages refer to a fair representation of losses. In general, liquidated damages should be fair, not punitive, otherwise they may be construed as penalties, which cannot be enforced under law.


2. Penalties vs Liquidated Damages


The difference between the two are:

  • Liquidated damages: If the amount determined by the parties is a genuine pre-estimate of the damage caused by future breaches, then this is liquidated damages.
  • Penalty: If the amount agreed by the parties is unreasonable or used to force the other party to perform its obligations, it is a penalty. The intention behind a penalty provision being to prevent a breach of contract by providing a greater incentive for its performance.


3. Genuine pre-estimate of damage


Where contracting parties stipulate in the contract that a certain sum will be payable to the innocent party as damages in the event of breach of contract, the stipulated sum will represent liquidated, as opposed to penal, damages where, judged at the time the contract was made, it amounts to a genuine pre-estimate of the damage which the innocent party would suffer as a result of the breach. However, even if the stipulated sum is for a lesser amount than a genuine pre-estimate of loss, it will be unenforceable if it is in the nature of a penalty designed to secure the performance of the contract.


4. Breach of contract


The question of whether a stipulated damages provision in a contract is a penalty will only ever arise in a situation where there has been a breach of the contract between the relevant parties. Thus, if a stipulated sum is payable upon the occurrence of an event other than a breach of contract, it is not open to the courts to hold that it is a penalty.


5. Burden of proof


The burden of proving that a stipulated sum amounts to a penalty is on the party from whom the stipulated sum is claimed.


6. General guidelines


The following guidelines were given to assist in deciding whether a stipulated sum is a penalty, as opposed to a genuine pre-estimate of damage:

(a) it will be held to be a penalty if the sum stipulated is extravagant and unconscionable in comparison with the greatest loss which could conceivably be proved to have followed from the breach;

(b) it will be held to be a penalty if the breach consists only in not paying a sum of money and the sum stipulated is a sum greater than the sum which ought to have been paid;

(c) there is a presumption (but no more) that it is a penalty where a single lump sum is made payable by way of compensation on the occurrence of one or more or all of several events, some of which may occasion serious, and others only trifling, damage; and

(d) it is no obstacle to a sum stipulated being a genuine pre-estimate of damage that the consequences of breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that the pre-estimated damage was the true bargain between the parties.


7. Seriousness of breach


Where the stipulated sum is payable in the event of both serious and trifling breaches, there is a presumption that the clause is a penalty. Where a stipulated sum is payable upon the occurrence of one of several events, it will be treated as a penalty if one of those events is the non-payment of a smaller sum, or if one event is bound to cause greater loss than another.


8. Damages not capable of accurate assessment


Where the potential loss likely to be suffered by the innocent party upon a breach of the relevant contract was not reasonably calculable at the time the contract was made, it is likely that the stipulated sum will be held to be liquidated damages. Thus, even in a situation where several events, of greater or lesser significance, would give rise to the obligation to pay the stipulated sum, the fact that the potential loss from the occurrence of any and all of such events was, at the time of contracting, so uncertain as to be unascertainable would be sufficient to rebut the presumption that a sum payable on the occurrence of any one or more of such events was a penalty. However, the stipulated sum will still be held to be a penalty if it is extravagant and unconscionable in amount.


9. Effect of stipulating sum as damages


Where liquidated damages are stipulated in a contract as being payable by a party in the event of his breach of contract, the innocent party can recover the stipulated sum without having to prove, and irrespective of the amount of, his actual damage, making its claim enforceable by a simple debt action in proceedings. However, where the actual damage suffered by the innocent party is greater than the amount of the stipulated sum, the innocent party will not be entitled to ignore the liquidated damages clause and claim the greater amount representing his actual loss.


Where no sum is stipulated in a contract as being payable on breach, or a stipulated sum is held to be a penalty, the innocent party will have to prove, and sue for, his actual loss in the ordinary way. The fact that a stipulated sum has been held to be a penalty will not necessarily prevent the innocent party from obtaining a higher level of damages than the amount of the stipulated sum.


C. Conditions and warranties


A breach of a condition contained in a contract entitles the innocent party to treat the contract as rescinded and to claim damages, including damages for loss of bargain. The loss of bargain suffered by the innocent party will be the value of the benefit of which he has been deprived as a result of breach (including the damage sustained by the innocent party as a result of the non-performance by the defaulting party of his future obligations). However, this is only the starting point, as the amount recoverable is limited by the rules relating to causation and remoteness of damage and by the obligation on the part of the innocent party to mitigate his loss.


A breach of warranty does not entitle the innocent party to rescind the contract, but merely gives him a right to claim damages resulting from such breach.