• In the case of Addis v Gramophone Co Ltd [1909] A.C. 488, it was held that when a servant claims damages from his employer for wrongful dismissal, they cannot claim further damages for the manner of the dismissal, their injured feelings, or potential losses stemming from the fact that the dismissal makes it more difficult for them to obtain fresh employment.

Facts of the Case

  • C was employed as a manager in Calcutta by D. His contract stated he could be dismissed by 6 months’ notice.
  • In October 1905, D gave C his 6 months’ notice, but appointed his successor and took steps to prevent C from acting as manager for this period.
  • In December 1905, C returned to England. In 1906, C brought an action for wrongful dismissal and breach of contract for obstructing C’s right to act as manager for the 6-month period.

Issues

  • Having proven wrongful dismissal, could C claim further damages for mental distress or loss of reputation stemming from the wrongful dismissal?

Held by the House of Lords

  • Finding for D, that C was only entitled to damages for loss of wages and commission equal to 6 months of earnings. C could not claim damages for injured feelings or loss of reputation. In breach of contract cases, there may be fraud, defamation or violence, but these can only be pursued in a separate action for tort.

Lord Atkinson

  • I have always understood that damages for breach of contract are in the nature of compensation, not punishment. The general rule in these cases was stated by Cockburn J in Engel v Fitch.
  • As a general rule, a vendor who for whatever reason fails to perform his contract is bound to place the purchaser in the position he would have been in if the contract had been performed. The purchaser will be entitled to the difference between the contract price and the market price.
  • In Sikes v Wild, Lord Blackburn stated that the existence of misconduct may render the contract voidable on grounds of fraud, or create an action for deceit, but it could not alter the effect of the contract itself.
  • There are 3 well-known exceptions to the general rule. The first, actions against a banker refusing to pay a customer’s cheque when they have funds to do so. Secondly, actions for breach of promise of marriage. Lastly, actions where the vendor of real estate, without any fault, fails to make title.
  • “In many other cases of breach of contract there may be circumstances of malice, fraud, defamation, or violence, which would sustain an action of tort as an alternative remedy to an action for breach of contract. If one should select the former mode of redress, he may, no doubt, recover exemplary damages, or what is sometimes styled vindictive damages; but if he should choose to seek redress in the form of an action for breach of contract, he lets in all the consequences of that form of action. One of these consequences is, I think, this: that he is to be paid adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more” [496].
  • Exemplary damages ought not to be and are not according to any true principle of law, recoverable in such an action as the present, and the sums awarded to C should therefore be decreased by the amount at which they have been estimated.