Jojy George Koduvath.

Damages under Tort and Contract

Damages arise from ‘tortious liability’ and ‘breach of contract’. It is observed in Rajkot Municipal Corpn. v. Manjulben Jayantilal Nakum,(1997) 9 SCC 552, as under:

• “In tort, liability is primarily fixed by law while in contract they are fixed by the parties themselves. In tort, the duty is towards the persons generally while in contract it is towards specific persons or persons. If the claim depends upon proof of proof of the contract, action does not lie in tort. If the claim arises, from the relationship between the parties, independent of the contract, an action would lie in tort at the election of the plaintiff, although the might alternatively have pleaded in contract.”

Tortious Liability

Blacks Law Dictionary defines ‘tort’ as violation of duty imposed by general law or otherwise upon all persons occupying the relation to each other involved in a given transaction. There must always be a violation of some duty owed to plaintiff and generally such a duty must arise by operation of law and not by mere agreement of the parties.

Essential Elements of Tortious Liability

The essential elements of tortious liability are –

• (a) some wrong doing and (b) negligence or strict liability.

Actual Damage for Tort must be Established before a Court

For asserting tortious liability, as observed by our Apex Court, in Rajkot Municipal Corpn. v. Manjulben Jayantilal Nakum, it must be established before a court of law that:

• (i) The defendant was under duty of care, primarily fixed by law, not to create physical danger to the person or property of third party;
• (ii)  The defendant ought to have reasonably foreseen the physical danger likely to be affected;
• (iii)  Violation of such duty fastened liability upon the defendant to pay damages; and
• (iv) Actual physical damage must have been caused to the plaintiff or his property out of such breach of duty.

Foreseeability of Damages

In United India Insurance Co.  v. Thomas, 1999-1 KLT 165; 1999 1 RCR(Civ) 610. the Kerala High Court held as under:

•  “In a suit for damages in a tort case, the court has power to award pecuniary compensation to the plaintiff for the injury or damage caused to him out of the wrongful act of the defendant. The test employed for determining whether the defendant is liable for damages is the test of directness, that is to say the defendant is liable for all direct consequences of the tortuous acts suffered by the plaintiff whether or not a reasonable man would have foreseen them. The Court of Appeal in Re Polemis and Furness, Withy & Co. Ltd. (1921) 3 K.B. 560) held that once the tortuous act is established the defendant is to be held liable for all the damages which ‘is in fact directly traceable to the negligent act, and not due to independent causes having no connection with the negligent act’.
• Foreseeability of some damage is relevant to decide whether the act complained of was negligent or not. But the liability for damages is not restricted to foreseeable damage but extends to all the damage directly traceable to the negligent act. This view was adopted by the Privy Council in Overseas Tankship (U.K.) Ltd. v. Morts Dock & Engineering Co. Ltd. (1961) 1 All. E.R.404 (PC). In holding foresee ability to be the correct test, the judicial committee observed that Polemis” case (supra) should not be regarded as a good law. Lord Viscound Simonds observed:
  •        “For it does not seem consonant with current ideas of justice or morality that, for an act of negligence .however slight or venial, which results in some trivial foreseeable damage, the actor should be liable for all consequences, however, unforeseeable and however grave, so long as they can be said to be “direct”. It is a principle of civil liability subject only to qualifications which have no present relevance, that a man must be considered to be responsible for the probable consequences of his act.”
• His Lordship further said:
  •        “But, with great respect to the full court, this is surely irrelevant, or, if it is relevant, only serves to show that the Polemis rule works in a very strange way. After the event even a fool is wise. Yet it is not the hindsight of a fool, but it is the foresight of the reasonable man which alone can determine responsibility. The Polemis rule, by substituting “direct” for “reasonably foreseeable” consequence, leads to a conclusion equally illogical and unjust.”
•        The above test of foresee ability was affirmed in The Wagon Mound (No. 2) (1966) 2 All. E.R.709) and Hughes v. Lord Advocate (1963) 1 All. E.R.705). While adjudicating the claim for compensation by the Tribunal under S.165 of the Act the foresee ability test has no application. It is for the Civil Court to apply this test while assessing the damages in accordance with the facts and circumstances of each case.”

Law of Tort Offers Compensation for Injuries; But, Not to All Losses

In Rajkot Municipal Corpn. v. ManjulbenJayantilalNakum,(1997) 9 SCC 552, a celebrated decision on this subject, it is pointed out as under:

• “The law of tort prevents hurting one another. All torts consist of violation of a right in the plaintiff.  Tort law, therefore, is primarily evolved to compensate the injured by compelling the wrong-doer to pay for the damage done. Since distributive losses are an inevitable by-product of modern living in allocating the risk, the law of tort makes less and less allowance to punishment, admonition and deterrence found in criminal law. The purpose of the law of tort is to adjust these losses and offer compensation for injuries by one person as a result of the conduct of another. The law could not attempt to compensate all losses.”

Damages Awarded After Adjudication

It is pointed out in State of UP  v.  Miss Nikhat Parveen, 2005-3 All WC 2733, that in case any person claims damage and compensation, he shall have to resort to the remedies provided to him in law and that the claim of damages requires adjudication and determination of facts. The Court observed further as under:

•           “11.   A liability in tort arises from a breach of duty primarily fixed by law and this duty is towards person (s) generally and its breach is redressable by an action for unliquidated damages. In general, torts consist of some act done without just cause or excuse. Injury and damage are two basic ingredients of torts. These may be found either in contract or otherwise, the violation of which may result in tortuous liability as breach of duty primarily fixed by law or by parties in a contract. An action in tort is usually a claim for pecuniary compensation in respect of damages suffered as a result of invasion, of a legally protected interest. The action is founded and structured on morality, as no one has right to injure or harm others intentionally or even innocently. The liability in tort, in course of time has become known as strict liability, absolute liability or fault liability. The difference between strict liability and fault liability, arises from presence and absence of mental element. A breach of legal duty wilfully, or deliberately or even menacingly, is negligence emanating from fault liability, to injure and damage resulting without any intention, yet due to lack of foresight etc. is strict liability. The duty is the primary yardstick to determine the tortuous liability, and its ambit keeps on widening on the touchstone on fairness and practicability of the situation etc. These rules laid down in Rylands v. Fletcher, (1932) AC 562 were recognised by Indian Courts in Jai Laxmi Salt Works (P.) Ltd. v. State of Gujarat, (1994) 4 SCC 1.
•           12.     Actionable negligence as a tort is to breach of a legal duty to take care which results in the State or an individual liable when the State is found reluctant in discharge of its duties or public responsibilities. It also amounts to negligence and is accountable in law of torts. According to Dias, liability in negligence, is technically prescribed ‘as arising out of damage caused by the breach of a duty to take care. The concept of duty, its reasonableness, the standard of care required however cannot be put into straitjacket formula or a rigid fixed formulae. The more advanced the society becomes, the more sensitive it grows to the violation of the duties by private or even public functionary. The negligence, in law of torts, is influenced by social, economic and political development. The distinction arising out of damages due to negligence and even when it, rather unintentionally and innocently is a firmly established branch of the law of torts. The negligence is only descriptive of those sum of activities which may result in injury and damage to the other side for voluntary discharging of duty both legal and due to lack of foresight and may comprise of more than one concept known and recognised in law intended or unintended.”

No Pecuniary Obligation or Debt for Breach of Contract (By Itself)

The Apex Court held in Union of India v. Raman Iron Foundry, (1974)2 SCC 231, that when there is a breach of contract, the party who commits the breach does not incur any pecuniary obligation nor does the party complaining of the breach become entitled to a debt due from the other party. In Kaikkara Kaikkara Construction Company v. State Of Kerala, (2022) 1 Ker HC 541, the Kerala High Court observed as under:

• “Two principles are laid down by the Apex Court in Raman Iron Foundry’s case:
• 1) The law is well settled that a claim for unliquidated damages does not give rise to debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority. When a party who commits the breach does not eo instanti incur any pecuniary obligation nor does the party complaining of the breach become entitled to a debt due from the other party. The only right that the party aggrieved by the breach of the contract will get is the right to sue for damages.
• 2) A claim for damages for breach of contract is therefore not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under Clause 18, to recover the amount for such claim by appropriating other sum due to the contractor.”

It is held in Raman Iron Foundry‘s case as under.

• “11. Having discussed the proper interpretation of clause 18, we may now turn to consider what is the real nature of the claim for recovery of which the appellant is seeking to appropriate the sums due to the respondent under other contracts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. S.74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the W.P(C) No.31363 of 2009 & parties; a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach become party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in S.6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we find it stated by Wightman, J., in Jones v. Thompson, (1858) 27 LJQB 234. “Ex parte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has been signed.” It was held in this case that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O’Driscoll v. Manchester Insurance Committee, 1915 (3) KB 499. Swinfen Eady, L., J., said in reference to cases where the W.P(C) No.31363 of 2009 & claim was for unliquidated damages “……. in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given”. The same view has also been taken consistently by different High Court in India. We may mention only a few of the decisions, namely, Jabed Sheikh v. Taher Mallik, 45 Cal WN 519 : AIR 1941 Cal. 639; S. Milkha Singh v. M/s. N. K. Gopala Krishna Mudaliar, AIR 1956 Punj 174 Iron and Hardware (India) Co. v. Firm Shamlal and Bros, AIR 1954 Bom 423. Chagla, C. J., in the last mentioned case, stated the law in these terms:(at pp.425-26) “In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party.
• As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.”
• This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise W.P(C) No.31363 of 2009 & of the right conferred upon it under clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a Court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under Clause 18 to appropriate the amounts of other pending bill of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so.”

The Supreme Court, in State of Karnataka v. Rameswara Rice Mill, (1987) 2 SCC 160, it is held as under:

• “7 …. The terms of clause 12 do not afford scope for a liberal construction being made regarding the powers of the Deputy Commissioner to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. The crucial words in Cl.12 are “and for any breach of conditions set forth herein before, the first party shall be liable to pay damages to the second party as may be assessed by the second party.”
• On a plain W.P(C) No.31363 of 2009 & reading of the words, it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. It it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording in clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is a subsidiary and consequential power and not the primary power. Even assuming for argument’s sake that the terms of clause 12 afford scope for being construed as empowering the officer of the Sate to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the Officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions, the adjudication should be independent person or body, and not by the other party to the contract.
• The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case, the Officer of the State, even though a party to the contract, will be sell within his rights in assessing the damages occasioned by the breach in view of the specific terms of clause 12.
• 8. We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of W.P(C) No.31363 of 2009 & conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed.”

In Abdul Rahiman v. Divisional Forest Officer, 1988 (2) KLT 290, the Kerala High Court observed as follows”

• “When a contract is broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby. This principle of S.73 of the Contract Act equally applies where one of the contesting parties is the Government. It is the breach of the contract that gives rise to the cause for damages. The primary duty therefore is to fix the liability for the W.P(C) No.31363 of 2009 & breach. Assessment of damages is only an incidental or subsidiary function. The liability to pay damages is thus fastened where there is breach of contract.
• However, when a dispute arises as to whether the contract has been broken or not, that dispute cannot be settled by one of the parties to the contract, for, he cannot be an arbiter in his own cause. The dispute may have to be referred to an arbitrator or the matter has to be settled in a court of law. This principle applies to the Government also as a party to the contract.
• Where the breach of the contract is admitted ie. where there is no dispute that the contract has been broken by one of the parties, the Government as the party entitled to claim compensation for the breach need not wait for a determination by any outside agency as to whether there was any breach of contract. In that event, the question of damages alone remains to be considered. A sum can be named in the contract as the amount to be paid in case of breach, an amount in liquidation of the claim for compensation. The contract can thus provide for liquidated damages in the event of breach and the Government claiming that amount as compensation for the admitted breach committed by the other party to the contract, need not seek the aid of court or any outside agency for the fixation of the quantum of damages.
• Similarly, if the contract itself provides that “that one party shall be liable to pay damages to the second party as may be assessed by the second party”, the assessment by the second party, in case the breach is admitted, is binding on the first party and there is no more any necessity for W.P(C) No.31363 of 2009 & a further quantification of the damages by any outside agency. The party assessing the damage can straight away seek to recover the amount and if that party is the Government, it can have recourse to the remedy available under the Kerala Revenue Recovery Act.”

After quoting this decision it is held in Build Tech India Ltd. v. State of Kerala, 2000 (2) Ker LJ 142 as under:

• “The cumulative effect of the aforesaid decisions is that when breach is not admitted, one of the contracting parties cannot arrogate to itself the power to claim compensation for the breach from the other party without there being any adjudication by an outside agency as to whether there was any breach of contract. In the case on hand, going by the pleadings as already noticed, it cannot be held that the petitioner has admitted the breach. Therefore the respondents have no jurisdiction to quantify the damage or loss alleged to have sustained by it on account of the alleged breach.”

(All the aforesaid cases are referred to in Kaikkara Kaikkara Construction Company v. State Of Kerala, (2022) 1 Ker HC 541.)

Sec. 73 and 74 deals with Compensation for Breach of Contract

• 73. Compensation for loss or damage caused by breach of contract.—When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
• —When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
• Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract.
• —When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
• —When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.”
• Explanation.—In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. 

• 74 Compensation for breach of contract where penalty stipulated for:- [When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
• Explanation.— A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]
• (Exception) — When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the [Central Government] or of any [State Government], gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
• Explanation.— A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested. 

Can a Party to Contract Adjudicate Upon Breach and Quantum?

The Supreme Court, in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, AIR 1987 SC 1359, observed that even when the State is one of the contracting parties and seek to recover damages for breach of contract, the State cannot be a Judge in its own cause and cannot be its own arbitrator to determine the liability and quantum of damages. The Apex Court held as under:

• “The terms of Clause 12 do not afford scope for a liberal construction being made regarding the powers of the Deputy Commissioner to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. The crucial words in Clause 12 are “and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party. On a plain reading of the word, it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording in Clause 12 would have been entirely different. It cannot also be argued that right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is subsidiary and consequential power and not the primary power. Even assuming for argument’s sake that the terms of Clause 12 afford scope for being construed as empowering the office of the State of decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case, the Officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of Clause 12. .. We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed.”

This principles, dispute about the liability for damages is a matter for the civil court, and a party to an agreement cannot be an arbiter in its own cause, are followed in the following cases:

• Abdul Rahiman v. Divisional Forest Officer, AIR 1989 Ker 1;
• Latheef v. Superintending Engineer, ILR 1993(2) Ker 426;
• Rambal Co. v. Kerala State Science & Technology Museum, 2000 (3) Arb. LR 212;
• Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd., AIR 2009 SC 357: 2009 2 SCC 337;
• Mohammed Kunhi v. Executive Engineer, 2001(3) KLT 733;
• Union of India v. Tejinder Kumar Dua, 2013-200 DLT 60;
• Tulsi Narayan Garg v. Madhya Pradesh Road Development Authority, Bhopal, 2019 SCC OnLine SC 1158.

It is held in the following cases that if breach alleged by a party to the contract is denied by the other a unilateral decision as to damages is not proper.

• Union of India v. Raman Iron Foundry, AIR 1974 SC 1265: (1974) 2 SCC 231. (The principles in this decision is followed in the following cases.)
• State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, AIR 1987 SC 1359
• JG Engineers Private Limited v. Union of India, AIR 2011 SC 2477: (2011) 5 SCC 758
• State of Kerala and others v M.K.Jose, (2015) 9 SCC 433
• M/s. Gangotri Enterprises Limited v Union of India, (2016) 11 SCC 720, AIR 2016 SC 2199.

It is pointed out in Perkins Eastman Architects DPC v. HSCC (India) Limited, AIR 2020 SC 59,   2019 SCC Online SC 1517, by our Apex Court that a Chief Managing Director of a Company by himself cannot appoint a sole arbitrator, as he himself cannot act as an arbitrator, emphasising the principle that ‘what cannot be done directly cannot be done indirectly’. (See also: TRF Limited vs. Energo Projects Ltd., (2017) 8 SCC 377.)

If Special Forum Provided, it must be Approached       

Supreme Court in the case of Western India Plywood Limited v. P Ashokan, AIR 1997 SC 3883, and BS Bharti v. IBP Co. Ltd, AIR 2004 SC 4355, it is laid down that where a special statute (Motor Vehicles Act, Workman’s Compensation Act, ESI Act, Industrial Disputes Act, etc.) bars jurisdiction of the civil court, and a special forum is provided, then the injured must seek his remedy before the special forum, and he cannot resort to remedy in a civil suit.