The Measure Or Calculation Of Damages – The Categories Of Expectation Loss, Reliance Loss, Non-Pecuniary Loss

Introduction To The Measure Of Damages

Meaning Of Measure Of Damages

• The measure of damages refers to:
  • How damages are calculated.
  • What losses can be recovered.
  • How courts determine the amount payable.

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General Principle

• Damages aim to compensate the innocent party for losses caused by breach.
• Courts seek to place the claimant in the position they would have occupied had the contract been properly performed.

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Leading Authority

Robinson v Harman (1848)

• Established the fundamental principle that:
  • The claimant should be placed in the position they would have occupied if the contract had been performed.

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Importance

• Determines:
  • Amount recoverable.
  • Type of loss recoverable.
  • Scope of compensation.

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Main Categories

Expectation Loss

Reliance Loss

Non-Pecuniary Loss

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Examination Importance

• Students must distinguish clearly between:
  • Expectation interest.
  • Reliance interest.
  • Non-pecuniary loss.

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Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

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Expectation Loss

Meaning

• Expectation loss protects:
  • The benefit of the bargain.
  • The contractual expectation.
  • The profit or advantage expected from performance.

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Main Objective

• Put claimant in position they would have occupied had contract been properly performed.

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Why Expectation Loss Is Important

Most Common Measure

• Primary method of calculating damages.

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Reflects Contractual Purpose

• Parties enter contracts expecting benefits.
• Law protects those expected benefits.

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Supports Commercial Certainty

• Encourages confidence in agreements.

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Expectation Interest

Meaning

• Value claimant expected to receive.

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Includes

Expected Profit

Expected Financial Benefit

Expected Commercial Advantage

Contractual Gain

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Calculation Of Expectation Loss

General Formula

• Position if contract performed

MINUS

• Actual position after breach

EQUALS

• Expectation loss

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Example

Contract

• Goods purchased for £10,000.

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Market Value

• £14,000.

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Seller Breaches

• Goods not delivered.

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Loss

• £4,000 expected benefit.

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Damages

• £4,000.

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Lost Profit Claims

Meaning

• Claimant deprived of expected profit.

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Common Situations

Business Contracts

Commercial Transactions

Supply Agreements

Construction Contracts

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Leading Case: Robinson v Harman (1848)

Facts

• Defendant agreed lease.
• Defendant unable to grant lease.

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Decision

• Damages awarded.

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Legal Principle

• Claimant entitled to value of expected bargain.

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Significance

• Foundation of expectation damages.

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Case: Charter v Sullivan (1957)

Facts

• Car dealer breached contract.
• Buyer sought damages.

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Decision

• Damages limited because buyer could easily obtain another car.

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Principle

• Expectation loss depends upon actual loss suffered.

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Significance

• Illustrates compensatory nature of damages.

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Advantages Of Expectation Loss

Protects Bargains

• Gives claimant expected benefit.

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Commercial Certainty

• Supports confidence in contracts.

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Fairness

• Reflects parties’ intentions.

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Criticisms

Difficult Valuation

• Future profits may be uncertain.

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Speculative Calculations

• Some expectations difficult to measure.

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Complex Evidence

• Often requires expert evidence.

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Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

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Reliance Loss

Meaning

• Reliance loss compensates claimant for expenditure incurred in reliance upon the contract.

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Purpose

• Restore claimant to position occupied before contract was made.

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Alternative Interest

Expectation Interest

• Looks forward.

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Reliance Interest

• Looks backward.

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Key Objective

• Reimburse wasted expenditure.

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Reliance Interest

Meaning

• Losses suffered because claimant relied upon contract being performed.

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Examples

Preparatory Costs

Advertising Costs

Manufacturing Costs

Training Costs

Setup Costs

Investment Costs

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Why Reliance Damages Exist

Problem

• Sometimes expected profits difficult to prove.

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Solution

• Recover expenditure incurred in reliance on contract.

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Fairness

• Prevents innocent party suffering wasted costs.

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Leading Case: Anglia Television Ltd v Reed (1972)

Facts

• Television company planned production.
• Actor Robert Reed contracted to appear.
• Reed withdrew before filming.
• Company incurred substantial preparatory expenses.

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Decision

• Expenses recoverable.

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Legal Principle

• Reliance expenditure may be recovered.

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Significance

• Leading authority on reliance loss.

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Types Of Expenditure Recoverable

Pre-Contract Expenditure

Sometimes Recoverable

• If within parties’ contemplation.

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Post-Contract Expenditure

Usually Recoverable

• Incurred because of contract.

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Importance Of Anglia Television

Broad Recovery

• Allowed significant reliance losses.

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Practical Protection

• Protects parties who invest resources.

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Commercial Importance

• Common in business contracts.

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Case: C & P Haulage v Middleton (1983)

Facts

• Claimant spent money improving premises.
• Improvements made without legal entitlement.

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Decision

• Recovery refused.

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Principle

• Reliance losses must be legally recoverable and not circumvent expectation principles.

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Significance

• Demonstrates limits on reliance damages.

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Advantages Of Reliance Loss

Fairness

• Reimburses wasted expenditure.

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Useful Alternative

• Where profits difficult to prove.

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Commercial Protection

• Protects business investments.

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Criticisms

Risk Of Overcompensation

• May exceed actual expected benefit.

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Complex Assessment

• Determining recoverable expenditure can be difficult.

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Uncertainty

• Boundaries sometimes unclear.

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Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

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Non-Pecuniary Loss

Meaning

• Losses that are not primarily financial.

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Examples

Disappointment

Distress

Inconvenience

Loss Of Enjoyment

Mental Suffering

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General Rule

• Contract law traditionally focuses on financial loss.
• Non-pecuniary damages are generally not recoverable.

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Reason

Commercial Focus

• Contracts usually concern economic interests.

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Certainty

• Financial losses easier to measure.

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Limiting Liability

• Prevents excessive claims.

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General Rule Against Recovery

Leading Case: Addis v Gramophone Co Ltd (1909)

Facts

• Wrongful dismissal claim.

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Decision

• Damages for injured feelings not recoverable.

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Legal Principle

• Contract damages generally do not compensate emotional distress.

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Significance

• Traditional rule against non-pecuniary recovery.

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Exceptions To The General Rule

Important Examination Point

• Certain contracts have special purposes.
• In these situations non-pecuniary damages may be recoverable.

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Contracts For Pleasure, Enjoyment Or Peace Of Mind

Principle

• Where purpose of contract is enjoyment, relaxation or freedom from distress:
  • Damages may be awarded for disappointment.

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Leading Case: Jarvis v Swan Tours Ltd (1973)

Facts

• Holiday advertised inaccurately.
• Holiday experience disappointing.

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Decision

• Damages awarded.

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Legal Principle

• Compensation available for loss of enjoyment.

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Significance

• Major exception to traditional rule.

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Importance Of Jarvis

Recognised Reality

• Some contracts purchased for enjoyment.

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Fairness

• Financial loss alone insufficient.

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Consumer Protection

• Protects holidaymakers.

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Case: Jackson v Horizon Holidays Ltd (1975)

Facts

• Family holiday disappointing.
• Contract breached.

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Decision

• Damages awarded.

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Principle

• Loss of enjoyment recoverable.

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Significance

• Expanded protection in holiday cases.

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Contracts Providing Peace Of Mind

Principle

• Damages may be awarded where contract intended to provide:
  • Peace of mind.
  • Freedom from distress.
  • Psychological comfort.

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Leading Case: Farley v Skinner (2001)

Facts

• Surveyor asked to check aircraft noise.
• Surveyor negligently reported.
• Property suffered aircraft noise problems.

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Decision

• Damages awarded.

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Legal Principle

• Non-pecuniary damages available where important contractual purpose frustrated.

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Significance

• Modern authority on peace of mind contracts.

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Why Damages Were Awarded

Specific Concern Identified

• Noise issue central to contract.

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Important Purpose Defeated

• Peace and enjoyment lost.

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Fairness

• Compensation justified.

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Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

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Comparison Of The Three Categories

Category	Purpose	Position Protected
Expectation Loss	Give benefit of bargain	Position if contract performed
Reliance Loss	Reimburse wasted expenditure	Position before contract
Non-Pecuniary Loss	Compensate disappointment or distress in limited situations	Emotional or enjoyment interests

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Relationship Between Expectation And Reliance Loss

Expectation Loss

Looks Forward

• Expected benefit.

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Reliance Loss

Looks Backward

• Money already spent.

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Important Principle

• Claimant generally cannot recover twice for same loss.

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Objective

• Compensation not overcompensation.

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Judicial Approach

Primary Preference

• Expectation damages.

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Alternative

• Reliance damages.

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Exceptional Cases

• Non-pecuniary damages.

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Strengths Of Expectation Loss

Protects Bargains

• Reflects contractual purpose.

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Commercial Certainty

• Encourages transactions.

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Fair Compensation

• Gives expected benefit.

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Weaknesses Of Expectation Loss

Speculative

• Future profits difficult to calculate.

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Complex Evidence

• Valuation difficulties.

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Strengths Of Reliance Loss

Practical

• Easier to prove expenditure.

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Fair

• Reimburses wasted costs.

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Useful Alternative

• Where profits uncertain.

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Weaknesses Of Reliance Loss

Overcompensation Risk

• May exceed actual bargain value.

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Difficult Boundaries

• Recoverable expenditure not always clear.

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Strengths Of Non-Pecuniary Loss

Fairness

• Recognises genuine disappointment.

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Consumer Protection

• Appropriate in holiday and enjoyment contracts.

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Modern Approach

• Reflects broader contractual purposes.

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Weaknesses Of Non-Pecuniary Loss

Difficult Valuation

• Emotional losses difficult to quantify.

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Uncertainty

• Scope remains limited.

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Risk Of Excessive Claims

• Courts cautious in application.

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Key Cases To Memorise

Robinson v Harman (1848)

• Expectation principle.

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Charter v Sullivan (1957)

• Actual loss required.

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Anglia Television v Reed (1972)

• Reliance expenditure recoverable.

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C & P Haulage v Middleton (1983)

• Limits on reliance claims.

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Addis v Gramophone (1909)

• General rule against emotional distress damages.

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Jarvis v Swan Tours (1973)

• Loss of enjoyment recoverable.

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Jackson v Horizon Holidays (1975)

• Holiday disappointment damages.

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Farley v Skinner (2001)

• Peace of mind damages.

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Quick Revision Table

Type Of Loss	Main Aim	Leading Case
Expectation Loss	Benefit of bargain	Robinson v Harman
Reliance Loss	Wasted expenditure	Anglia Television v Reed
Non-Pecuniary Loss	Loss of enjoyment or peace of mind	Jarvis v Swan Tours; Farley v Skinner

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Examination Evaluation Points

• Damages aim to place the claimant in the position they would have occupied had the contract been performed.
• Expectation loss is the primary measure of contractual damages.
• Robinson v Harman established the expectation principle.
• Reliance loss compensates wasted expenditure incurred because of the contract.
• Anglia Television v Reed is the leading authority on reliance damages.
• Reliance damages are particularly useful where expected profits are difficult to prove.
• Contract law traditionally focuses on financial loss.
• Non-pecuniary damages are generally unavailable under the rule in Addis v Gramophone.
• Exceptions exist where contracts are intended to provide enjoyment, relaxation or peace of mind.
• Jarvis v Swan Tours and Farley v Skinner are leading authorities on these exceptions.
• Courts seek compensation rather than punishment.
• The law balances fairness, commercial certainty and practical compensation through these different categories of damages.

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Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course