damages

In contract law, damages are a pecuniary remedy, and are principally compensatory in nature - Damages are not awarded to punish a defaulting party.

To compensate a party to a contract, Courts endeavour to place the party who has been injured or who has suffered loss in the same position as he would have been in if he had not sustained the wrong. In exceptional cases (for instance where the claimant has not suffered significant loss, but the defendant has profited from the breach), Courts may require defendants to disgorge profits gained from the breach.

Recoverable Interests

The interests that are recoverable caused by a breach of contract are:

1. expectation loss: damage caused by late performance, defective performance or non-performance of the contract. Expectation loss relates to the benefit or gain which the claimant would reasonably expect to receive from a proper performance of the contract without breach, but were lost due to the breach of contract by the defendant.
2. reliance loss: expenses incurred by the innocent party which relied on the contract but which are wasted due to the failure to perform by the defendant. The wasted expenditure which may be incurred include claims for expenses incurred prior to the contract being formed, provided that the loss is not too remote, and expenditure incurred as a result of the breach of contract. The type of losses sustained might include labour charges, storage expenses, materials, and practically any other expense caused by the breach having regard for the contract and the circumstances of the case;
3. performance loss: these are reflected in the interest in performance which has not been received in accordance with the contract;
4. restitutionary interests: This a relatively new area of recovery for damages, which entitles claimant to recover profits obtained by defendants where the contract has been breached; misuse of confidential information.

The starting point for assessment of damages is the net profit which the claimant expected to receive from the contract. It may be that expenses are also recoverable, provided the claimant mitigates its loss and the loss is not too remote. Parties are not entitled to recover the same loss twice.

As a consequence, where say expectation loss is the basis of the award of damages, reliance loss may be excluded where to allow recovery of reliance loss would effectively require the party in breach to pay for the loss of the innocent party twice. The Senior Courts Act gives jurisdiction to English Courts to grant damages in lieu of injunctive relief or the remedy of specific performance where these remedies are not available to the claimant.

Contract and Tort

Particular rules for assessment of damages apply depending on the area of law that the claimant has established liability in the defendant. For instance, damages for breach of contract are assessed with the reference point of the date of the contract; in tort, damages are assessed as at the date of the tort was committed; in the infringement of intellectual property rights, damages are awarded for the losses sustained by the intellectual property rights owner with reference to the misuse of the intellectual property rights without the consent of the owner.

General Rules of Recovery of Damages

All of the loss arising from a single cause of action must be claimed in one legal action. For this reason, claimants are entitled to recover expected losses and prospective loss arising from the breach. Where losses are not able to be calculated with reasonable certainty due to contingent events, Courts have power to delay the assessment of damages to a later date. Where a contract is performed in parts, and several of the parts have not been performed, the claimant is entitled to bring separate legal actions because each of the parts are made of separate sets of facts which give rise to separate causes of action.

Damages in Contract Law

Damages are a quantification of the loss suffered by a claimant as a result of a breach of contract, in money terms and as far as money is able to do it, to place the claimant in the position it would have been in had the contract been performed. Accordingly damages awarded by Courts is for the loss of the bargain by the innocent party which were caused by the breach of contract by the offending party. A claimant can only recover in an action for breach of contract the actual loss it has sustained. If the claimant has suffered no loss, it is entitled to nominal damages.

Damages in breach of contract disputes are assessed with reference to the minimum legal obligations under the contract. Where there are two or more ways which the defendant could have performed the contract, the Court will select the least onerous form of performance in the assessment. When assessing damages, only the strict legal obligations may be taken into account.

Simply because damages are difficult to calculate is not the same as loss not being able to be proved. In circumstances where the claimant has suffered substantial damage, the Court will do its best to arrive at a reasonable sum on the evidence filed by the parties. Where damage is suffered which depended on a contingency, the claimant is entitled to an award discounted by taking into account the probability that the claimant would have received a benefit or profit.

Claimants are not entitled to recover damage that is too remote or damage that they have failed to mitigate.

Measure of Damages

The sum of damages which may be recoverable as a consequence of named breaches may be specified in a contract. These are liquidated damages, which form part of a liquidated damages clause. When damages are not able to be precisely stated, the claims for damages must be assessed by a court in accordance with specified principles; these are known as unliquidated damages as a Court assessment is required to decide the sum which the defendant is liable to pay the claimant. In this case, damages are said to be 'at large'.

The Court of Appeal has jurisdiction to review awards of damages made in the High Court before a single judge where the appellant asserts that the sum of damages is too small or in excess of the proper damages which should have been awarded.

Assessed Damages: Example

In contracts for the sale of goods, the measure of damages is the difference between

1. the price contracted to be paid; and
2. the market price (for identical goods at the contracted time for delivery) which the claimant was forced to pay as a result of non-performance by the defendant, provided the price paid for the substitute goods is reasonable.

Accordingly, supposing a person contracted to purchase goods for £10, but due to the failure to supply the goods by the defendant the claimant is forced to pay £12, the damage suffered is £2. If the supplier was paid in advance, then the sum paid would also be recoverable (£10). If the goods were purchased for resale, then the claimant has also differed expectation loss, which would allow for a sum to be added to the damages claim to reflect a reasonable profit for the anticipated resale of the goods.

In respect to contracts for services, the measure of damages is usually assessed by reference to the cost to rectify defective work to the standard required by the contract, or the difference in value between that contracted for and actually delivered (ie the value of the shortcomings in performance).

In commercial and business contracts, non-pecuniary loss for loss such as damage to property are often the subject of limitation of liability clauses. Damage arising from personal injury caused by one's own negligence is not able to be limited in English law. Other forms of non-pecuniary loss such as pain and suffering, mental distress and disappointment are recoverable in exceptional circumstances.

Appeals of Damages Awards

Juries assess damages in cases of defamation, malicious prosecution, false imprisonment and claims for fraud. The Court of Appeal however has the power to vary an award of damages.