Remedies: Breach of Contract
Introduction
There are various remedies available to an innocent party where there has been a breach of contract. The main remedy is damages, but in certain situations, equitable remedies are available.
1. Unliquidated Damages
Unliquidated damages are assessed by the court and are designed to compensate the innocent party for any losses incurred as a result of a breach of contract. However, where loss can not be proved, the innocent party will only be entitled to claim nominal damages. In the case of Surrey CC v Bredero Homes (1993), damages were not awarded defendant who had failed to comply with planning permission because the council had not suffered any loss. This can be contrasted with the case of Chaplin v Hicks (1911) where the court awarded damages to the claimant for the loss of a chance to win a competition.
Unliquidated damages are not a means by which to punish the defendant and punitive damages will not be awarded for a breach of contract. They are also not a way to recover any gain made by the defendant as a result of a breach.
Loss includes any harm or damage to the claimant themselves or any of their property, including any reduction of value of such property caused by the breach of contract. However, in calculating the loss and awarding damages, if the claimant has obtained any benefit from the breach the court will not usually allow the claimant to be put in a better position than they would have been had the breach not occurred. Therefore, any benefit received must be set off against the loss.
There are three ways of calculating loss and which one is used will depend upon the type of loss incurred and which one will be best for the claimant.
a. Expectation Loss
Expectation loss is also known as loss of bargain. This is the traditional basis upon which damages are assessed and is designed to put the claimant in the same position they would have been had the contract had been performed.
There are two ways of quantifying the damages for expectation loss. The cost of cure measure or the difference in value measure. Which method is used depends on various factors including the reason for the performance; the impact of the claimant’s attempts to mitigate their loss; and whether the court believes that the claimant will carry out the cure if awarded on this basis. In the case of Radford v De Froberville (1977), there was a contract for the sale of land which required a wall to be built to separate the land from that of the claimant. The claimant genuinely wanted the wall to be built and was entitled to recover the cost of building a wall from the defendant. It was irrelevant that the land had not reduced in value. This can be contrasted with the case of Tito v Waddell (no 2) (1977) where the court refused to award damages to the claimant to replant land after a mining company had failed to do it because they were not convinced that the claimant intended to use the money for this purpose. Therefore, damages were assessed on the basis of the difference in value of the land.
There are a number of limitations on the principle of expectation:
(i) Remoteness of damage
Where a claimant’s losses are too remote, damages can not be recovered. They must be “within the reasonable contemplation” of the parties. The application of remoteness can either be from imputed or actual knowledge. In The Heron II (1969), damages were awarded for losses arising from the late delivery of sugar to Basra. The House of Lords held that the parties must have been aware that the price of sugar might fluctuate.
With actual knowledge, any knowledge of any special circumstances needs to be precise. In the case of Simpson v L and NWR (1876) it was held that the defendant was liable for the loss caused to the claimant when he delivered goods to the Newcastle Show Ground the day after the show had finished. This can be contrasted with the case of Horne v Midland Railway (1873) where the defendants were not held liable for the exceptionally high loss of profit due to late delivery of goods as they could not have contemplated this.
(ii) Type of loss
Pecuniary loss is the usual ground upon which damages are awarded for breach of contract. However, damages for non-pecuniary loss are sometimes awarded in certain circumstances, such as: * Pain and suffering as a result of a physical injury; * Physical inconvenience; * Damage to a commercial reputation; and * Any distress caused to the claimant.
(iii) Mitigation
The claimant is under a duty to mitigate their loss, but only once there has been a breach of contract. Where a claimant has managed to avoid any losses, they can not recover damages for that.
(iv) Causation
The breach of contract which occurs must have caused and preceded the loss. It is possible for the chain of causation to be broken by a third party, but only if it is unforeseeable.
b. Reliance loss
Reliance loss is also known as wasted expenditure loss and arises when the claimant has incurred out of pocket or wasted expenditure in preparation of or partial performance of the contract. The purpose of reliance loss is the same as expectation loss in that it is designed to put the claimant in the same position they would have been in before the contract was entered into.
Where expectation loss can not be recovered, reliance loss will be claimed.
c. Restitution
Restitution is where the claimant has conferred a benefit on the defendant in performing their contractual duties and wants to claim that benefit back. An example of this is where the claimant has paid in advance for goods which have not been delivered.
The loss is measured with regard to the value of the actual benefit as opposed to the claimant’s loss, but will only be permitted if there is a serious breach and a total failure of consideration.
The purpose of a claim under this heading is to put both parties into the position they would have been in had the contract never been entered into, although in some situations the claimant may be placed in a better position.
The claimant is entitled to choose the basis upon which to make their claim, but there are certain restrictions. Where the claimant has made a ‘bad bargain’ they will not be entitled to claim damages for a reliance loss, putting them in a better position than they would have been in had the contract been performed. In any event, it is for the defendant to prove that the claimant has made a bad bargain. In the case of C and P Haulage v Middleton (1983), the claimant had hired a garage for 6 months and it was agreed that any improvements would be the property of the defendant. When the defendant breached the contract, the claimant sued for the cost of the improvements. The court held that even if the contract had not been breached, the expenditure would have been wasted.
In some situations it may also be possible to recover twice for the same loss under the various bases as outlined above, as long as the loss itself is not duplicated.
In general though, the claimant will seek damages assessed on the expectation basis as this usually proves to be more profitable.
2. Liquidated Damages
Liquidated damages refers to damages set by the parties themselves where they decide upon a fixed sum being payable in the event of a breach of contract. Where the sum is a genuine pre-estimate it will be enforced by the court. However, where is it not a genuine pre-estimate it will be regarded as a ‘penalty’ which will not be enforced by the court. Unliquidated damages will be awarded instead.
The case of Dunlop Pneumatic Tyres Ltd v New garage and Motor Co. (1915) set down guidelines to distinguish between liquidated damages and penalties. The court was of the view that the sum will be a penalty where: * it is extravagant and unconscionable; * a larger sum will be payable where the smaller sum is not paid; and * the same sums will be payable whether the breach is minor or major.
3. Equitable Remedies
There are a range of equitable remedies available which are designed to remedy a breach of contract and enforce contractual obligations. However, such remedies are discretionary and will not be granted as of right, but various factors will be taken into consideration in deciding whether to exercise this discretion, including: * Mutuality; * Supervision; * Impossibility; * Hardship; * Conduct of the claimant; * Vagueness; and * Mistake.
There are two types of equitable remedies available.
a. Specific Performance
Specific performance is where the court orders the defendant to fulfil their contractual obligations. The purpose of specific performance is to put the parties in the position they would have been in has the contract been performed.
b. Injunctions
An injunction is a court order ordering a defendant wither to do or not to do a certain act. There are three types of injunctions available to a claimant in the event of a breach of contract:
(i) Prohibitory injunction
This requires the defendant not to do something.
(ii) Mandatory injunction
This requires the defendant to do something.
(iii) Interlocutory injunction
This regulates the parties prior to trial.
Conclusion
As can be seen, damages is the usual remedy sought in the event of a breach of contract, with equitable remedies being sought where damages will be inadequate to compensate the claimant for their losses. The way in which the claimant’s losses are calculated is for the claimant themselves to decide.