Damages

1. The most common and widely available remedy for breach of contract is expectation damages, aimed at putting the claimant in the position, so far as money can do, that she would have been in had the contract being duly performed. The aim is not to punish the contract-breaker and, subject to points 8-10  below, not normally to protect the claimant’s reliance or restitutionary interests.

2. Expectation damages are usually measured by the ‘diminution in value’: the market value of the performance that the defendant promised, minus that actually given. Alternatively, damages may be measured by the ‘cost of cure’ if it is not unreasonable to do so, taking into account: (i) the claimant’s non-pecuniary purpose in contracting; (ii) whether she has cured or intends to cure the breach; and (iii) the proportionality between the cost of cure and the benefit cure would confer. Where there is no diminution in value and the cost of cure is unreasonable, but the claimant has suffered non-pecuniary loss (her ‘consumer surplus’), an award can be made for the claimant’s ‘loss of amenity’ as in Ruxley v Forsyth.

3. Whilst damages are readily available for pecuniary loss of expectation, the general rule is to bar damages for non-pecuniary loss unless: (i) a distinct and important part of the contract was the claimant’s enjoyment or alleviation of distress; (ii) the non-pecuniary loss was consequent on physical injury or inconvenience; or (iii) the claimant’s loss of reputation, other than from unfair dismissal, caused financial loss to the claimant.

4. Where contracts are made for the benefit of third parties, the promisee is generally regarded as suffering no compensable loss on breach. However, the ‘broad ground’ in McAlpine v Panatown may provide a basis for awarding the promisee substantial damages to protect his loss (including non-pecuniary) from the defendant’s breach.

5. The claimant may also recover her consequential losses so long as they are not too remote. Loss is not too remote if the defendant contemplated or ought reasonably to have contemplated, at the time of contracting, the type of loss suffered from her breach as a serious possibility flowing: (i) from the ordinary course of things (subject to the understanding of the industry); or (ii) from her knowledge of the claimant’s special circumstances. This is so unless the circumstances show that the defendant did not ‘assume liability’ for the claimant’s loss on this basis.

6. The claimant must prove the extent of her loss, so there are limits on recovery for speculative loss. Damages for loss of a chance are not available where causation of loss depends on the claimant’s hypothetical actions, but may be where causation depends on the hypothetical actions of a third party (quantified by reference to the value of the expected benefit and the likelihood of the claimant getting it).

7. The claimant must minimise avoidable losses: (i) she must act reasonably to mitigate her loss; (ii) loss is normally assessed at the time of breach, the earliest point that the claimant’s mitigation can be expected; and (iii) her claim may be reduced if her loss is exacerbated by her own unreasonable conduct (contributory negligence) or by other (intervening) causes after breach. In addition, claims must be brought within certain time limits.

8. Reliance damages are not an alternative measure of damages; the claimant cannot opt for reliance rather than expectation damages if she has made a bad bargain (ie her costs of performance would exceed his expected gains). Since expectation damages are preferable where she has made a good bargain, the claimant can only opt for reliance damages where she cannot be shown to have made a bad bargain (with the burden of proof on the defendant) but her expectations are too speculative.9. The claimant may prefer to claim restitution of the benefits conferred on the defendant in performance of the contract where the contract is terminated for breach in certain circumstances (eg where her expectation and reliance losses are too speculative). However, restitution is only available for total failure of consideration in money claims.

10. The claimant cannot normally claim the contract-breaker’s gains from breach, although Attorney-General v Blake now allows this in exceptional cases where contract remedies are inadequate and the claimant has a ‘legitimate interest’ in preventing the defendant from profiting by her breach. The award is discretionary and its quantum is said to depend on a wide range of factors with Blake’s full account of profits at one extreme.  However, the uncertainty in quantification reflects the instability of its juristic basis.  Is the award based on Wrotham Park, as compensation for the claimant’s loss of opportunity to bargain for releasing the defendant from performance, or is it based on stripping a wrongdoer of its gains from breach? [MARKER]

11. Contract law’s protection of the claimant’s performance interest is qualified insofar as:

  • punitive damages are not awarded;
  • there are severe limits on the availability of specific performance;
  • the expectation measure of damages is subject to limits, notably mitigation;
  • there are restrictions on the right to affirm (ch 12); and
  • agreed damages are controlled by the penalty rule (ch 14).

However, it can be argued that moves to increase the protection of the claimant’s performance interest are evident in: Ruxley  damages, the ‘broad ground’ in Panatown, Wrotham Park damages and account of profits awards.

12. Additional remedies available to consumers for breach of terms ‘regarded as included’ under the Consumer Rights Act 2015 include the right to a price reduction where the consumer’s claim for repair or replacement fails.