REMEDIES FOR BREACH OF CONTRACT PART II - MEASURE OF DAMAGES

 MEASURE OF DAMAGES

The measure of damages is the amount which will put the claimant in the position he would have been in had the contract been properly performed. This is sometimes called the ‘expectation loss’ basis. In Victoria Laundry v Newman Industries, for example, Victoria Laundry were claiming for the profits they would have made ( or the profits they expected to make) had the boiler been installed on the contractually agreed date. If there is no actual loss, the claimant can recover only nominal damages. 

Alternatively, a claimant may prefer to frame his claim in the alternative on the ‘reliance loss’ basis and thereby recover expenses incurred in anticipation of performance and wasted as a result of the breach. The onus is on the defendant to show that the expenditure would not have been recovered if the contract had been performed. 

Illustration: In a contract for the sale of goods, the statutory (Sale of Goods Act 1979) measure of damages is the difference between the market price at the date of the breach and the contract price, so that only nominal damages will be awarded to a claimant buyer or claimant seller if the price at the date of breach was respectively less or more than the contract price. 

In general, damages are not awarded for non-pecuniary loss such as mental distress and loss of enjoyment. Exceptionally, however, damages are awarded for such losses where the contract’s purpose is to promote happiness or enjoyment, as is the situation with contracts for holidays – Jarvis v Swan Tours.

 

The innocent party must take reasonable steps to mitigate (minimise) his loss, for example, by trying to find an alternative method of performance of the contract: Brace v Calder.

Liquidated damages clauses and penalty clauses

Liquidated damages can be defined as a fixed or ascertainable sum agreed by the parties at the time of contracting, payable in the event of a breach, for example, an amount payable per day for failure to complete a building. Such clauses are called liquidated damages clauses.

 If a contract includes a provision that, on a breach of contract, damages of a certain amount or calculable at a certain rate will be payable, the courts will normally accept the relevant figure as a measure of damages. 

The courts will uphold a liquidated damages clause even if that means that the injured party receives less (or more as the case may be) than his actual loss arising on the breach. This is because the clause setting out the damages constitutes one of the agreed contractual terms.

However, a court will ignore a figure for damages put in a contract if it is classed as a penalty clause – that is, a sum which is not a genuine pre-estimate of the expected loss on breach.

The law imposes a duty on the innocent party to take all reasonable steps to mitigate his/her loss. If the innocent party fails to mitigate his/her loss, then the award of damages will be reduced. The burden of proof is on the defendant to show that the claimant failed to take reasonable opportunity of mitigation.