Damages ... No, not the amazing American legal thriller starring Glenn Close (IYKYK). Damages as a remedy for breach of contract

I mentioned to a client recently that, as a result of his opponent breaching the contract between his company and his opponent’s company, his company would be entitled to claim damages. “Damages?” he laughed, “that’s American isn’t it?”. It is not an American thing; it is an umbrella term for losses incurred as a result of a breach of contract. 

In English law, the purpose of the Court awarding damages is to compensate the innocent party, rather than to punish the wrongdoer. The general rule is that damages should place the innocent party in the same position as if the contract had been performed properly.

The main loss that damages compensate is financial loss. There are a number of different types of financial loss that can be claimed. These include loss of profits as a result of a breach of contract, amounts spent putting things right and losses incurred as a result of damage to property.  

There are some limitations and restrictions on recovering damages. These are;

• It sounds quite obvious but the first thing to consider is that the loss must have been caused by the breach of contract. The party that has suffered the loss might do something that is said to “break the chain of causation”. For example, if a manufacturer supplies a defective machine and, before the manufacturer has the opportunity to repair it, the party that bought the machine hires someone that is not a qualified engineer to have a look at it, then the unqualified person works on the machine and completely destroys the machine, those actions could be said to have broken the chain of causation. This is because a third party has intervened and increased the loss suffered by the party that bought the machine. In those circumstances, it is likely that the manufacturer would not be liable for all of the loss suffered.  
• The second thing to consider is whether the party that has suffered the loss has taken steps to “mitigate” that loss. If there is a way that the loss could have been avoided or reduced and steps have not been taken to reduce the loss, the Court may consider that the party suffering the loss has acted unreasonably and is not entitled to claim losses that were reasonably avoidable. An example of this is when there is a delay in delivery times for goods that are integral to a company’s operations. If substitute goods can be sourced easily and will reduce the operational cost for the company, the company must mitigate their losses by sourcing substitute goods.
• The third point is that any loss that is claimed must have been foreseeable by the parties when the contract was entered into. This is called the “remoteness of damages” test. The innocent party cannot claim losses that the parties would never have been envisaged would be incurred.

It is for the innocent party to prove the losses that have been incurred. There may be a situation whereby the loss suffered is more difficult to assess due to the actions of the party that has breached the contract. The Court takes this into account.

If you are in a situation where you have suffered a breach of contract, make a note of all of the losses that you have incurred as a result with evidence to demonstrate that you have suffered those losses. This will be important when it comes to proving the amount of damages that you are claiming.

Here at Sewell Law, as a niche litigation practice, we have a wealth of experience in all manner of contract disputes. If you require any assistance please get in touch.