Compensation that you may claim for a breach of contract has requirements and limitations. When a contract is breached, parties must understand that the non-performer will pay compensation for any loss resulting from the breach. The aim of damages is to place the plaintiff (innocent party) back in the same position they were in prior to the breach, not to penalise the wrongdoer. There are different types of damages that a person can claim due to a breach, namely economic damages. Read on to find out which damages are able to be claimed by an innocent party due to breach of contract, and whether there are any limits to claiming these damages.
What are the basic elements of breach of contract?
A breach of contract occurs, if there:
- Was a valid contract;
- The innocent party performed their part of the contract;
- The wrong-doer failed to perform their part of the contract; and
- The innocent party sustained damages caused by the wrong-doer’s breach.
What type of damages can I claim?
Damages are normally provided as a substitute for poor performance, or loss suffered due to the actions or omissions of the wrong-doer. There are many types of damages available for an innocent party in the event of a breach of contract. These may include the following:
What are economic damages?
Types of economic loss that are recoverable:
- Loss of profit or value
- Wasted expenditure or reliance loss
- Interest on judgement
- Loss of opportunity
- Cost of rectification of defective work
Is there recovery for distress?
Damages cannot usually be given for feelings of disappointment, injured feelings or mental distress. They are, however, given for physical injuries caused by the breach of contract. Notwithstanding, there are some exceptions, including if there is personal injury, physical discomfort and inconvenience and mental suffering because of the breach. Additionally, if the object of the contract is the provision of enjoyment or freedom from mental distress, damages may be awarded.
Can I recover damages for wasted expenses?
Recovering expenses where there is no loss of profit is difficult to calculate. However, if the contract is a losing contract, then the plaintiff can recover the amount of expenses they would have if the contract had been performed.
Can I recover damages for losing a contract?
A plaintiff can recover some amount for wasted expenditure where a contract, which if performed, would result in loss to the plaintiff.
What are the other types of damages?
A plaintiff may be able to recover damages where there is no financial harm that resulted from the breach of contract. For example, in Leeda Projects Pty Ltd v Zeng, the plaintiff was unable to occupy premises because of the breach. The court held that damages could be measured not by the rental value of the property, but were instead calculated based on the amount spent by the plaintiff on the property during the time that she was unable to use the property.
Can the wrongdoer legally terminate the contract?
An individual’s right to terminate a contract does not immediately reduce damages payable for loss of such. The court must assess whether the wrongdoer would have used their termination rights. In the case of Berry v CCL Secure Pty Ltd, the High Court considered the calculation of damages for the loss of the claimant’s contract, where the ‘wrongdoer’ was allowed to lawfully terminate. The court held that because the wrongdoer had resorted to deception in order to terminate, they therefore failed to show the intention to exercise their contractual termination rights. It was ruled that where a contract is wrongfully terminated, the claimant for damages must show the value if it had not been terminated. Thus, lost contractual rights must be valued accordingly.
Are there any limits to damages?
To claim damages, the innocent party must show four things:
- that there was a cause of action,
- the breach of contract caused the loss,
- the loss suffered is not remote, and
- The plaintiff has acted to mitigate the loss.
- Cause of Action
If the wrongdoer refused to perform part of the contract, this amounts to repudiation (where a party renounces their obligations) of the contract and the right to terminate the contract will rise. Damages are available if the anticipatory breach (occurs when a party demonstrates its intention to breach a contract) has been shown and the contract terminated. If the innocent party suffers actual loss, then substantial damages will be awarded.
The wrongdoer must have directly caused loss resulting from their breach. If there has been contributory negligence or other acts that have broken the chain of causation, this may limit damages. Contributory negligence occurs where the plaintiff (the innocent party) has had a shared responsibility in the breach. Intervening acts mean that something occurred as a result of a third party, and therefore the breach of contract by the wrongdoer did not contribute to the loss.
The wrongdoer is only liable for the loss that could have fairly and reasonably been foreseen by both parties when creating the contract.
A duty to mitigate arises when an actual breach or an anticipatory breach has been accepted as repudiation. The plaintiff must take reasonable steps to mitigate the loss, and their action or lack of action must be reasonable in the circumstances. The burden of proof is on the wrongdoer to prove that the plaintiff’s steps have not been reasonable. If the plaintiff did act reasonably, they can recover an increased loss that was incurred in the attempt to mitigate.
There are almost no limits to damages if the innocent party has satisfied the four elements, however, it is difficult to recover non-pecuniary loss (loss that is not an economic loss), in circumstances of disappointment and distress, as mentioned above.
If you are requiring guidance on assessing damages, you should seek advice from Legal Kitz. Legal Kitz can assist you and ensure that your concerns are heard. Click here to book a FREE consultation with one of our highly experienced solicitors today contact us by emailing firstname.lastname@example.org calling 1300 988 954.