Breach of Contract Claim?

Contracts are entered into regularly by all of us, whether that be as consumers, suppliers, shareholders, investors – the list goes on. But what happens when one of the parties fails to adhere to their contractual obligations and breaches the contract? What remedies are available to the innocent party? This blog will outline the various remedies available in a breach of contract matter and the circumstances in which they may be awarded.

Repudiation

If another party to a contract fails to comply with the terms agreed, the innocent party may be entitled to ‘repudiate’ the contract, releasing themselves from any further obligations contained within the contract in addition to claiming against the wrongful party for any losses suffered as a result of the contract not being performed.

Alternatively, they may ‘affirm’ the contract, agreeing to continue with it despite the wrongful party’s breach, but reserving rights to claim against the wrongful party for any losses sustained as a result of the breach.

Damages

Perhaps the most common remedy for breach of contract is damages – monetary compensation for losses suffered by the innocent party.

Damages can come in two forms – ‘special’ damages and ‘general’ damages. Special damages are awarded for sums that can be easily quantified, such as a loss of profit, whereas general damages are awarded for losses that are not easily quantifiable such as loss of amenity.

It is important to note that damages are not awarded simply to punish the party in breach, but to ensure that the innocent party is placed in a position it would have been had the breach not occurred. Further, there are restrictions upon the extent to which damages may be awarded and a number of factors that ought to be taken into account by a party who has found themselves subject to another’s breach.

Three key factors to be taken into account are mitigation, causation and remoteness of damage which are outlined briefly below.

Mitigation

The innocent party in a breach of contract matter does still have a duty to ‘mitigate’ the losses they may suffer as a result of the breach. If such a party is deemed to have unreasonably inflated their losses or to have otherwise acted or omitted to act in such a way that has resulted in the losses increasing, such conduct will be seen as breaking the chain of causation (ie, removing the liability from the party at fault for the additional loss) and the damages to be awarded would instead be quantified as if the innocent party had acted reasonably.

It is therefore important to do all you can to reduce the impact and extent of any losses suffered by you if you do experience a breach of contract on the part of another contractual party, otherwise you are likely to have to bear the extent of these losses yourself without recovering them from the opposing party.

Causation

For a claim for damages to succeed, the innocent party must be able to prove that the party whom breached the contract ought legally to be held as having caused the losses being claimed and that there is a complete ‘chain of causation’ between the breach and the loss.

It is not sufficient to demonstrate only that factually the losses would not have been suffered if the breach had not occurred. Even if this is demonstrated, damages will not usually be awarded if it can be proven that an unexpected and intervening act, caused or greatly contributed to the losses suffered. Examples of such circumstances would be the actions of an independent third party unknown to the party in breach or an ‘act of God’.

Remoteness of damage

In addition to causation, a party claiming damages for breach of contract must also establish that the damages claim pass the test for what is known as remoteness of damage. This requires the innocent party to demonstrate that the losses suffered are within the scope of the wrongful party’s responsibility. Remoteness essentially stems down to whether or not the loss would have been foreseeable or in contemplation of the parties at the time the contract was entered into. Not only must it be established that the losses would have been a possible result of breach, but also not an unlikely result of breach.

There are two key factors which the Court would consider when determining whether or not the test for remoteness of damage is satisfied; the knowledge of what tends to happen in the “ordinary course of things” and any special circumstances relevant to the specific circumstances of the contract which the parties knew or ought to have known about.

Specific performance

If damages are unlikely to be adequate in the circumstances, an alternative would be to request an order from the Court for specific performance, requiring the party in breach to perform its positive obligations within a specified time frame.

Circumstances in which damages may be deemed as inadequate could include situations where the subject matter or product of the contract is unique and cannot be reasonably substituted or when damages would be financially ineffective in rectifying the position for the innocent party.

If you are party to a contract which has been breached and require advice or assistance with regards to the same contract our Dispute Resolution team on  01604 828282 / 01908 660966 or litigation@franklins-sols.co.uk.