Damages for Breach of Contract

An award for damages is the most common remedy awarded in a breach of contract claim and the aim of such awards is to place the innocent party in the position it would have been had the breach not occurred.

However, there are restrictions as to 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. These are outlined briefly below.

Mitigation

Regardless of the wrongful party’s conduct, 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.

Summary

As outlined above, it is important that an innocent party continues to act reasonably and proportionately in a breach of contract matter. This of course can be easier said than done when faced with a potential defendant acting in contravention of the terms agreed between you, but will reduce the risk of any sum of damages being reduced by the Court later down the line.

If you require advice or assistance with regards to a breach of contract claim our dispute resolution team are on hand to help on 01604 828282 or litigation@franklins-sols.co.uk.