When a contract is broken, the innocent party needs a remedy. Remedies for Breach of Contract (Topic 3.4) in Paper 3 of Cambridge A Level Law 9084 covers common law damages and the equitable remedies. It is often the final part of a problem question, so it can make the difference between a good and an excellent answer.
The Purpose of Damages
Damages in contract are compensatory: they aim to put the claimant in the position they would have been in if the contract had been performed (Robinson v Harman (1848)). They are not meant to punish the party in breach.
Measuring Damages
Expectation loss
The usual measure – the loss of the bargain. For defective goods or services, this is normally the difference in value, or the cost of cure where reasonable. In Ruxley Electronics v Forsyth (1995), a swimming pool built slightly too shallow did not justify the full cost of rebuilding; the claimant received a modest sum for “loss of amenity” instead.
Reliance loss
Expenses wasted in reliance on the contract, used where expectation loss is too speculative (Anglia Television v Reed (1972), costs wasted when an actor pulled out).
Non-pecuniary loss
Generally not recoverable in commercial contracts, but awarded where the purpose of the contract was pleasure or peace of mind (Jarvis v Swans Tours (1973); Farley v Skinner (2001)).
Limits on Recovery
Causation
The breach must be an effective cause of the loss; an intervening act can break the chain.
Remoteness
Under Hadley v Baxendale (1854), recoverable losses are those arising naturally from the breach, or those reasonably in the contemplation of both parties at the time of contracting as a probable result of breach. Compare Victoria Laundry v Newman Industries (1949) (normal profits recoverable, lucrative dyeing contracts not) and The Heron II (1969). Transfield Shipping v Mercator (The Achilleas) (2008) added that the court may consider whether the defendant assumed responsibility for that type of loss.
Mitigation
The claimant must take reasonable steps to reduce their loss and cannot recover for losses that could reasonably have been avoided (British Westinghouse v Underground Electric Railways (1912); Pilkington v Wood (1953)).
Equitable Remedies
Equitable remedies are discretionary – available only where damages are inadequate and it is fair to grant them. Equitable maxims such as “he who comes to equity must come with clean hands” and “delay defeats equity” apply.
- Specific performance – an order to carry out the contract. Common for land and unique goods; not available for personal service contracts or where constant supervision would be needed (Co-operative Insurance v Argyll Stores (1997)).
- Specific restitution – an order to return specific property.
- Rescission – setting the contract aside and restoring the parties to their pre-contract positions. Lost through affirmation, delay, third-party rights or where restoration is impossible.
- Injunction – an order preventing a party doing something in breach of contract, e.g. working for a competitor (Warner Bros v Nelson (1937)), but not where it would effectively compel performance of a personal service contract (Page One Records v Britton (1968)).
Evaluation
- Damages are predictable and available as of right, but can undercompensate (e.g. limits on non-pecuniary loss).
- Remoteness and mitigation fairly limit liability but can leave innocent parties short.
- Equitable remedies are flexible but uncertain because they are discretionary.
Remedies are the natural end point of problem questions on exclusion clauses and frustration, so revise them together.
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Frequently Asked Questions
What is the test for remoteness of damage in contract?
The two limbs from Hadley v Baxendale (1854): losses arising naturally from the breach, or losses in the reasonable contemplation of both parties when the contract was made.
Can you get damages for disappointment in contract?
Only where the contract’s object was pleasure, relaxation or peace of mind, as in Jarvis v Swans Tours and Farley v Skinner.
Is specific performance available as of right?
No. It is an equitable remedy granted at the court’s discretion, usually only where damages would be inadequate.
Final Thought
Remedies questions reward precision: identify the measure of damages, test it against causation, remoteness and mitigation, then consider whether an equitable remedy fits better.