Remedies for Breach of Contract

In the event that a party breaches a contract there are several different remedies that may be available depending on the nature and severity of the breach. Some breaches may be so minor as to warrant no action, for example, serving a notice by second class mail when the contract stipulates first class post (unless any loss could be shown that was a direct result of the slower delivery).

Others, however, may be very serious and could cause the contractual relationship to come to an end, or to cost one party a substantial amount in losses. This article explores the remedies for breach of contract: damages, which can either be liquidated or unliquidated, and the various equitable remedies.

Liquidated Damages

In the majority of cases, remedies are by way of damages. Liquidated damages are a sum that is fixed between the parties that becomes payable in the event of a breach of contract. There is however a distinction to be drawn between a genuine estimate of loss and a ‘penalty’, which the court will not enforce. A recent example of this is the recent decision in which bank and credit card charges were deemed to be excessive and not a genuine estimate of loss.

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Unliquidated Damages

These are damages that are assessed by the court and compensate a losing party for any loss that they suffer for breach of contract. In the event that the party cannot prove actual loss, they will only be entitled to nominal damages. It is important to note that unliquidated damages are not intended to be punitive, but ‘loss’ is broadly defined. Loss can be calculated in three ways:

1) Loss of Bargain: This is designed to put the claimant back in the position they were in before the breach of contract occurred. However, there are numerous factors to consider: whether the damage was too remote to be able to be linked with the defendant; whether the breach of contract actually caused the loss; the type of loss suffered by the claimant; and whether the claimant sufficiently mitigated their loss once there had been a breach of contract.

2) If the claimant incurs expenses as a result of only partial performance of the contract, the defendant will pay Reliance Loss.

3) Restitution occurs when the claimant has granted the defendant with some kind of benefit and wants to claim it back because of the breach of contract. This will only be used in situations in which there has been a total lack of consideration, for example if the claimant has paid for the goods but has not received them.

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Equitable Remedies

These are remedies that are designed to rectify breaches of contract. They are not granted as of right and can only be ordered by a court. However, they are each designed to put the parties into the position they would have been in if the contract had proceeded. There are two main types of equitable remedy: specific performance, and injunctions.

A court may order a party to fulfil their obligations under the contract, otherwise known as ‘specific performance.’ Injunctions also order defendants to behave in a specific way, either by requiring them not to do something (prohibitory injunctions) or to do something (mandatory injunction.) Prior to trial, a court can also order a party to do/not to do something by way of an interlocutory injunction, preserving a position until such time as the issue has been decided by the court. Mandatory injunctions differ from specific performance in that an action required under a mandatory injunction does not need to be something that was a requirement under the performance of the original contract.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Contract Red Flag Checker lets you describe a contract you are about to sign and get a plain English summary of the clauses that could hurt you. Takes about 2 minutes. Try it now →