The main remedies for breach of contract in the law of England and Wales are damages and, to a lesser extent, specific performance. These provide the focus for this chapter. The following issues are discussed:
474Purpose of damages. The general rule is that damages are compensatory, rather than punitive, and are intended to put claimants in the position they would have been in had the contract been performed properly.
Measure of damages. There are several methods of calculating damages:
Expectation measure. This is the usual measure. It allows the claimant to recover particular lost benefits, such as lost profits that would have been made had the contract been properly performed. Problems can arise where:
the benefits were not certain – the claimant may be compensated for the loss of a chance to obtain the benefit;
the costs of providing the benefit following a breach are out of proportion to the value of the benefit itself – the court may refuse to allow full recovery in these circumstances.
Reliance measure. The claimant may choose to seek damages on this basis – compensating for expenses incurred in relation to the contract – where, for example, the expectation interest is difficult to calculate (though not where the claimant has simply made a bad bargain).
Non-pecuniary losses. The claimant can exceptionally recover for loss of enjoyment or mental distress caused by a breach of contract. Generally, either the contract must be one that has the provision of non-pecuniary benefits as an important objective, or the breach must have caused physical discomfort that has led to the distress.
Non-compensatory damages. In limited circumstances a claimant may be allowed to recover the benefit that the defendant has obtained through breaking a contract (as opposed to the claimant’s own loss), but this is exceptional.
Limitations on recovery. The claimant’s right to damages is limited by:
the rules of remoteness – the claimant can generally recover only those losses that were normally to be expected, or, if unusual, were in the reasonable contemplation of the parties at the time of the contract;
mitigation – the claimant must take reasonable steps to prevent the losses increasing.
Liquidated damages clauses are enforceable; penalty clauses, aiming to ‘terrorise’ the defendant into performance, are not.
Restitution. The principles of ‘restitution’ are designed to prevent ‘unjust enrichment’. They may require the return of money or property transferred under a contract that has been terminated, or in a situation where a contract has never come into existence.
Specific performance. This equitable remedy will only be available where damages would be inadequate. The order will not normally be made where:
it would need continuous supervision;
it relates to personal services;
it would cause undue hardship to the defendant;
the claimant has not acted equitably.
Injunctions. These can be used to prevent a breach of contract, but not as a means of indirectly obtaining specific performance where this remedy would not be permitted.