On this page
Education Hub / SQE2 / Practice Areas/

Damages

Topic

Damages in Contract Law

Damages are a monetary remedy awarded to compensate a party for loss or injury due to a breach of contract. The primary purpose of damages is to place the injured party in the position they would have been in had the contract been performed as agreed. Different types of damages can be awarded based on the nature of the breach and the extent of the loss.

Types of Damages

There are several types of damages that may be awarded in contract disputes:

  • ★ Compensatory Damages: These aim to cover the actual loss suffered by the non-breaching party, making them whole by compensating for both direct and indirect losses.
  • ★ Consequential Damages: Also known as special damages, these compensate for additional losses indirectly resulting from the breach, provided they were foreseeable at the time of contract formation.
  • ★ Nominal Damages: A small sum awarded when a breach occurred, but the non-breaching party did not suffer a substantial loss. This serves to acknowledge the breach's occurrence.
  • ★ Liquidated Damages: A predetermined amount agreed upon in the contract, payable upon breach. This type of damages is enforceable if it is a genuine pre-estimate of the loss and not a penalty.
  • ★ Punitive Damages: Rarely awarded in contract cases, punitive damages are intended to punish the breaching party for egregious conduct and deter future breaches.

Assessment of Damages

Damages are assessed based on the following principles:

  • ★ Foreseeability: The loss must have been foreseeable at the time the contract was made, as established in Hadley v Baxendale (1854).
  • ★ Mitigation: The non-breaching party has a duty to mitigate their losses, meaning they must take reasonable steps to reduce the damages caused by the breach.
  • ★ Causation: There must be a clear causal link between the breach and the loss suffered, ensuring that the damages awarded correspond to the actual impact of the breach.

Case Law

Compensatory Damages - Robinson v Harman (1848)

This case established the principle that compensatory damages aim to place the injured party in the same position as if the contract had been performed, reflecting the actual loss suffered.

Consequential Damages - Hadley v Baxendale (1854)

In this landmark case, the court held that consequential damages are recoverable only if the loss was foreseeable at the time of the contract, setting a standard for recoverability of indirect losses.

Examples

Example 1 - Liquidated Damages

Scenario:

A construction contract includes a clause stipulating a daily rate of liquidated damages if the project is delayed. The contractor finishes late, and the client claims the agreed amount, which compensates for the delay's impact.

Example 2 - Nominal Damages

Scenario:

A vendor breaches a contract by failing to deliver goods, but the buyer incurs no actual loss because they immediately find an alternative supplier. The court awards nominal damages to recognize the breach.

Conclusion

Damages play a crucial role in contract law, providing a financial remedy to compensate for losses resulting from a breach. The type and amount of damages depend on the nature of the breach and the specific circumstances, with the goal of restoring the injured party to their rightful position. Understanding the principles of damages helps parties navigate disputes and seek appropriate compensation for contractual breaches.

Remedies Liquidated sums and penalties
27

53

SQE2

Specification

Explore