Law (9084) | Remedies for breach of a contract

Remedies for Breach of a Contract (Law of Contract - A Level 9084)

Hello future lawyers! This is a fascinating chapter because we are moving from asking "Was there a contract?" and "Was it broken?" to the practical question: "What happens now?"

Remedies are the court actions designed to fix the problem caused by a breach of contract. Understanding them is key to advising clients, as the remedy determines how much money they get, or whether they can force the other side to actually perform their promise.

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Part 1: Common Law Remedies – Damages

The most common remedy, awarded by courts as a matter of right when a breach occurs, is Damages (money).

1.1 Purpose and Nature of Damages

The core principle behind contractual damages is compensation, not punishment. The court doesn't seek to punish the party who broke the contract; it seeks to compensate the innocent party for their loss.

• The Golden Rule: The aim is to put the innocent party in the position they would have been in if the contract had been properly performed (known as the expectation measure).
• Case Law Example: This principle was established in Robinson v Harman.

Did you know? Damages are a Common Law remedy, meaning they are awarded as a right once a breach is proven. You don't have to persuade the judge you deserve them (unlike equitable remedies, which we cover later).

1.2 The Measure and Calculation of Damages (Categories of Loss)

To calculate the monetary award, the court assesses different categories of loss suffered by the claimant (C).

A. Expectation Loss (Loss of Bargain)

This is the standard and primary measure. It aims to compensate C for the profit or benefit they expected to gain from the contract.

• Example: Anna contracts to buy a specific washing machine from a shop for £500. The shop breaches the contract and doesn't supply it. Anna has to buy the same machine from a different store for £650.
  • Anna's Expectation Loss is £150 (the extra cost needed to get what she expected).

B. Reliance Loss (Wasted Expenditure)

If it is impossible to calculate the expected profit (expectation loss is too speculative), the court may award damages based on the money C spent in preparation for, or in reliance on, the contract being performed.

• Example: A film company hires an actor. The actor breaches the contract. The film company can claim the money they wasted on scriptwriting, hiring a director, and booking a venue, because these expenses were made in reliance on the actor performing. (See: Anglia Television v Reed)

C. Non-Pecuniary Loss (Disappointment and Stress)

Pecuniary means monetary. Therefore, Non-Pecuniary Loss covers non-financial harm like injured feelings, disappointment, or stress.

• General Rule: Damages for stress or disappointment are usually not awarded in commercial contracts.
• Exception: If the very purpose of the contract was to provide pleasure, relaxation, or freedom from distress.
  • Case Example (Holiday): Damages were awarded for a miserable holiday (Jarvis v Swans Tours).
  • Case Example (Peace of Mind): Damages were awarded when a surveyor failed to report aircraft noise, which negated the peace and quiet the buyer sought (Farley v Skinner).

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1.3 Limitations on the Recovery of Damages

Just because a breach caused a loss, doesn't mean the court will award money for it. The loss must pass three legal hurdles.

A. Causation

The claimant must prove that the breach of contract actually caused the loss suffered. We use the 'but for' test: "But for the defendant's breach, would the claimant have suffered the loss?"

• If the loss would have occurred anyway (e.g., due to an intervening, unconnected event), then the breach did not cause the loss.

B. Remoteness

A loss must not be too remote (too disconnected) from the breach. This prevents the defendant from being liable for extraordinary or unforeseeable consequences.

The crucial rule comes from the case of Hadley v Baxendale, which set up two 'limbs' (or tests):

1. Limb 1: Normal Loss
   

   The loss must arise naturally, i.e., according to the usual course of things, from the breach of contract itself. (What any reasonable person would foresee).

2. Limb 2: Exceptional/Special Loss
   

   If the loss is exceptional, it must be shown that the loss was actually in the contemplation of both parties at the time the contract was made, as a probable result of the breach.

Analogy: Imagine you hire a courier to deliver a part for your factory.
If the courier is late (breach):

• Limb 1 applies: Loss of the normal day's production while waiting for the part. This is foreseeable.
• Limb 2 applies: If, unknown to the courier, you had a secret, highly lucrative government contract that required 24/7 production, and you lose this specific contract due to the delay, this is an exceptional loss. You can only claim this if you specifically told the courier about the government contract when you hired them.

C. Mitigation

The claimant has a duty to mitigate their loss. This means they must take all reasonable steps to minimise or reduce the extent of the damage caused by the breach.

• If C unreasonably fails to mitigate their loss, the court will deduct the amount that C could have reasonably saved from the total damages awarded.
• Example: If a builder breaches a contract to fix your roof, you must promptly find another builder. You cannot wait six months, letting the rain cause terrible damage to the interior of your house, and then claim for all the extra damage.

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Part 2: Equitable Remedies

Equitable remedies are fundamentally different from damages. They were historically developed by the Court of Chancery (Equity) to provide justice where the Common Law remedy (money) was simply inadequate.

2.1 Purpose and Nature of Equitable Remedies

• Discretionary: The court is not obliged to award them. They are only awarded if the judge believes it is fair and just in the circumstances.
• Key Purpose: To achieve justice where a monetary award would be meaningless (e.g., forcing the sale of a one-of-a-kind item).

The equitable maxim applies: "He who seeks equity must do equity" (i.e., the claimant must behave fairly themselves).

2.2 Specific Performance

Specific Performance is a court order compelling the breaching party to carry out the exact promise they made in the contract.

When is Specific Performance Awarded?

It is only granted when damages (money) would be an inadequate remedy.

• Goods that are Unique: Contracts for the sale of land or property (because every piece of land is considered unique) or for the sale of rare goods (e.g., an irreplaceable antique or piece of art).

Limitations on Awarding Specific Performance

Specific performance will generally not be awarded in the following circumstances:

1. Personal Services: The courts will not force a person to perform a personal service (like singing, acting, or working). This would be too close to slavery or forced labour and would be hard to supervise.
2. Constant Supervision: If the contract requires constant monitoring by the court (e.g., a contract to run a business over many years), the court will refuse the order.
3. Impossibility: If performance is physically or legally impossible.
4. Lack of Mutuality: If the contract could not have been enforced by specific performance against the other party (e.g., enforcing a contract made by a minor).
5. Hardship: If the order would cause extreme, undue hardship to the defendant.

Analogy: If a supplier fails to deliver a standard box of pencils (damages will suffice, just buy more), you get damages. If a gallery fails to deliver the only known painting by a specific Renaissance master, you get specific performance (because money won't buy that exact item elsewhere).

2.3 Injunctions and Rescission

A. Injunctions

An Injunction is a court order that generally directs a party not to do something.

• Prohibitory Injunction: An order forbidding a particular act.
  • Example: Stopping a former employee from revealing trade secrets to a competitor (breach of a restrictive covenant in their employment contract).
• Mandatory Injunction: An order compelling the party to undo something they have already done (much rarer in contract law than prohibitory).
• Interlocutory Injunction: A temporary injunction granted before the full trial to preserve the status quo.

Limitation: Courts must be careful that an injunction doesn't indirectly force the defendant to perform a contract for personal service that would have been denied specific performance (e.g., stopping an employee from working *anywhere* else would be seen as indirectly forcing them to work for the original employer).

B. Rescission and Specific Restitution

Rescission means undoing the contract entirely and restoring the parties to the position they were in before the contract was ever made (the status quo ante).

• While commonly used as a remedy for vitiating factors (like misrepresentation), it effectively discharges a contract by wiping it out retroactively.
• Specific Restitution: This is part of the rescission process, requiring the return of specific property or goods that were transferred under the contract.

Limitation: Rescission is not available if it's impossible to restore the parties to their original positions (e.g., if the goods have been consumed or sold to a third party).

2.4 Evaluation of the Use of Equitable Remedies

The equitable remedies are valuable because they ensure that justice is achieved in situations where money simply cannot fix the problem. They focus on fairness rather than just finance. However, their discretionary nature means they introduce a degree of uncertainty into the law, as the outcome depends heavily on the judge's view of the 'clean hands' of the claimant and the overall fairness of the situation.