Chapter 13 in essence

1. The most common and widely available remedy for breach of contract is expectation damages aimed at putting the claimant in the position, so far as money can do, that they would have been in had the contract being duly performed. It is not to punish the contract-breaker and, subject to points 7–9 below, not normally to protect the claimant’s reliance or restitutionary interests.

2. Expectation damages are measured:

  1. usually by the ‘diminution in value’: the difference between what the claimant was entitled to and what he actually received.
  2. alternatively, damages may be measured by the ‘cost of cure’ if it is not unreasonable to do so, taking into account:
    • the claimant’s non-pecuniary purpose in contracting;
    • their intention to cure; and
    • the proportionality between the cost of cure and the benefit cure would confer.
  3. Where there is no diminution in value and the cost of cure is unreasonable, but the claimant has suffered non-pecuniary loss (his ‘consumer surplus’), an award can be made for the claimant’s ‘loss of amenity’ as in Ruxley v Forsyth.

3. Whilst damages are readily available for pecuniary loss of expectation, the general rule is to bar damages for non-pecuniary loss unless: (i) a distinct and important part of the contract was the claimant’s enjoyment or alleviation of distress; (ii) the loss was consequent on physical injury or inconvenience; or (iii) the claimant’s loss of reputation, other than from unfair dismissal, impaired his employment prospects.

4. Where contracts are made for the benefit of third parties, the promisee is generally regarded as suffering no compensable loss on breach. However, the ‘broad ground’ in McAlpine v Panatown may provide a basis for awarding the promisee substantial damages to protect his loss (including non-pecuniary) from the defendant’s breach.

5. The claimant may also recover their consequential losses so long as they are not too speculative or remote. Loss is not too remote if the defendant contemplated or ought reasonably to have contemplated, at the time of contracting, the type of loss suffered from his breach as a serious possibility flowing:

  1. from the ordinary course of things (subject to the understanding of the industry); or
  2. from his knowledge of the claimant’s special circumstances.

Unless the circumstances show that the defendant did not ‘assume liability’ for the claimant’s loss on this basis, but on some other basis.

6. The claimant must minimise avoidable losses:

  1. they must act reasonably to mitigate their loss;
  2. loss is normally assessed at the time of breach, the earliest point that the claimant’s mitigation can be expected; and
  3. their claim may be reduced if their loss is exacerbated by their own unreasonable conduct (contributory negligence) or
  4. by other (intervening) causes after breach.

7. The claimant cannot opt for reliance rather than expectation damages if he has made a bad bargain (ie his costs of performance would exceed their expected gains). Since expectation damages are preferable where they have made a good bargain, the claimant can only opt for reliance damages where they cannot be shown to have made a bad bargain but their expectations are too speculative.

8. Instead of expectation damages, the claimant can claim restitution of the benefits conferred on the defendant in performance of the contract where the contract is terminated for breach (total failure of consideration is required for money claims).

9. The claimant cannot normally claim the contract-breaker’s gains from breach, although Attorney-General v Blake has allowed this in exceptional cases where contract remedies are inadequate and the claimant has a ‘legitimate interest’ in preventing the defendant from profiting by their breach. The award is discretionary and its quantum is said to depend on a wide range of factors with Blake’s full account of profits at one extreme.  However, subsequent pronouncement of SC in One Step makes a future award very unlikely.

10. In One Step, the SC narrows the scope of negotiating damages (preferable nomenclature to ‘Wrotham Park damages’) as an alternative measure of compensatory damages for breach of contract. It is only available:

  1. as damages in lieu of specific performance or injunction;
  2. where the breach of contract involves the infringement of the claimant’s proprietary right; damages may be awarded based on the ‘use value’ of the property concerned; or
  3. where the contractual rights breached are analogous to proprietary rights, being: ‘of such a kind that its breach can result in an identifiable loss equivalent to the economic value of the right, considered an asset, even in the absence of any pecuniary losses which are measurable in the ordinary way’.

11. Contract law’s protection of the claimant’s performance interest is qualified insofar as:

  • the cost of cure may be denied;
  • damages may be reduced by reference to remoteness, mitigation, intervening causes, contributory negligence, and the time for assessing loss; and
  • damages may be denied where the loss is non-pecuniary and where performance is for a third party’s benefit.

However, moves to increase the protection of the claimant’s performance interest are evident in:

  • the increasing recognition of non-pecuniary loss;
  • the ‘broad’ ground in McAlpine v Panatown; and
  • the exceptional recognition of an account of profits, and negotiating damages.
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