Remedy for breach of contract

Introduction

The main remedies available for breach of contract are:

• damages
• specific performance
• injunction, and
• rescission

The latter three options are only available at the discretion of the courts, as discussed in greater detail later.

Damages

Damages are a common law remedy. They are available as of right for breach of contract. They are intended to be compensatory rather than punitive.

Liquidated damages and penalty clauses

Where a contract provides for the payment of a fixed sum on breach, it may either be a liquidated damages clause or a penalty clause.

Liquidated damages are a genuine pre-estimate of the expected loss. The amount stated is the amount of damages claimable. The clause is enforceable by the court.

 A penalty clause threatens large damages for breach. The amount is often very large in relation to the expected loss. It is unenforceable.

A clause is presumed to be a penalty clause if:

• the stipulated sum is extravagant in comparison with the maximum loss that could be incurred
• the same sum is payable in respect of one or more breaches, both trifling and serious
• the sum stipulated is larger than the amount which would actually be payable if the contract were performed.

Assessment of unliquidated damages

Where the contract does not make any provision for damages, the court will determine the damages payable. These are known as unliquidated damages.

There are two factors to consider in determining the amount of unliquidated damages:

• remoteness of loss (i.e. what losses can be claimed for?) and
• measure of damages (i.e. how much are those losses worth?).

Remoteness of loss

Damages cannot not be recovered for all losses suffered. Some losses are too remote.

A loss is not too remote:

• if it arises naturally from the breach (general damages or normal loss)
• it may reasonably be supposed to be within the contemplation of the parties, at the time they made the contract, as a probable result of the breach (special damages or abnormal loss).

Measure of damages

The measure of damages is the amount which will put the claimant in the position he would have been in had the contract been properly performed.

This is sometimes described as damages for loss of bargain.

It is particularly difficult to measure damages in cases involving building contracts as there are two ways in which the damages could, in theory, be measured:

1. the damages could be the difference in value between the building as it has been completed and its value if it had been properly completed, or
2. the cost of rebuilding so that it meets the required specifications.

The usual measure of such damages is the cost of repairing the faulty work. However, this may not be the case where the costs of remedying the defects are disproportionate to the difference in value between what was supplied and what was ordered.

Reliance damages

Reliance damages enable the claimant to recover compensation for expenses incurred in performing their part of a contract before its breach. Where applicable, they are given in place of damages for loss of bargain; the claimant cannot receive both.

Equitable remedies

Equitable remedies are only available at the discretion of a court. They are not granted if:

• damages are an adequate remedy
• the claimant has acted unfairly (i.e. he who comes to equity must come with clean hands)
• the order would cause undue hardship
• the order would require the constant supervision of the court
• there is undue delay in seeking the remedy (i.e. delay defeats the equities).

Equitable remedies include:

• specific performance
• injunction, and
• rescission.

Specific performance

This is an order of the court that requires someone to perform a specific act. This usually relates to the terms of a contract. This is often used as the remedy for the sale of land where the seller refuses to transfer the title.

Injunction

This is another court order that requires someone either to do or to refrain from doing specific acts. They are commonly used to stop parties from breaching contracts in the first place. Failure to comply with an injunction can lead to criminal or civil penalties.

Rescission

This has been defined as the 'unmaking' of the contract. The contract is effectively dissolved and the parties returned to their pre-contractual positions.

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