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Damages in Contract Law

Damages in Contract Law:

In contract law, damages are a legal remedy available for breach of contract. Essentially, it is an award for damages to place the injured party in the position they would have been had the contract actually been performed. Damages is subject to the application of the rules of causation, remoteness and a duty to mitigate loss.


This limits a person's ability to recover damages to only those which were actually caused by the defendant's breach. If the claimant cannot prove that the defendant's breach caused the loss then action for breach of contract fails. The "but for" test usually applies-i.e. would the claimant have suffered the loss but for the defendant's breach of contract?

Bank of Credit and Commerce International v Ali


A claimant may only recover losses which may reasonably be considered as arising naturally from the breach. (Hadley v Baxendale) If the but for test is satisfied, the defendant may still escape liability on the ground of remoteness. The claimant does not necessarily obtain compensation for all loss caused by the defendant. Some of the claimant's loss may be too remote from the defendant's breach to hold the defendant liable to compensate.

Duty to mitigate loss

Essentially, the claimant is under a duty to take reasonable steps to reduce their loss.

Expectation interest : This puts the aggrieved party in the position he would have been in had contract been properly performed.

Reliance interest : This puts the aggrieved party in the position as if they had not relied on the contract.

Restitution interest : party in breach has to "return" what they are not entitled to i.e. what was received or gained from the breach.

Non-Pecuniary Loss: This is loss that is not financial (pain, distress, loss of reputation etc.). While financial loss is always recoverable, this type of loss is restricted.

Contributory Negligence: This is the claimant's contribution to the loss through unreasonable conduct before the defendant's breach.

Liquidated Damages

A contract will often provide in advance what damages should be payable for particular types of breach. Parties are free to "liquidate" the damages payable in the event of breach which creates certainty in the contract.

(Dunlop Pneumatic Tyre Co v New Garage & Motor co.)

Action for Agreed Sum

This is when one party claims remuneration specified in the contract. This is a very common action for breach of contract because the promise is stipulated in the contract if performance is not performed.

Specific Performance

This is an order to perform a primary obligation. If a person does not, they will be in contempt of court. This is the most effective method of protecting the claimant because the award is in the court's discretion- won't be awarded if damages would be an adequate remedy. Historically, it was seen as supplementary-specific performance is still the exception; there must still be a good reason to grant it:

Where damages inadequate, the court will still refuse specific performance in

the following situations:

1. Specific performance would cause severe hardship on the defendant

2. The C ontract was obtained by unfair means not strong enough to invalidate the contract

3. There is inadequacy of consideration and another factor (for example: fraud or mistake)


There are two types of injunctions:

1. Prohibitory Injunction: it restrains the defendant from future breaches.

2. Mandatory Injunction: it orders the defendant to undo past breaches.

à Like specific performance, an injunction is an equitable remedy and is thus in the discretion of the court.

Certain Contracts are never enforceable:

1. Contracts involving personal service

2. Contracts requiring constant supervision

3. Contracts that are too vague

4. Gratuitous promises

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