In English law, the principle of awarding damages in a breach of contract case serves to compensate the injured party for losses suffered due to the failure of another party to fulfill their contractual obligations. This article delves into the concept of a contract for damages, addressing common scenarios, how damages are calculated, and key considerations under contract law.
What is a Contract for Damages?
A "contract for damages" refers to the legal framework under which a party to a contract can claim compensation when the other party breaches the agreement. When someone enters into a contract, they implicitly or explicitly agree to perform specific obligations. If they fail to perform the contract as agreed—whether by refusing to pay, delivering defective goods, or failing to deliver goods at all—they may be held liable for damages.
Key Principles of Damages in English Law
Under English law, damages for breach aim to place the injured party in the same position they would have been in if the contract had been properly performed. This principle ensures that the claimant is not unjustly enriched but is compensated fairly for their loss. Common scenarios where damages are sought include:
A party fails to deliver goods as promised.
The goods or services delivered do not meet the agreed standards.
A party refuses to pay the agreed sum despite the other party having performed the contract.
Types of Damages for Breach of Contract
Compensatory Damages
The most common form of damages.
These address the actual amount of loss suffered as a result of the breach.
Liquidated Damages
Pre-agreed damages specified in the contract.
Useful in cases where the losses are difficult to prove or quantify.
Consequential Damages
Cover losses that arise as an indirect result of the breach, provided these were foreseeable by both parties when the contract was formed.
Nominal Damages
Awarded when there is a breach but no substantial loss is proven.
The Role of Liquidated Damages Clauses
A liquidated damages clause is a provision in a contract where the parties pre-agree on the amount of compensation payable in the event of a breach. These clauses are particularly useful in cases where the amount of loss is difficult to prove.
For example:
A software company enters into a contract to deliver a product by a specific date. If it fails to deliver goods on time, the client may incur substantial losses. A liquidated damages clause can simplify matters by specifying an agreed amount the breaching party must pay.
English law generally upholds these clauses, provided the amount agreed upon is a genuine pre-estimate of the potential loss and not a penalty.
When is a Claim for Damages Made?
A claim for damages can arise when one party breaches the contract, causing a financial loss to the other party. Common breaches include:
Delivering goods of substandard quality.
Missing delivery deadlines.
Refusing to pay for goods or services already delivered.
The injured party can then claim for compensation to cover the loss suffered. For example:
A supplier who fails to deliver goods might put the claimant in a position where they cannot fulfill their obligations to their own customers. The result of the breach could lead to a financial loss that the claimant seeks to recover.
Factors Courts Consider in Awarding Damages
When determining an award of damages, courts in England assess several factors:
Causation
Was the loss directly caused by the breach?
Foreseeability
Could the breaching party have reasonably foreseen the loss at the time the contract was formed?
Mitigation
Did the injured party take reasonable steps to minimize the loss?
Remoteness
Courts will not award damages for losses deemed too remote from the breach.
For example, if a contractor fails to deliver goods, and the claimant takes no action to source an alternative supplier, they may be deemed to have failed in mitigating their losses.
The Burden of Proof in Contract Damages
Proving a loss suffered due to a breach of contract can sometimes be challenging. The burden lies on the claimant to demonstrate:
The breach occurred.
The breach resulted in a specific amount of loss.
The loss is directly attributable to the breach and not due to unrelated factors.
If the losses are difficult to prove, claimants might rely on expert evidence or contractually agreed provisions like liquidated damages.
Examples of Breach Scenarios
Commercial Transactions
A retailer places an order for winter jackets but receives the shipment after the season ends. The financial loss includes unsold inventory and missed profits.
Service Contracts
A cleaning service provider refused to pay after the cleaning team completed their work as per the agreement. The cleaning company can claim the contract price and any related costs.
Construction Delays
A contractor fails to deliver goods critical to completing a building project on time. The client incurs penalties from their end-client and seeks damages to cover the loss.
How Pre-Agreed Terms Help Reduce Disputes
Including well-drafted terms in contracts—such as clear definitions of performance standards, timelines, and pre-agree clauses like liquidated damages—can reduce disputes. When the obligations and potential consequences of non-performance are clear, both parties are more likely to adhere to the agreement.
The Importance of Expert Advice
Navigating claims for damages often requires professional advice, especially when the losses are significant or difficult to prove. A solicitor experienced in contract law can help:
Assess the strength of your claim.
Quantify the amount of loss effectively.
Advise on whether to pursue litigation or settle out of court.
A "contract for damages" ensures that the injured party for losses sustained due to a breach is fairly compensated. Under English law, damages aim to restore the injured party to the position they would have been in had the contract been properly performed. From compensatory damages to liquidated damages, understanding your rights and obligations under a contract is critical to avoiding disputes and safeguarding your financial interests.
If you are involved in a contractual dispute or wish to draft a robust agreement, seeking legal advice can be invaluable. By understanding your options and obligations, you can minimize risks and ensure your interests are well protected. Our contract lawyer is here to help you.
